[A-List] WTO and Agriculture

[Bill Totten <shimogamo@xxxxxxxxxxxxx>]

By Devinder Sharma

ZNet Commentary (May 10 2004)

The United States and the European Union are at it again.  After
browbeating, coaxing and luring several leading players among the
developing countries back to the negotiating tables, the entire exercise
is back to square one - the rich and industrialized countries refuse to
move even an inch on the contentious issue of massive domestic support
they continue to dole out to their farmers.

The US Trade Representative Robert Zoellick has already reiterated his
call for the total elimination of all export subsidies but refuses to
mention the equally and in lot many ways more harmful and pernicious
protection that is granted through the 'green box' mechanism.  Equally
cunning, EUs Agricultural Commissioner Franz Fischler told a group of
WTO Ambassadors at the re-launch of the negotiations at Geneva in
mid-April: "the 'green box' is by definition non-trade distorting and
therefore there is nothing to be cut.  If some clarification is
necessary, it is a technical issue to be discussed by the experts.
However in principle, the 'green box' has to be left untouched."

The 'green box' covers subsidies that are expected to cause minimal or
no trade distortions.  Such subsidies have to be publicly funded but
must not involve price support.  In simple words, it includes direct
income support to European, American and Japanese farmers, which is
formally decoupled from production levels and prices.  'Green box' also
includes subsidies granted in the name of environment protection and
preservation, and for agricultural research and development.

In reality, these subsidies are termed 'non-trade distorting' because
only the rich countries have the capability to provide such support.
Knowing that the developing countries do not have the financial
resources to pose any threat to the protection provided through 'green
box', the US and EU are refusing to open up the can of worms.

With mainline economists and many European and American NGOs justifying
the 'green box' measures as least trade distorting, and that questions
the very foundations of the trade economics that prevails, trade
negotiators use the unsound economic arguments to push through the
agenda. Developing countries are left seeking an overall cap on all the
support programmes, so that the industrialized countries do not agree to
cut some subsidies, and then shift them to the 'green box'.

The G-20 (group of countries that stood up on the issue of agriculture
at Cancun Ministerial) too refrained to drive home the point.  Instead
of standing firm on the removal of domestic support before any further
negotiations are opened, many member countries are making contradictory
statements, not realizing that maintaining a status quo on domestic
support through the 'green box' (and to some extent through the 'blue
box') will be catastrophic for millions of farmers in their own
countries.  Third World farmers have already been hit badly by cheap
agricultural imports and unfair rules.  And yet, their respective
governments are not standing up collectively to demand removal of all
kinds of agricultural subsidies as a pre-requisite to restarting
consultations.

When all political coercion and economic arguments fail to defend the
huge domestic support, the big players are ready to even use 'moral' and
'ethical' concerns to justify the illegality of maintaining these
subsidies.  At the ongoing dispute settlement case against sugar export
subsides, brought up by Australia, Brazil and Thailand, the EU has
invoked a "good faith" defense by arguing that in negotiating its export
subsidy reduction schedule under the Uruguay Round, it did not include
cut in export subsidies for certain kinds (based on quality) of sugar.

Earlier, when the developing countries had wanted sugar subsidies to be
discussed, the EU stand was that sugar was off the negotiating table.
The same answer came whenever the developing countries wanted the dairy
subsidies to be examined.  But when it comes to domestic support on
sugar and dairy subsidies, developing countries are asked to keep their
hands off!

Developing countries need to worry about the "green box" subsidies
because it actually operates like 'income insurance' scheme for the
farmers in the industrialized countries.  These farmers remain insulated
from the volatility of the global markets.  Whether the international
prices slump or go on a meteoritic rise, they remain unruffled, as their
life style has already been protected by the state subsidies.  Take the
case of US farmers. "It's a welfare check", a Chicago Tribune report
sometimes back quoted Robert Johnson, 57, who farms 500 acres of corn
and soybeans.  "I don't like welfare and I know other people don't
either - but you have to take it to survive".  He said prices for his
crops are too low for him to make a living.  He drives a truck at night
and his wife drives a school bus to make ends meet.

In Illinois alone, the average income of a farmer before President
George Bush came out with the notorious Farm Bill in 2002, averaged at
US $37,000 of which, US $16,000 came from government farm subsidies.
These subsidies reportedly help farmers meet their current debt
liabilities.  In the two years of 2000-02, direct government payments to
farmers in America rose 86 percent to reach US $22.7 billion, and have
gone even higher this year.

Whether it is cotton, beef, sugar, or even tomato paste, the brunt has
to be borne by the developing country farmers.  And yet, we are always
told that the market is the best mechanism to ensure efficiency.  The
market, in reality, is meant only for the developing country farmers.
For the farmers in the developed countries, the governments provide the
welfare check.  The market argument is only used to force open the
developing countries to accept the subsidized produce.

Let us move to another part of the world.  Monica Shandu was adjudged
the best small-scale sugarcane grower for 2001 in the Entumeni hills of
South Africa.  She farms four acres with sugarcane, and the harvest
brings her an equivalent of US $200.  Despite being a progressive farmer
with high productivity levels, Monica lives in penury barely managing to
survive against all odds.

Los Angeles Times reported that far away in France, Dominique Fievez
cultivates his farm of 400 acres with sugar beet.  His is an average
farm, which remains untouched by the price fluctuations in international
market since 1984.  The reason: Fievez receives a huge subsidy support
under the European Union's Common Agricultural Policy at the rate of US
$23,000 for each of the 33 acres that he grows with beet.

Such heavy subsidies not only depress the international sugar prices
making it difficult for developing countries to export but also insure
French farmers against any downslide in their incomes.  When faced with
a drop in prices, Minica Shandu on the other hand will first cut back on
sugarcane and then abandon agriculture and move out into the urban slums.
With her livelihood lost, she either lands in a menial job or the
chances are she would end up committing suicide.

Whether it is sugarcane, wheat or coffee the result is the same.  Far
away from South Africa, Indian farmers in the southern state of
Karnataka, hit by low coffee prices and a loss of markets, have
reportedly started taking their own lives.  The French farmers on the
other hand can go off on a cruise in the Atlantic, and return after the
holidays to be sure to milk the 'income-generating' farms.

In other words, the rich and developed countries have perfected a
well-established state intervention programme to ensure that their
farmers get a minimum level of income.  Markets therefore have no
meaning for the developed country farmers.  These farmers, whether they
live in the US, France, Germany, Switzerland, Japan or Australia, are
financially insured.

It is only the poor farmers in the developing countries who are being
forced to face the vagaries  and cruelty of the markets. For the rich,
the scandalous cover of "green box" subsidies protects direct payments.
For almost three billion farmers in the developing world, even their own
governments (and of course the economists), are refusing to address the
consequences of the grossly uneven playing field to which they are being
exposed.

That the developed countries are not willing to re-open the "green box"
first became evident when the concept of a 'development box' for the
developing countries was proposed.  It was backed up by some large
western NGOs who too were trying to protect the home turf.  Many
developing country NGOs, receiving funding support from these western
outfits, too had begun to chant the mantra saying that export subsidies
were the only culprit.

Then came the 'multi-functionality' of agriculture, a term coined by the
EU to protect its massive agricultural support, which actually acts as a
smokescreen for protecting domestic subsidies.  It doesn't mean this
writer is against income support to western farmers, but it is unfair to
use faulty economics to pamper one class of farmers in the developed
countries at the cost of millions of poor and subsistence farmers in the
majority world.

Economists tell us that elimination of agricultural subsidies (and that
includes the 'green box' payments) actually changes nothing.  Land has a
greater influence and the withdrawal of subsidies would mean that
farmers change the cropping pattern.  Such a change doesn't have a
significant impact on reducing the global prices and therefore there is
no economic sense in phasing out agricultural subsidies.  Several
American institutes and European university studies now point to the
same conclusion.

The reason is obvious.  It is not economics that drives the analysis but
politics, and the line between economics and political economy has now
blurred.  Such analysis is the outcome of a faulty prism being used to
actually protect the subsidies.  Let me explain.

For an Indian rice farmer, for instance, it doesn't matter what the
prevailing international price is.  He doesn't know what constitutes
competitiveness in a globalised world.  But what shocks him is that
despite having one of the lowest cost of production for rice in the
world, the Indian government refuses to pay him an assured price on the
plea that the 'minimum procurement price' that he is supposed to get has
actually become a 'maximum support price' since rice is available at a
much power price in the international market.  The government therefore
has frozen the rice procurement price at the 2002 level of Rs 6.10 for a
kilo of rice paddy.

In reality, an average Indian farmer produces a kilo of rice at Rs 6.10.
Taking the prevailing conversion rate of Rs 43 for a US dollar, each
dollar would buy roughly seven kilos of rice.  Can the economists tell
us where in the developed world can you get seven kilos of rice for a
dollar? How come than the Indian farmer is then priced out of the market?
In that case, isn't there something terribly wrong with the way
economics is dictating the trade agenda?  Even in the retail market, a
kilo of rice is available for Rs 10, which means you can get more than
four kilos for a dollar.  On the other hand, look at the retail market
in the UK.  A kilo of rice is available at 2.54 pound sterling, good
enough to buy 20 kilos of rice in India.

And yet, the Indian farmer does not receive any income support.  His
income is not secured, and the growing volume of 'green box' subsidies
merely forces him to abandon farming and migrate to the urban centers.
Domestic support in the developed countries is leading to the newly
emerging phenomena of agriculture displacements in the developing
countries.  In the years to come, developing countries will witness an
upsurge in the displacement of farming populations from their only
economic possession - meager land holdings.

* The G-20 countries, therefore, must strive to bring the 'green box'
subsidies to zero before any meaningful talks on agriculture trade are
re-initiated.  There is no other way out.

* G-20 must use the expiry of the 'peace clause' to fight the issue of
agricultural subsidies. Developing countries should not forget that
whether it was the obligations under the Trade-Related Intellectual
Property Rights (TRIPs) or the removal of quantitative restrictions (QRs),
the US and EU had never allowed any exemption in 'good faith'.

http://www.zmag.org/sustainers/content/2004-05/10sharma.cfm

Devinder Sharma is a New Delhi-based food and trade policy analyst.  Responses can be emailed to dsharma@xxxxxxxxxxxxxxx .


Please also see these related essays:

"Wheat Biopiracy" by Vandana Shiva, ZNet Commentary (April 24 2004)
http://www.zmag.org/sustainers/content/2004-04/22shiva.cfm

"India becoming a GM-trashbin" by Devinder Sharma, ZNet Commentary (April 25 2004)
http://www.zmag.org/sustainers/content/2004-04/21sharma.cfm

Bill Totten,  http://www.ashisuto.co.jp/english/