TRADE: Farm Subsidies – the ‘Apple’ of Discord

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Sep 29 1999 (IPS) - Agriculture is taking on increased economic and strategic significance as a bone of contention that reveals the limits of the free market, marked by subsidies that distort international trade and prices.

Subsidies and agricultural protectionism have emerged as a major hurdle for the coming ‘Millenium Round’ of multilateral trade talks, integration in the Americas, and the liberalisation of trade between the Southern Common Market (Mercosur) trade bloc and the European Union (EU).

Although Mercosur – which accounts for 80 percent of South America’s combined Gross Domestic Product (GDP) – is one of the loudest voices calling for an opening up of agricultural markets, the bloc itself has failed to reach agreement to incorporate sugar in the free trade accords between its four members.

Argentina has blocked any attempt to discuss the product, while accusing Brazil of subsidising its sugar production.

Nevertheless, Argentina and Brazil – and their two smaller partners Paraguay and Uruguay – are joined together in the Cairns Group, along with 11 other agricultural exporting countries.

The Cairns Group is on the warpath against farm subsidies, particularly those shelled out by the EU and the United States, on the argument that they hurt other exporters by blocking access to markets and driving down prices.

Roberto Rodrigues, president of the Brazilian Association of Agribusiness, pointed to the “hypocrisy” of the economic powers which “proclaim liberalism while practicing protectionism” and assisting their farmers with subsidies and trade barriers.

“It is a scandal,” agreed Gilman Rodrigues, vice-president of the National Confederation of Agriculture (CNA), which groups Brazil’s large farmers.

The CNA estimates that if the protectionist measures applied by rich countries were eliminated, Brazil could increase its farm exports by 30 percent, or five billion dollars.

In the run-up to the third ministerial conference of the World Trade Organisation (WTO), agricultural exporting countries have drawn together in a broad alliance against farm subsidies, which amount to around 360 billion dollars a year in their various forms worldwide.

The WTO conference is scheduled for late November in the U.S. city of Seattle, as a preamble to the Millenium Round of talks, in which the future of international trade is to take shape.

Countries like Argentina and Brazil, under pressure from recession at home and the need for increased revenues to service their debts, are more dependent on farm exports today, and have stepped up their offensive against protectionism.

The 15-member Cairns Group, at the head of the battle, not only comprises developing countries, but also Australia, Canada and New Zealand – members of the Organisation of Economic Cooperation and Development (OECD), a symbol of the industrialised North.

The United States also participated as an observer in a Cairns Group conference held in late August in Buenos Aires, where it pledged its support in the fight against farm subsidies.

The division thus is not a North-South one. Many poor countries, net importers of farm products, are also uninterested in the elimination of subsidies, which would drive up the cost of their agricultural imports.

The coming round of trade talks could also confirm what many see as a rule of international relations: the imposition of the will of the most powerful – especially if the EU strikes a deal with the United States to maintain its agricultural policy.

Disputes in the sector are fuelled by the very nature of agriculture, which given its lengthy production cycles and vulnerability to climate changes and price swings, demands “some form of support from public policies,” acknowledged Antonio Donizeti, head of the CNA’s Department of Foreign Trade.

The problem, he said, “are the subsidies that distort international trade,” such as those employed by the United States and EU to protect their farmers, at the expense of more competitive producers in other countries.

“It is not acceptable for prices to be held up above those of the international market,” which tends to encourage overproduction and knocks down prices, as is presently occurring with soy, affected by U.S. policy decisions, Donizeti added.

The EU decision to maintain high farm subsidies until 2006 has created a “pessimistic scenario” for the upcoming trade talks, because it threatens to hinder the liberalisation of agricultural trade, which was to begin in 2003, he said.

European subsidies are also a “perverse mechanism,” because they support landowners who leave their land idle, said Ricardo Abramovay, a researcher at the University of Sao Paulo.

Since subsidies are based on amount of land, they tend to favour large landowners, he pointed out. And because farmers, rather than production, are directly subsidised, such policies skirt around WTO rules, which prohibit subsidies for prices and elements of production.

Currently in vogue in the EU to justify farm subsidies is the theory of the “multifunctionality” of agriculture, according to which services provided by agriculture must be compensated, as well as the role farming plays in stemming the exodus of rural inhabitants to the cities.

But all activities have effects other than their specific objectives, contended Donizeti, who said that argument “cannot serve as a pretext for neo-protectionism.”