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AGRICULTURE: U.S. and EU Subsidies Still Out of Bounds

Isolda Agazzi

GENEVA, Nov 17 2010 (IPS) - The United States’ policy to double agricultural exports shows that its government “has learnt nothing” from the last food crisis, a problem reflected in the dramatic increase in that country’s trade-distorting farm subsidies between 2007 and 2008.

Sophia Murphy: "‘Trade-distorting' and ‘non-trade distorting' is a bit of a fiction." Credit: IATP

Sophia Murphy: "‘Trade-distorting' and ‘non-trade distorting' is a bit of a fiction." Credit: IATP

The U.S.’s recent official report on its farm subsidies for 2008 to the World Trade Organisation (WTO) shows that trade-distorting subsidies doubled from the previous year, while permissible “green box” subsidies reached a historic high.

The U.S.’s trade-distorting payments in 2008 amounted to almost 13 billion dollars, double the 2007 figure. More specifically, these payments included 6,25 billion dollars in amber box subsidies, which are payments linked to production that causes dumping and considered as most distorting of international trade.

Another 6,7 billion dollars were calculated as “de minimis” spending, which is authorised payments in the amber box. The U.S. has not reported any “blue box spending” since 1995, which refers to production-limiting measures that are nonetheless considered trade distorting.

However, payments de-linked from production, considered as non-trade distorting and therefore categorised as “green box” subsidies, were higher than ever before: 81.59 billion dollars, largely due to an increase in food stamps.

Despite the increases, these subsidies are still lower than the amount the U.S. committed itself to in the draft text of the Doha Development Round: 14,5 billion dollars.

While the 2007-2008 increase happened during the Bush era, not much has changed. “In a context of increasing volatility in food prices, it is unfortunate that the Obama administration learned so little from the last food price crisis,” Karen Hansen-Kuhn, international programme director of the Institute for Agriculture and Trade Policy, told IPS.

IATP is a U.S.-based think tank that promotes equitable and sustainable globalisation.

“They have proposed significant new programmes to boost food security in developing countries but at the same time trade policy is driven by an imperative to double U.S. exports,” explained Hansen-Kuhn.

“Their focus should be on rebuilding healthy and sustainable local food systems at home and in developing countries, which would imply support for developing country efforts to protect local markets for food security and rural livelihoods. But that kind of fresh thinking doesn’t seem to be part of the equation yet,” she concluded.

Sophia Murphy, senior adviser on trade and global governance at IATP, questions the categorisation of trade-distorting vs non-trade-distorting subsidies. “‘Trade-distorting’ and ‘non-trade distorting’ is a bit of a fiction,” she told IPS in an interview.

“Of course there are gradations. Food stamps are not the same as direct income support to a farmer, which is not the same as a tariff. Food stamps are not an issue for Africa. But the U.S. food and agriculture economy is profoundly linked to the global economy, including through highly distorted means in the sugar and cotton economies.”

IATP has tried to assess what happens at the border by comparing the cost of production to the farm gate price and the subsequent export price. For the major commodities that IATP studied — wheat, corn, soybeans, rice and cotton — the farm gate and export price were usually aligned.

But for many years and for most of the crops, the cost of production was higher than the export price, thus entailing a measure of dumping.

The EU is reforming its common agricultural policy (CAP) for the years 2010- 2013. A leak of a draft proposed farm subsidy policy by the EU, posted on, reveals the intention to maintain a decoupled basic income payment for all farmers on a yearly basis.

This would be a direct payment to farmers that is delinked from production levels and is supposed to have no effect on prices and therefore markets.

Additional support would be linked to environmental measures. Member states could also use a risk management toolkit covering income stabilisation and insurance, compatible with the WTO green box. The draft foresees a new ceiling on direct payment to large farmers.

For Alex Danau of the Collectif Stratégies Alimentaires (CSA), a Bruxelles- based NGO that has closely monitored the CAP since its inception, decoupled payment is the biggest problem.

“The WTO green box offers a completely inadequate approach” to decoupled subsidies, he told IPS in an interview.

Decoupled basic income payments must be fundamentally challenged because they create an “artificial” competitiveness and rent for landowners. They are applied individually and do not have a collective benefit like market regulation, Danau argued.

More specifically, such subsidies are the most expensive way to support farmers while being out of reach for farmers from developing countries.

“Therefore, we have to re-establish a mechanism to regulate agricultural markets, both at the European and at the international level”, like the United Nations special rapporteur on the right to food recently advocated for, he added.

“All the CAP reforms since 1992 have gone in the same direction: increasing decoupled payments and minimising regulatory instruments. In our view, the notion of trade distortion is a dogmatic criteria that applies very badly to the reality of agriculture and to the right to food.”

Danau favours instruments of price support together with supply management, like quotas on milk or sugar, and systems of stocking to avoid price volatility. “By regulation of markets we mean measures that tend to reduce volatility and keep prices at a normal level inside a price band,” he concluded.

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