WTO and agriculture

The Great Trade Robbery and the neo-poor.

As expected, the United States and the European Union have arrived at a new accord, just ahead of the fifth World Trade Organisation (WTO) Ministerial meeting at Cancun from 10 to 14 September , which in letter and spirit lays out a detailed road map for what can be called the second phase of the "great trade robbery".

The new framework–a "common vision" rather than a detailed plan–is aimed at further destroying whatever remains of the strong foundations of food self-sufficiency in developing countries already wilting under the compound impact of the Agreement on Agriculture (AoA) which was reached in 1994 and which provided for the conversion from quantitative trade barriers to tariffs or tariff rate quotas, and for reductions in export subsidies and trade-distorting domestic support policies. For the small farmers and giant agribusiness alike in North America, Europe and the South Pacific, it will however be business as usual. Rich countries subsidise agribusiness by allowing them to buy very cheap, with the government then making up some of the differences with direct payment to the farmers.

The situation now borders on the absurd. The richest man in the United Kingdom, the Duke of Westminster, who owns about 55,000 hectares of farm estate, receives an average subsidy of 300,000 pound sterling as direct payments, and, in addition, gets 350,000 pounds a year for the 1,200 dairy cows he owns. In the US, recipients of agricultural subsidies in 2001 included David Rockefeller and Ted Turner. Little wonder then that the CNN has no time for the voice of the farm sector in developing countries.

It certainly is an unequal world, and perhaps the most debasing and demeaning of all the world's inequalities is the manner in which the cattle in the rich countries are pampered at the cost of several hundred million farmers in the developing world. It has now been worked out that the EU provides a daily subsidy of USD 2.7 per cow, and Japan provides three times more at USD 8, whereas half of India's 1000 million people live on less than USD 2 a day.

The complete impact on human lives–women and children in particular–and the resulting loss in livelihood security, and thereby the accelerated march towards hunger and destitution, cannot be easily quantified. Surging food imports have hit farm incomes, with severe employment effects in many developing countries. Unable to compete with cheap food imports, and in the absence of adequate protective measures, income and livelihood losses have hurt women and poor farmers the most. Farmers in the developing world seem to have become completely dispensable. They are the neo-poor.

Uncaring of the stark inequalities, the new agreement throws a stronger protective ring around the domestic producers in the richest trading block—the Organisation for Economic Cooperation and Development (OECD). Unmindful of the negative consequences inflicted with impunity, the knives are out once again to inflict more damage on the Third World. Cancun provides a perfect playground to arm-twist the developing countries into submission.

WTO : 'Progress' Report
An idea of what awaits the post-Cancun world can be gleaned from just a brief survey of the extent of exploitation that the WTO has already inflicted–through the first phase of trade robbery—on the poor and vulnerable ever since the Magna Carta for hunger, food insecurity and destitution was unleashed in January 1995. In the Philippines, agricultural export earnings were expected to increase by billions of pesos a year after 1994, generating 500,000 additional jobs a year in the country. Instead, traditional exports such as coconut, abaca and sugar have lost markets. Corn production suffered significant negative growth between 1994 and 2000, partly because of the arrival of cheaper subsidised grains. With incomes falling, the agricultural sector lost an estimated 710,000 jobs during the period, and another 2 million by the year 2000.

Corn: Trade liberalisation has already exposed developing country farmers to ruinous competition, driving down prices, undermining rural wages and aggravating unemployment. In the Philippines, the opening up of the corn market in 1997 reduced corn prices by one-third. At that time, US corn growers were receiving USD 20,000 a year, on average, in subsidies, while Filipino farmers in Mindanao had average income levels of USD 365. Likewise, between 1993 and 2000, cheap corn imports from US into Mexico increased eighteen times, leading to accelerated migration from rural areas to urban centres.

Coffee: In Central America—Colombia, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua–the price of coffee beans has fallen to just 25 percent of its level in 1960, and the region lost an estimated USD 713 million in coffee revenues in 2001. In these countries, traditionally dependent upon coffee exports, over 170,000 jobs were lost the same year with the loss in wages computed at USD 140 million.  The impact was also felt in sub-Saharan Africa, where Ethiopia and Uganda reported huge losses in export revenues. In 2000-01, Uganda exported roughly the same volume, but it earned the country USD 110 million, a steep drop from USD 433 million that it had notched five years earlier, in 1994-95.  In Ethiopia, export revenues dropped from USD 257 million to USD 149 million between 1999 and 2000.  Ironically, in January 2002, the EU and USAID warned of increased poverty and food insecurity in Ethiopia, not realising that much of the fault rests with their own policies.

In Vietnam's Dak Lak province, farmers who were solely dependent upon coffee are now categorised as being in the 'pre-starvation' stage. In India, coffee plantations have laid off over 25 percent of the workers in the southern states of Karnataka and Tamil Nadu. In Brazil, low coffee returns have resulted in increased unemployment and hunger. In Honduras, such has been the terrible impact that the World Food Programme reported in March 2002 that the coffee crisis, coupled with prevailing drought, had left some 30,000 farmers in the hunger trap, with hundreds of children so malnourished that they needed to be hospitalised. The rich subsidise their agriculture and dunp surpluses on the majority world, which is being fed the lie that poverty in the short-run will ensure long-term economic growth.

Cotton: In 2001, the 25,000 cotton growers in the United States received roughly USD 3.9 billion in subsidy payments, for producing a cotton crop that was worth only USD 3 billion at world market prices (One Arkansas cotton grower received as much as the combined annual earnings of 25,000 cotton farmers in Mali). Alone the US cotton subsidy is more than the gross domestic product of several African countries and three times the amount the US spends on aid to half a billion Africans living in poverty. In 2002, direct financial assistance by a number of exporting countries, including China, the European Union and the US, to the tune of 73 percent of the world cotton production, destroyed millions of livelihoods in West African countries (Benin, Burkina Faso, Mali and Chad).  India and Pakistan too have been forced to lower import duties, allowing a surge of cotton imports thereby pushing farmers out.

Dairy: In the dairy sector, the European Union's subsidised exports have hit the dairy industry in Brazil, Jamaica and India. Jamaican dairy producers have time and again spilt milk onto the streets, and the Indian dairy industry too has not been slow in complaining of export dumping. In 1999-2000, India imported over 130,000 tonnes of the EU's highly subsidised skimmed milk powder. This was the result of Euro 5 million export subsidies that were provided, approximately 10,000 times the annual income of a small-scale milk producer in India. The butter export subsidy paid by the EU, in the mean time, is currently at a five-year high and butter export refunds have risen to the equivalent of 60 percent of the EU market price. Consequently, butter oil import into India has grown at an average rate of 7.7 percent annually. This trend has already had a dampening effect on the price of ghee in the domestic market. Ironically, India is the biggest producer of milk in the world, and does not provide any subsidy for the dairy sector.

Indonesia was rated among the top ten exporters of rice before the WTO came into effect. Three years later, in 1998, Indonesia had emerged as the world's largest importer of rice. In India, the biggest producer of vegetables in the world, the import of vegetables has almost doubled in just one year–from INR 92.8 million in 2001-02 to INR 171 million in 2002-03. In Peru, food imports increased dramatically in the wake of liberalisation. There, food imports now account for 40 percent of the total national food consumption. Wheat import doubled in the 1990s, import of maize overtook domestic production, and milk import rose three times more than in the first half of the previous decade, playing havoc with Peruvian farmers

All this may seem shocking, but is merely a peep into the destruction wrought by the 'disagreement' on agriculture. Everyday, thousands of farmers and rural people in the majority world–without land and adequate livelihoods–constituting a reservoir of frustration and disaffection, trudge to the cities, their abject poverty contrasting vividly with the affluence of the urban centres. These are the victims–in fact, the first generation of the affected—of the great trade robbery.

Unequal Wars
Through a variety of instruments, rich countries have ensured complete protectionism. Trade policies, therefore, have remained highly discriminatory against the developing country farmers. Such is the extent of protection, that the benevolence the OECD exhibits through development aid to all countries–totalling USD 52 billion–pales before the monumental agricultural subsidies of USD 311 billion that these countries provided to their own agriculture in 2001. In reality, it goes far beyond giving with one hand and taking back with the other. Rich countries effectively use development aid to convince the domestic audiences of their generosity towards human suffering, in essence using aid as the human face for 'ambitious' one-way trade–from the OECD to the rest of the world.

The AoA identifies three main categories of government support–trade-distorting support (amber box); support with no, or minimal, distorting effect (green box); and a category of direct payments under production-limiting programmes (blue box), which have come in handy for the rich countries to protect their subsidies to agriculture, and at the same time dump their surpluses all over the world. Considering that world commodity prices are far from adequate anywhere to provide a decent return, these subsidies are actually the cause of excessive supplies in the world markets, thus resulting in low prevailing world prices. Going a step further, the US is permitted under AoA to provide USD 363 million in export subsidies for wheat and wheat flour, and the EU is to limit it to USD 1.4 billion a year. At the same time, the US incurs annually USD 478 million under its Export Enhancement Programme (EEP), which is not being subjected to reduction commitments.

Given the provision of all these subsidies, agribusiness companies find it easy and economical to export. Export credits, used primarily by the US, and not counted as export subsidies, doubled in just one year to reach USD 5.9 billion in 1998. The export subsidies and credits are cornered by the food exporting companies. In the US, for instance, more than 80 percent of the corn exports is handled by three firms: Cargill, ADM and Zen Noh. The level of dumping, onto international global markets, by the US alone hovers around 40 percent for wheat, 30 percent for soybeans, 25 to 30 percent for corn and 57 percent for cotton.  Further, each tonne of wheat and sugar that the United Kingdom sells on the international market is priced 40 to 60 percent lower than the cost of production.

The shocking levels of food dumping and its little understood but horrendous impact on the farming sector in the developing countries is the result of clever manipulations at the WTO. The US and EU were successful in ensuring that some subsidies–and that included direct payments—have little or no impact on production levels and so have little or no impact on trade. Using sophisticated models and taking advantage of the un-preparedness of developing country negotiators, they devised a complicated set of rules that deemed only 'amber box' subsidies as 'trade distorting' and therefore in urgent need of elimination. As it turned out, these were the type of subsidies that the poor countries were also using.

On the other hand, 'green box' and 'blue box' subsidies are the categories of farm support that only the rich countries have been providing, and which the developing countries are not in a position to afford. Subsequently, in July 2002, the US proposed significant cuts in 'trade distorting' domestic support for all products and trade partners, with a ceiling of 5 percent of the value of agricultural production for industrial countries and 10 percent for developing countries. This, however, does not mean that the US will make any major cuts in its farm subsidy support. The US Farm Security and Rural Investment Act, 2002, provides for USD 180 billion in agricultural subsidies for the next 10 years, with more than a third coming in the first three years.

The new EU Common Agricultural Policy (CAP) reform proposals that have been announced prior to the Cancun WTO Ministerial have also made no attempt to make radical changes in reduction commitments. Moving along the lines preferred by the US, CAP has shifted most of the 'blue box' subsidies to the 'green box'. European agriculture will continue to be subsidised to the tune of Euro 43 billion for another decade, and that amount will increase further when new members join the union. Both the US and EU have managed to juggle farm support from one box to another without making any significant commitments. This illusion is now being used to create another illusion of the sincerity of the rich towards 'free' trade, using it as a bargaining chip for seeking more market access from poor countries.

As if these massive subsidies are not enough, developed countries have used high tariffs to successfully block imports from developing countries. They have used special safeguards (SSG), used only by 38 rich countries so far, to restrict imports from developing countries. Developed countries took advantage of this flexibility by reserving the right to use the SSG for a large number of products. Canada reserves the right to use SSG for 150 tariff lines, the EU for 539 tariff lines, Japan for 121 tariff lines, the US for 189 tariff lines, and Switzerland for 961 tariff lines. On the other hand, only 22 developing countries can use SSG. The most vulnerable of the WTO members, whose trade in agricultural products take place under a tariff only regime, have been denied access to these instruments.

At the same time, these countries have managed to fulfil the technical requirements for tariff cuts under AoA without any meaningful reductions. Although the US, the EU, Japan and Canada maintain tariff peaks of 350 to 900 percent on food products such as sugar, rice, dairy products, meat, fruits, vegetables and fish,  the thrust of the ongoing negotiations remain on piercing open the developing country markets to more subsidised exports.

Keeping the economic interests of the developed countries in mind, the chair of the agricultural negotiations and Hong Kong's trade ambassador Stuart Harbinson, had proposed a compromise formula that suggested the creation of two new instruments: 'special products' (SP) and 'special safeguard mechanisms'. For crops which are crucial for food security needs, the proposal is to put them in the SP category for which the tariff reduction should on an average be of 10 percent with a minimum reduction rate per tariff line of five percent. For the remaining products, tariff reduction should be between 25 to 40 percent. The US-EU proposal, however, does not make a mention of the 'special products'. The general feeling is that developing countries do require special safeguard measures that act as a partial protection rather than be allowed a more permanent feature of resorting to 'special products'.

For all practical purposes, the concept of 'strategic products' or 'special products' is merely a proxy for the 'development box', a proposal that will eventually turn out to be more damming if implemented. Moreover, the negotiations are going to be centred around the number of 'special products' that a country can claim. In other words, the debate will very conveniently shift from the more contentious issue of agricultural subsidies in the West.  The AoA does not realise that production of crops and its imports into developing countries cannot be equated with industrial production. What the developing countries need is a trading system that recognises their specific needs of food security and rural development, based on the principle of production by the masses rather than production for the masses.

The hypocrisy of the developed countries has been echoed by the World Bank's Chief Economist, Nicholas Stern. Travelling through India recently, he denounced the subsidies paid by rich countries to their farmers as "sin …on a very big scale" but warned India against any attempt to resist opening its markets. "Developing countries must remove their trade barriers regardless of what is happening in the developed countries". No wonder, while the negotiation continues and the developing countries are kept busy with diversionary tactics like 'special products', agricultural exports from the OECD countries continue to rise. Between 1970 and 2000, the EU's share in global agricultural exports increased from 28.1 percent to 42.7 percent. France increased its share from 5.7 percent to 8.1 percent, Germany from 2.6 percent to 5.9 percent and the United Kingdom from 2.7 percent to 4.1 percent.

Given the gravity of the situation, developing countries cannot afford to be silent spectators. If the industrialised countries can protect their agriculture, developing countries should not shy away from doing the same. Instead of succumbing to the pressure tactics that accompany the occasional olive branch of a 'development box' or 'special products' that helps in partially protecting agriculture, the entire effort should be to demand the abolition of agricultural subsidies in the OECD countries. A collective stand based on the following three planks is the only way forward for developing countries to protect agriculture, the mainstay of their economies:

•    "Zero-tolerance" on agricultural subsidies: Developing countries should make it categorically clear that the negotiations will move ahead only when the subsidies (under all 'boxes') are removed. The AoA should wait till the subsidies in the West are grounded. Any agreement without the subsidies being removed will play havoc with developing country agriculture.

•    Restoration of Quantitative Restrictions: Developing countries should demand restoration of quantitative restrictions (and special safeguard measures for those countries which did not follow the QR route). In fact, the removal of subsidies should be linked with the removal of quantitative restrictions. That alone will provide the necessary safeguard for developing country agriculture and food security.

•  Multilateral Agreement against Hunger: Among the new issues to be introduced at Cancun, the developing countries need to strive for the inclusion of a multilateral agreement against hunger. This should be based on the guiding principle of the right to food and should form the basis for all future negotiations. Such a multilateral agreement would ensure that countries will have the right to take adequate safeguards if their commitment towards the WTO obligations leads to more hunger and poverty.

Loading content, please wait...
Himal Southasian