Interview: Crowded Lives
Activists: Life With Brian
Industrial: National Focus
Unions: If These Walls Could Talk
Economics: Beating the Bastards
Media: Three Corners
History: The Brisbane Line
Trade: The Dumping Problem
Review: Frankie's Way
The Locker Room
Spicey and Tart
Tony and Pauline
PNG Bags Plastic
Fighting Words Craig Emerson
The Dumping Problem
Extracted from Running into the Sand -
- a report from Oxfam-Community Aid Abroad
Some trade negotiators suffer from a short memory. Many developing countries agreed to the launch of a new trade round on the clear understanding that it would produce rules aimed at eliminating export subsidies. Pascal Lamy, the EU trade commissioner, has a different interpretation of the Doha declaration: "We cannot today say that we can eliminate export subsidies...our present level of reform doesn't allow us to say that we can do it."
These comments bear testimony to the lamentable state of agricultural reform - and to the prevalence of double-standards in world trade. Agricultural dumping by rich countries is a major cause of poverty in developing countries. In the absence of new rules to prohibit this practice, no 'development round' agreement will be worth the paper it is written on.
Three-quarters of all people surviving on less than $1 a day in developing countries - a population of around 900 million - have one thing in common: they live and work as small-scale farmers in rural areas. Agricultural growth based on smallholder production is one of the most powerful forces for poverty reduction. It is also a vital source of foreign exchange for a large group of developing countries, often accounting for more than half of total export earnings. It follows that prices for agricultural goods have a fundamental bearing on rural poverty and economic growth prospects for a large group of countries.
Rich country agricultural subsidies systematically undermine market opportunities for smallholder farmers. The fundamental problem is this: each year, industrialised countries provide over $1bn a day in support to agriculture - six times the amount they spend on aid. Aid to Africa, the world's poorest region, is worth about two week's worth of farm subsidy spending. To put the figures in context, the support provided to agricultural producers in rich countries is equivalent to more than the total income of the 1.2bn people in the world living on less than $1 a day.
Support to agriculture in the North aimed at achieving legitimate social and environmental goals may be justified. The problem is that most Northern subsidies are provided in ways that support production, generating huge surpluses. Consumers and tax-payers pay the bill for the system that generates these surpluses, and then pay once again to subsidise their exports at prices that bear no relation to the costs of production. This cycle of over-production and export dumping undercuts developing country farmers in global and local markets, driving down household incomes in the process.
Between them, the EU and the USA account for almost two-thirds of industrialised country farm subsidies. Having promised to cut agricultural support in the last round of world trade talks, both of the 'farm subsidy superpowers' have increased it.
The sugar policy of the EU is one of the worst cases of export dumping. Europe produces sugar at three times the price of more efficient countries, such as Malawi and Zambia. High tariffs and other price-support measures keep competitors out. This creates production incentives that generate surpluses of seven million tonnes a year, making the EU the world's largest exporter - its exports are estimated to lower world prices by a fifth. They also push lower-cost producers out of regional markets. Meanwhile, restrictions on Mozambique's imports into the EU mean that the country loses almost $100m a year - almost as much as the country receives in European aid.
Sugar is not an isolated case. Subsidised EU exports of dairy produce have caused serious problems for a group of countries. When India liberalised its dairy market in 1997, the country was promptly flooded with EU surpluses. Smallholder dairy farmers suffered serious losses. At the time, dairy subsidies in Europe were equivalent to over 40 per cent of the value of output.
The United States
US trade negotiators are vocal critics of the Common Agricultural Policy (CAP). They like to emphasise the benefits of open markets and 'level playing fields' in world agriculture. However, as in the EU, their trade policy rhetoric rests uneasily with the realities of agricultural policy.
Take the case of cotton. When it comes to harvesting subsidies, America's 25,000 cotton farms are first among equals. They receive over $3bn a year in support. Because the USA is the world's largest cotton exporter, with over one third of the world market, that support has global market implications. According to the International Cotton Advisory Committee, these subsidies lower world prices by some 25 per cent. Farmers in Africa suffer the consequences.
Some 10-11 million farmers in West Africa alone depend on cotton as a major source of income; the crop is a major export earner for countries such as Mali, Burkina Faso, and Benin. Lower world prices associated directly with US subsidies cost the region around $200m annually. Stated differently, US farm subsidies reduce the GDP of both Mali and Burkina Faso by around one per cent. Human costs for households are more difficult to capture. Lower world prices for cotton mean worsening nutrition, children being taken out of school, and an inability to meet health costs. For Benin alone the world price reduction associated with US subsidies is estimated to push around one quarter of a million people below the poverty line.
Dumping on Mexico
It is not just in export markets that developing country farmers face unfair competition. Their local markets are often flooded with cheap imports from rich countries, undermining production and reducing household incomes. IMF-World Bank import liberalisation
programmes have helped to reinforce this unequal competition. In Africa, EU dumping of dairy produce and cereals has pushed farmers out of local markets and reinforced dependence on imports.
But the problems are not confined to low-income countries. Under the North America Free Trade Agreement (NAFTA), Mexico has been progressively liberalising imports of corn from the USA. The country is now the largest export market for US corn. Meanwhile, the domestic corn sector is in a state of acute crisis. Household incomes are in terminal decline and corn farmers are migrating in an effort to escape rural poverty. Nowhere is the crisis more acute than in the southern 'poverty-belt' state of Chiapas. There are around 250,000 households growing corn in the state, and three-quarters of them now live below the poverty line.
The US Department of Agriculture (USDA) points to the Mexican case as an illustration of the comparative advantage of US agriculture, and as a triumph of the open market. The reality is more prosaic. In 2000, USDA paid America's corn farmers $10bn in subsidies - roughly ten times the total Mexican agricultural budget.
Oxfam estimates the implicit export subsidy used in dumping US surpluses in Mexico at between $105m and $145m. This figure is of the same magnitude as the total income of all of Chiapas' corn farmers. In other words Mexico's poorest farmers are competing not against corn farmers in the USA, but against the world's richest treasury - and that competition has only one possible outcome.
One of the supreme ironies in recent agricultural trade negotiations has been the US decision to file a case against Mexico, challenging the imposition of anti-dumping duties on rice imports from America. The Mexican government's actions were prompted in part by concerns over the problems faced by small-scale rice farmers in states such as Campeche and Veracruz, and by threats to the livelihoods of the estimated three million people who work as labourers in the rice sector.
The USA has expressed outrage at the Mexican government's actions, claiming that it represents a violation of free market principle. As in other sectors, the facts tell a different story. According to the OECD, US government support to the American rice sector represented around one half of the value of output in 2001.
Who wins in the farm subsidy-fest?
As for protectionism in manufacturing, Northern governments often justify agricultural support by reference to the interests of poor populations in their own countries. The French minister of agriculture likes to present the CAP as part of a European 'social model'. In the USA, the Bush administration defends high levels of support by reference to the interests of small family farms.
Back in the real world, farm-subsidy systems are governed by a different principle: the bigger you are, the more you get. In 2001, the poorest 50 per cent of US farms received five per cent of government agricultural payments; the richest seven per cent accounted for half of total payments. In the EU, around five per cent of farms receive half of total CAP subsidies. Just 870 farms in Britain receive subsidy cheques in excess of €200,000, accounting for ten per cent of total payments. The reason for such skewed distribution patterns is that subsidies are linked to current output, or to land size and past production.
Oxfam has compared the distribution of farm subsidies in the EU and the USA with income distribution in Brazil, one of the world's most unequal countries, using the Gini coefficient. The results are instructive. The Gini coefficient for Brazil is .60, compared with .77 and .79 for EU and US subsidies respectively.
Farm subsidies generate windfall gains for assorted Texan cotton barons, large-scale cereals farmers in the Paris Basin, and East Anglian sugar producers. At risk of understatement, these are not plausible candidates for social welfare payments. Large sugar farms in Britain receive subsidy handouts of £60,000 (€86,057) each, and major corporate interests - such as British Sugar - also capture a large share of the benefit. In the USA, ten corporate cotton farms shared $17m in 2001. Similarly, the major beneficiaries of the CAP in France include some of its richest farmers, while one quarter of French farms receive nothing at all.
Corporate welfare for the rich farmers and agribusiness is financed by taxpayers and consumers. In the EU, they share the burden equally. The overall effect is that an average EU family pays over $1000 to finance CAP payments. While most Europeans might support in principle the idea of payments geared towards goals such as rural poverty reduction and environmental sustainability, there is little support for the current system of welfare for the wealthy. What is needed is a transition to a system of support that combines a commitment to social equity and less intensive production at home, with a commitment to avoid damaging the livelihoods of poor farmers in developing countries.
Ways ahead: the Cancun challenge
There are two requirements for a successful outcome at Cancun.
First, industrialised countries need to agree a clear - and short - timeframe for eliminating export subsidies. Second, they need to cut the production subsidies that generate surpluses and facilitate export dumping.
Prospects for achieving these goals are less than encouraging. Instead of grasping the opportunity to create a positive negotiating environment for Doha, the Bush administration's 2002 farm bill provides for an $8bn a year increase in spending. It links agricultural support more closely to production than previous legislation, guaranteeing continued surplus production and export dumping.
Never to be outdone when it comes to irresponsibility in farm policy, the EU has followed the lead of the USA. Under the reform package adopted by EU member states in June 2003, overall spending on the CAP will be maintained at current levels - around €50bn - adjusted for inflation, representing almost half of the current EU budget. Proposals from the European Commission to set a ceiling on payments to farmers were diluted by member states, ruling out significant redistribution. Most worrying of all, the new CAP deal will have little impact on export dumping. The dairy and sugar sectors, which between them account for two-thirds of direct export subsidies, have been left largely untouched.
Whatever their differences in agricultural policy, the EU and the USA have colluded in one area: the weakening of WTO rules. Under existing arrangements (which were written by the EU and the USA), governments can provide an unlimited amount of support under programmes deemed to be 'decoupled' from production - the socalled 'Green Box' arrangement. Both agricultural superpowers have repackaged their subsidies to take advantage of this provision, with the result that around half of US support is now exempt from WTO rules.
Such arrangements are of more appeal to WTO trade lawyers than to farmers in developing countries. Multi-billion dollar payments directed towards crops in surplus clearly act as export subsidies - and they equally clearly reinforce unfair trade. Other measures also slip through the extensive loopholes in WTO rules. For example, the USA operates a $7.7bn subsidised export-credit programme, and a foodaid programme that is distorted by commercial dumping objectives.
Yet these are not treated for WTO purposes as export subsidies. Developing countries are justifiably concerned that enforced import liberalisation in agriculture could have damaging implications for poverty and food security. Smallholder farmers in many countries are ill-equipped to cope with competition from imports, especially when prices are artificially lowered by subsidies. Under current conditions, market liberalisation is a potential prescription for the destruction of rural livelihoods, dependence on imports, and increased food insecurity. Unfortunately, both the USA and the EU see the WTO as a lever for opening agricultural markets overseas, while they retain subsidies at home.
The following are among the core requirements for an agreement on agriculture:
· A prohibition on all forms of direct and indirect export dumping. This should cover direct export subsidies, the export-subsidy component of direct payments, subsidised export credits, and food-aid programmes that facilitate commercial exports. The Cancun meeting should agree to a complete export-subsidy ban to be implemented within five years.
· An early harvest on cotton and other products of interest to developing countries.
African governments have called for the Cancun meeting to agree priority action on cotton, including a time-frame for phasing out all production subsidies and financial compensation in the interim period. 9 That proposal should be adopted at Cancun.
· New rules on domestic support. Binding rules should be agreed for reducing all subsidies that have an effect on production and international trade. Subsidised products should not be exported.
· Special treatment for developing countries. Developing countries should not have to liberalise agricultural imports.
There are good grounds to protect local agriculture in terms of long-run food security and poverty reduction efforts. This applies as much to middle-income developing countries as to low-income countries. The overarching objective should be to ensure that agricultural trade policies support wider rural development and poverty-reduction programmes. To this end, the WTO agreement should incorporate:
- a tariff-reduction formula that strongly differentiates between developed and developing countries, with no commitments on market access required from Least Developed Countries;
- provisions allowing developing countries to exclude specific products from liberalisation commitments and a safeguard mechanism to restrict market access in the event of import surges;
- measures to improve market access for developing countries, including duty- and quota-free provisions for low income countries, the reduction of tariff peaks and tariff escalation, and assistance to address supply-side constraints.
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