Friday, March 04, 2005

Subsidized Global "Free Trade" - I (Farm and Agriculture)

It is the modern "economic thinking"(??!!) - or one may say that it has become a fashion statement for being seen as one who has a liberal, global, modern mindset - to talk about the benefits of "free-trade", "free-market", "global competitiveness", etc., etc.

More specifically, one theme which keeps recurring in the public discourse on business - and is perpetuated by the mainstream media, education, and investment analysts almost as a dogma - is:

Government should not protect/subsidize sectors/industries/cpmpanies; in the brave new world of global free-market, each should compete on one's own strenth - and flourish or perish, as the case may be.

Underlying this theme and its proposal are two assumptions:

1. worldover the shift is towards a "free trade/ market", in which companies/countries compete in a fair and transparent environment, based on their strengths... and the only way a country (e.g., India) can get integrated into this huge potential is by dropping the trade-barriers/subsidies and any other kind of protection to not-so efficient industries/ sectors/ companies. Only by participating in this "level-playing field" can we become competitively strong and encourage those companies, which have their mettle, to flourish and compete (in the true spirit of Social Darwinism).

2. The other countries - specially, the developed ones (e.g., USA, the G7, etc.) epitomise this shift to "free trade" doctrine. And given their prosperity and growth, are examples worth following.

In this part, here are some interesting random facts about Global Farm/Agricultural Trade, which show how the "free" global trade actually thrives on government subsidies.

[To be fair, no country calls them "subsidies" - they are given under nice-sounding names like, Export Incentives, Market Loss Assistance, Oilseed Programs, Deficiency Payments, Property Tax Concessions, Market Gain Loans, Agricultural Conservation Programs, Common Agricultural Policy, Freedom-to-Farm Program, etc., etc.]

  • On average, subsidies provided by EU to its farmers account for 1/3 value of its total farm produce; subsidies in US account for 20% of the value of the farm produce.

  • On average, A farmer in EU receives subsidy of US$17,000/annum, while an American farmer receives average subsidies of US$16,000/annum. In contrast, an average farmer in developing/less-developed countries earns even less than US$1,000/year.

  • On average, in developing countries around 60% of population is dependent on agriculture for their livelihood, as compared to less than 5% in EU, and around 2-3% in US.

  • In rich countries, agriculture typically represents less than 2% of total national income and employment. In contrast, agriculture accounts for anywhere between 17 and 35 percent of GDP in middle-to-low income countries.

  • Developing countries are responsible for one-third of total agricultural trade exports.

  • Farm subsidies given by EU under its Common Agricultural Policy (CAP) is equal to the GDP of Spain. Though tinkered with a couple of years back, they will continue till 2013.

  • In Canada, the average cow receives more funding from the government than is earned by the average worker in sub-Saharan Africa.

  • A study of agricultural subsidies in Canada during 1990-99, conducted by Urban Renaissance Institute found that for every $1.0 that Canadian farmers earned over this decade, federal and provincial governments supplied an average of $3.76 in agricultural subsidies.

  • Agricultural tariffs in the European Union (EU) and the United States are four to five times greater than those applied to manufactured goods and sometimes exceed 100 percent.

  • According to The International Food Policy Research Institute, the sub-Saharan Africa can increase its income by over $3 billion dollars if wealthy nations reduced their farm support.

  • Beef and sugar are the most protected products in the EU. Without these tariffs, even the poorest African countries could produce exportable surpluses of these commodities.

  • The EU accounts for 40 percent of the world's white sugar market, and the EU's Common Agricultural Policy (CAP) lowers the price of sugar by 15 percent.

  • US applies tarrifs as high as 242% on most sugar imports.

  • US controls 40% of the global cotton market, and by subsidising cotton production by $3.4bn (2001 figures), was able to drive down global cotton prices. West Africa lost US$190 million in 2001 because of low global cotton prices, exacerbating foreign debts and balance-of-payment constraints.

  • Rice is one of the most distorted cereal commodities on the global market. Both wealthy and poor countries use a variety of methods to control their rice imports and exports. Japan charges an over-quota tariff on the import of grains other than wheat - @491%!!! in 1999. The European Union uses export subsidies to promote export, and is responsible for 95 percent of global export subsidies on rice. The United States uses credit guarantees for rice farmers and also sends out a sizable portion of its export rice crop as food aid.

  • Contrary to what one may expect, the subsidies in rich countries do not go to small-farmers, and is not equitably distributed. The major recepients are the large, big "agri-business" farm owners. Take for instance, the $171bn direct farm subsidy bill 2001 of USA:
    -top 10 percent of recipients (most of whom earn over $250,000 annually) received 73% of all farm subsidies in 2001, while only 12% went to bottom 80%;
    -Growers of corn, wheat, cotton, soybeans, and rice received more than 90 percent of all farm subsidies, while growers of most of the 400 other domestic crops were completely shut out of farm subsidy programs;
    -among the recepient of farm subsidies there are also many Fortune500 companies, e.g., Cheveron, Caterpillar, Kimberley Clark, John Hancock Mutual Life Insurance, Archer Daniels Midland, Eli Lily, etc.;
    -Some of the individual recepients of farm subsidies included, David Rockfeller, Ted Turner, Bob Dole, Ken Lay, etc.

  • Without reform of agricultural trade barriers in industrialized countries, import liberalization in the developing world - a inevitable condition for assistance from World Bank/ IMF - perpetuates unfair competition. For example, when Haiti opened its rice market in 1995, it drove prices down 25 percent and displaced local farmers.

  • According to The International Food Policy Research Institute the biggest losers due to developed nations farm subsidies are the third world countries. The third world, which exports $20 billion in agricultural products, would probably export $60 billion in the absence of the farm subsidies prevalent in the EU, America, Canada, and Japan. Third world farmers directly lose $24 billion annually in lost sales.

  • No comments: