HOW EU AND US FARM SUBSIDIES HURT THEIR OWN FARMERS

By Rubens Ricupero and - - Reprint | | Print |

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GENEVA, Jul 1 2003 (IPS) - The most forceful moral and political justification for agricultural subsidies in the EU and US is that they save small farmers, yet the facts clearly demonstrate they are not doing so, writes Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development (UNCTAD). Ricupero writes that over the past 15 years, as subsidies have expanded relentlessly small farmers in these areas have become poorer and poorer in relation to the rest of the population. Kevin Watkins, Head of Research of Oxfam, writes: \’\’Far from benefiting small farmers, agricultural support goes overwhelmingly to large-scale, capital-intensive agriculture, and for a good reason: support is closely correlated with production levels, or — in the case of direct payments — to land ownership. \’\’ We should all praise the EU Commissioner for Agriculture and his colleagues in moving away from production and price-linked subsidies. But it is unclear from preliminary reports whether the reforms announced recently will substantially change the current concentration of 80 percent of payments in the hands of 20 percent of the bigger farmers, or to what extent the new system will prove less trade-distorting.

The most forceful moral and political justification for agricultural subsidies in the European Union and United States is that they are needed to save small farmers, yet the facts clearly demonstrate they are not achieving that purpose.

Over the past 15 years, as subsidies have expanded relentlessly –wealthy economies are now spending nearly USD 1 billion a day on them, six times more than what they provide in foreign aid– small farmers in developing countries have become poorer and poorer in relation to the rest of the population, so much so that they are now a vanishing species.

In a New York Times article of 15 December 2002 about the rural United States, Timothy Egan writes: ”Decades of economic decline have produced a culture of dependency, with empty counties hooked to farm subsidies… The hollowed-out economy has led to a frightening rise in crime and drug abuse”. In the US, the percentage of people living below the poverty line is nearly 30 percent higher in rural areas than in cities.

In France, over the past 12 years, the peasant population has declined by one third. More than one in three rural enterprises has disappeared as a result of death, retirement, or the refusal of the new generation to follow in their parents’ footsteps. The number of suicides in the countryside has increased so rapidly that the Mutualite Sociale Agricole considers the phenomenon ”a truly public health problem”, among highly-indebted farmers in particular.

How can this happen in a country well known for its vigorous defence of farm subsidies? A study by Oxfam notes that ”France has one of the most highly skewed patterns of subsidy distribution in the EU… Around one-third of farms receive between E 0 to 1,250 each year. Within this group, one-quarter receive nothing. The 15 percent of farms receiving in excess of E 20,000 account for 60 percent of total payments”.

Kevin Watkins, Head of Research of Oxfam, writes: ”Far from benefiting small farmers, agricultural support goes overwhelmingly to large-scale, capital-intensive agriculture, and for a good reason: support is closely correlated with production levels, or — in the case of direct payments — to land ownership. ”

The evil generated by this misdirected welfare policy is by no means limited to its failure to help its hypothetical beneficiaries. In more than one sense, poor-country farmers are financing the social welfare doled out to rich-country farmers.

First, even if subsidies were given only to domestically consumed products, and even if such subsidies were decoupled from production or prices, as the European Commission proposes to do, they are still of necessity linked to high market-access barriers. Consequently, they limit markets for exports from developing countries.

Second, whenever subsidised products get into the world market, they drive prices down, creating volatility in prices and hurting developing countries’ exporters.

Third, many of the subsidies in the EU and the US go to products exported to the world market — such as dairy products, beef, poultry, wheat, soya, sugar, and cotton — taking significant market shares away from more efficient producers in developing countries.

Fourth, as subsidised foodstuffs from rich nations enter the markets of the poor, they compete unfairly with local producers, who are often driven out of business altogether, creating an artificial dependency on foreign suppliers and aggravating the problem of food security in times when food aid disappears and prices rise.

Nowhere is the linkage between rich country farm support and poverty aggravation more dramatic and less morally defensible than in what I have called “the international scandal of cotton”.

While the US, the EU, and to a lesser extent China all subsidise cotton, American subsidies are the main cause of the cotton crisis, in part because of their sheer size –between USD 3 and 4 billion annually– in part because more than 40 per cent of the output is exported. Even when world prices fell to 38 cents a pound in May 2002, the US was able sharply to increase its share of the world market, despite its considerably higher production costs.

As a result, Africa as a whole lost about USD 300 million, with West Africa losing USD 191 million. Losses for Mali and Benin exceeded what they received in US aid. In Benin, lower world prices for cotton are associated with a 4 percent increase in the national incidence of poverty. In those three West African nations, the poorest of the poor, about 11 million people depend directly on cotton as their only source of cash income.

More than an economic or trade problem, cotton subsidies pose a moral dilemma. The next WTO meeting in Cancun (September 10-14) should call for an accelerated phase-out of production subsidies and immediate transitional compensation to be provided by Northern cotton producers. If we are not prepared to take those relatively straightforward decisions, discussion of rural development in poor countries runs the risk of becoming little more than an exercise in futility.

We should all praise the courage and determination of the EU Commissioner for Agriculture and his colleagues in moving away from production and price-linked subsidies. However, it is unclear from preliminary reports whether the reforms announced recently will substantially change the current pattern of concentration of 80 percent of payments in the hands of 20 percent of the bigger farmers, nor the extent to which the new system will prove less trade-distorting.

Nonetheless, the EU decision does represent an encouraging change in the right direction. Let us now hope that the same inspiration prevails in the US, where the last farm bill was a move in the opposite direction, relinking subsidies to production and prices. (END/COPYRIGHT IPS)