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April 1998

End Farm Subsidies, 3rd World Demands

Chicago Tribune
August 28, 2002

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Chicago Tribune | By Laurie Goering | August 28, 2002

Over the last decade, as the United States and other wealthy nations have pushed for free trade and open markets worldwide, the developing world has found itself in a pinch.

Poorer nations, responding to the world call, have dropped their trade barriers at a rate three times that of the developed nations, the United Nations reports. But when they try to sell their own agricultural products--the backbone of many Third World economies--they cannot find buyers. That is largely because, in an effort to protect their own farmers, the leading industrialized countries have boosted subsidies and tariffs on agricultural products by more than 20 percent during the past decade, say United Nations officials and international trade groups.

U.S. officials charge that Europe is the worst offender, spending up to $62 billion a year on domestic price supports, compared with up to $19 billion in the United States. Japan spends up to $31 billion a year.

The U.S., however, is hardly moving to lift barriers. The recently passed 2002 farm bill boosted farm subsidies and has been criticized in Johannesburg as a "major setback" to correcting market imbalances.

Subsidized U.S. corn and European wheat, sold at prices below what it costs to produce them, have flooded into African and Asian markets, undercutting local farmers. In the past 10 years, 30 million farmers have gone out of business around the world, trade analysts say. Third World leaders, long assured that free trade was the surest path out of poverty, are disillusioned--and furious.

Subsidies called hypocritical

As the UN World Summit on Sustainable Development focused Tuesday on agricultural policy, dozens of environmental, trade and agriculture ministers from developing countries demanded an end to farm subsidies in wealthy nations, calling them hypocritical and a key roadblock to economic progress around the world.

By warping market prices, subsidies are "imperiling the very survival of producers in West Africa," said Benin's environmental minister, who laid out the case of 12 million West African cotton farmers who cannot find markets for their crops.

And in Zambia "we've liberalized our markets and as a result our markets have been turned into dumping grounds," said a Zambian minister.

The focus of the 10-day Johannesburg gathering is implementing environmental and social promises made at the 1992 Rio Earth Summit and moving the world toward sustainable development. But in the summit's early days, trade disputes have crept to the forefront.

In large part that's because trade and development have become inextricably linked as policymakers have pushed free trade as the fastest and surest route out of poverty. Now that assumption is being questioned by poorer nations that find the doors to the world's biggest markets--and to their own development--closed.

"Poor people cannot escape their level of poverty because of subsidies in the developed world," charged Ian Goldin, a director of development policy at the World Bank. While developing nations face plenty of problems in selling goods, from lack of roads to get them to market to inconsistent supply, agricultural protectionism by wealthy nations is "particularly disappointing," Goldin said Tuesday.

Agricultural subsidies in richer nations were never intended to hurt poorer countries. Europe, Japan and the United States have over the years adopted agricultural trade barriers largely to protect themselves from each other. Europe has a tradition of supplementing the income of its farmers; the U.S. has in turn authorized price supports for key crops and subsidized exports, to ensure food security in the country, keep farmers in business and make its products competitive.

Tough competition

The developing world, however, stuck between battling giants, has taken most of the blows. While poorer nations are not necessarily the most efficient producers of food, their lower labor costs should help make their products competitive. But subsidies spur overproduction in wealthy nations, and as the excess grain floods world markets, prices collapse, leaving unsubsidized farmers unable to compete.

"The United States is dumping products into world markets below the cost of production, which drives farmers all over the world out of business," said Kristin Dawkins, vice president of the Minneapolis-based Institute for Agriculture and Trade Policy.

Worst of all, the subsidies don't do much to help small U.S. farmers, who operate at the fringes of bankruptcy. Instead, "the subsidies effectively go to highly capitalized farmers and larger corporations," she said. "The system uses U.S. taxpayer dollars to subsidize international traders who are grabbing more and more market share and driving small producers out of business."

Developed-world agricultural subsidies total from $300 billion to $350 billion a year, more than the combined gross national products of sub-Saharan Africa and six times the amount wealthy countries spend on development aid to their poorer neighbors.

U.S. officials expressed surprise at the vehemence of criticism at the meeting. The Bush administration has proposed eliminating export subsidies over five years and phasing out domestic price supports. But the U.S. says it will do so only if Europe goes along.

"We're not willing to do it unilaterally," one senior U.S. government official said Tuesday.

Lifting the subsidies will be tough. In Europe and the U.S., agricultural corporations and farmers are a powerful voting bloc, and producing food at home is a proud tradition.

Intermediate measures could help. Dawkins' group advocates a worldwide ban on dumping agricultural products at prices below the cost of production, which would effectively curb U.S. and European overproduction of subsidized food, increase the competitiveness of products grown in developing nations and help ensure food is produced where it is needed, a key to easing global hunger.

U.S. officials admit that removing agricultural trade barriers would increase developing-world exports by a quarter, raise agricultural commodity prices by 12 percent and boost by $21 billion a year the economies of developing nations.

Poor countries, hit hard by falling prices for raw materials and unable to expect much new international aid, say they need those improvements now.

"While the big countries are fighting, the rest of us are sinking," said Chee Yoke Ling, a spokesman for the Third World Network. "We have no way to fight back."

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