The Guardian | August 18, 2003
Developing countries are about to be sold down the river again and hardly anyone seems to care enough to do anything about it. It is now only a few weeks before the crucial World Trade Organisation (WTO) trade talks open in Cancun, Mexico, but they have become so bogged down in complexity and international stitch-ups (like last week's deal between the US and the EU) that real progress is unlikely. The risk of a walk-out by developing countries grows daily.
Let's get back to basics. Giving subsidies to farmers was a brilliant idea that transformed the food shortages after the second world war into a surplus. But it has grown into an institutionalised nightmare preventing developing countries from fulfilling their potential in one of the few areas where they enjoy a natural advantage - agriculture. Europe and the US are the main culprits. It is economic and social madness for Europe to be growing, for instance, subsidised sugar beet when its average cost of production is more than double that of efficient exporters such as Brazil and Zambia. It is only possible thanks to ludicrous subsidies, including protective tariffs of up to 140%. As Kevin Watkins of Oxfam says: "The Dollars 1.6bn a year the EU gives to the sugar barons of East Anglia and the Paris Basin generates surpluses that deprive countries such as Thailand and Malawi of markets. Mozambique loses almost as much as a result of EU sugar policy as it gets in European aid."
The US is no better. America's 25,000 cotton farmers received more than Dollars 3bn in subsidies last year, equivalent to 100% of the market value of cotton output. This works out at a staggering subsidy of Dollars 230 an acre. West Africa, one of the most deprived places on earth, happens to be one of the most efficient cotton producers, with an estimated 11 million people dependent on cotton as their main source of income. But it can't compete with subsidised products from the US, which has 40% of world exports. If subsidies were removed, West Africa, according to IMF figures, could produce profitably at two thirds of US production costs.
In this context it is premature to welcome last week's alleged breakthrough in negotiations between the US and Europe, which is regarded by Oxfam and others as reneging on the WTO aim to eliminate export subsidies. A joint commitment to cap the amount of direct payments to farmers to 5% of output sounds good. But it ignores the fact that there has been a parallel explosion of payments linked to other factors such as land ownership or past production levels. This merely preserves the featherbedding in a form less under the control of the WTO. Under this category comes the Dollars 180bn increase in spending on export credits and food aid by the Bush administration, which is regarded by fair trade lobbies as disguised dumping.
There is only one way to deal with this. Make it simple and effective. Abolish all agricultural subsidies so that every proposed reform doesn't generate new escape routes that negate its primary purpose. To this end, the Guardian is starting a new website today, aimed at kicking into oblivion all agricultural subsidies (http:/kickaas.typepad.com). This is one of those rare topics that unites right and left. It is also one of the few remaining free lunches in economics from which practically everyone gains. It would galvanise developing countries' agriculture while freeing more than Dollars 300bn currently being spent by governments - over Dollars 200 per capita - every year on subsidies for other purposes. There will inevitably be transitional problems for some western farmers but nothing like the structural change other industries have experienced. And in the long run it will be of benefit to them, too. They will be able to grow crops they are good at rather than those attracting subsidies. All that the developing countries are seeking is a level playing field on which to compete. Is that too much to ask?The Guardian:
