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WTO-CANCUN: Subsidies Cost Southern Farmers $24 Billion Yearly – Study

Katrin Dauenhauer

WASHINGTON, Aug 26 2003 (IPS) - Farmers in developing countries lose about 24 billion dollars yearly in agricultural and agro-industrial income because of trade-distorting policies by industrialised nations, says a study released Tuesday.

Protectionism and subsidies by developed countries prevent more than 40 billion dollars annually of net agricultural exports from developing nations, adds the report by the Washington-based International Food Policy Research Institute (IFPRI).

Eliminating these measures would triple developing countries’ net agricultural trade, the report says.

"The trade policies of the industrialised countries cause great harm to the economies of many developing nations, which depend heavily upon agriculture," said Eugenio Diaz-Bonilla, IFPRI senior research fellow and one of the authors of the report, at its release on Tuesday.

”One more kilogram of subsidised sugar in the European Union could very well mean one less kilogram produced in Kenya or Guatemala. Another bale of subsidised cotton in the United States may mean less production in Mali. Or another ton of subsidised rice in Japan can have the same displacement effect in Vietnam,” he added.

With the World Trade Organisation (WTO) ministerial conference in the Mexican city of Cancun only two weeks away, the study quantifies the immediate damage done to the economies of the world’s poor countries by the agricultural policies of industrialised nations.

According to IFPRI’s figures, in absolute dollar amounts big agricultural traders like the Latin America-Caribbean region would gain most from the removal of trade-distorting measures – an 8.3 billion dollar increase in annual income from agriculture.

Developing countries in Asia would see an increase of 6.6 billion dollars and sub-Saharan Africa close to 2 billion dollars.

With large rural populations and greater dependence on agriculture for overall income, the economies of sub-Saharan countries suffer most from current policies as a percentage of their gross domestic product (GDP), while Latin American countries, with a smaller percentage of their populations in rural areas, are least affected, adds the study.

In absolute dollar values, China suffers the largest loss – 2.3 billion dollars – followed by India with 1.1 billion dollars lost.

More than one-half of the displaced exports are caused by the policies of the European Union (EU); somewhat less than a third are due to U.S. policies, and Japan and other high-income countries cause another 10 percent, says IFPRI.

The policies not only harm poor farmers in developing countries, but hurt taxpayers and consumers in industrialised nations, since the costs of subsidies are borne directly by them, it adds.

Still, developed countries are reluctant to make major changes to those policies.

That is due to the difference between the net benefits – the overall effects for the entire country – and the distributional effects – the effects that a policy has on different sectors of society – in developed countries, explained David Orden, senior research fellow at IFPRI and one of the report’s authors.

" The costs of subsidies with regard to the overall GDP are low, while the benefits for farmers are great. So, citizens have a low incentive to oppose while farmers have a great incentive to support those subsidies," said Orden.

The report calls on industrialised nations to agree to significantly reduce their protectionist measures and subsidies, while at the same time to invest more resources in developing countries.

At the same time, the study opposes greater protection for agriculture in developing countries, arguing that would increase the cost of food domestically.

Instead, developing countries must change their budget priorities and invest more in agriculture and rural development. But, this will require sufficient transition times and financial resources from the international community, it points out.

"While the wealthy nations need to make the biggest changes, developing countries have to take a look at their own policies, as well. Developing countries need to reduce their protectionist measures on agriculture, as these policies increase the cost of food for poor consumers," said Orden.

"The best thing developing countries can do is to invest in agricultural research and development, roads and rural infrastructure, human capital of the poor, and ensure macroeconomic stability, good governance, the rule of law and peace," he added.

In the current Doha Round of multilateral trade negotiations, developing countries on the one hand and the United States and the European Union on the other hand drafted two proposals for negotiations on agricultural.

Though there has been a series of compromise proposals, trade experts say much more needs to be done to address the concerns of developing countries.

"The upcoming WTO ministerial conference in Cancun provides an opportunity for world governments to agree on a plan to make agricultural trade more fair," said Diaz-Bonilla.

"For the sake of low-income farmers and consumers across the globe, negotiators from the industrialised countries should move beyond rhetoric and gestures. It is time to remove the trade-distorting measures that hurt poor people in developing countries."