URFIG-supported Document about Agriculture
by
Martin Khor
This
paper starts with a brief summary of the main features of the commitments made
by Members in the World Trade Organisation's Agreement on Agriculture (AoA).
It then outlines some of the imbalances and biases in the AoA that
disadvantages the developing countries (Part B).
The paper examines how the developed countries have failed to live up to
the expectations at the end of the Uruguay Round that they would liberalise
their agriculture sector and significantly reduce their subsidies (Part C). It then examines in some depth a major flaw of the AoA:
the categorisation of domestic support into subsidies that are supposed
to be market distorting (and thus subject to reduction commitments) and those
that are not (and thus allowed to increase without restraint).
It is shown that developed are shifting their subsidies from the first
type to the second type, but there is still a damaging effect on developing
countries (Part D). Meanwhile
some developing countries have also been pressurised to reduce their domestic
subsidies, with adverse effects (Part E). The
effects of import liberalisation on developing countries, with special reference
to the Asian region, are then examined and illustrated with several examples
(Part F). Finally the
paper makes some general points and some specific proposals on how the
negotiations on the AoA could proceed, in particular on the modalities of the
negotiations (Part G).
The
WTO's Agreement on Agriculture which came into effect in 1995 brough world
agriculture production and trade under multilateral trade rules.
It was supposed to herald a new era of trade liberalisation in the
agriculture sector, as hitherto agriculture had been mainly exempted from the
disciplines of GATT.
However,
as this paper will show, the AoA is imbalanced in many ways.
It has been fashioned in such a way as to enable developed countries to
continue high levels of protection, whilst many developing countries have
liberalised and their farmers are facing severe and often damaging competition,
often from imports artificially cheapened through subsidies.
The
AoA contains three main categories of commitments:
1.
Market Access. All member countries have to abolish quantitative
restrictions and non-tariff barriers and replace these with tariffs.
Members also have to reduce their tariff levels:
by 36% over six years 1995-2000 for developed countries, and by 24% over
twn years 1995-2004 for developing countries.
LDCs do not have to reduce their tariffs, but also commit not to raise
their bound rates.
2.
Domestic support. Domestic support measures are categorised under
three types: (a)
the
Amber Box, or measures that are taken to be trade-distorting and have effect on
production, such as input subsidies and price support.
(b) the Green Box, or measures that are assumed not to have effects on
production, such as support for research, marketing assistance.
(c) the Blue Box, or measures such as direct payments to farmers to
compensate them for programmes to limit their production.
Subsidies under the Amber Box are calculated under the Aggregate Measure
of Support (AMS) and are subject to reduction discipline.
Subsidies up to a certain limit (5% of the total value of agricultural
production for developed countries, and 10% for developed countries) are
exempted. Subsidies above those
levels have to be reduced from the base period 1986-88 level by 20% for
developed countries (over six years 1995-2000) and by 13% for developing
countries (over ten years 1995-2004).
LDCs are exempted from these reduction commitments; however they have
also committed not to raise the level of support beyond the de
minimis level.
3.
Export competition. Direct
export subsidies are subject to reductions from the 1986-88 average level by 36%
in value and 21% in volume for developed countries (over six years 1995-2000)
and by 24% in value and 14% in volume for developing countries (over ten years
1995-2004).
B.
IMBALANCES IN THE AGREEMENT
The
AoA contains several types of imbalances that are favourable to developed
countries and unfavourable to developing countries. These imbalances have been analysed by Das (1998) and in
Third World Network (TWN 2001).
The essence of the imbalances
is the following: "The WTO
Agreement on Agriculture has permitted the developed countries to increase their
domestic subsidies (instead of reducing them), substantially continue with their
export subsidies and provide special protection to their farmers in times of
increased imports and diminished domestic prices. The developing countries, on
the other hand, cannot use domestic subsidies beyond a de
minimis level (except for very limited purposes), export subsidies and the
special protection measures for their farmers. In essence, developed countries
are allowed to continue with the distortion of agriculture trade to a
substantial extent and even to enhance the distortion; whereas developing
countries that had not been engaging in such distortion are not allowed the use
of subsidies (except in a limited way) and special protection."
(TWN 2001).
The
main form of unfairness is in the area of domestic support.
Developed countries with high levels of domestic subsidies are allowed to
continue these up to 80 per cent after the six-year period. In contrast, most
developing countries (with a very few exceptions) have had little or no
subsidies due to their lack of resources. They
are now prohibited from having subsidies beyond the de
minimis level (10% of total agriculture value), except in a limited way.
In addition, many types of domestic subsidy have been exempted from
reduction, most of which are used by the developed countries. While these
countries reduced their reducible subsidies to 80 per cent, they at the same
time raised the exempted subsidies substantially. The result is that total
domestic subsidies in developed countries are now much higher compared to the
base level in 1986-88. Thus, in the
EEC, the subsidy in the base period, 1986-88 was US$83 billion, and it was
increased to US$95 billion in 1996. In the United States, the corresponding
levels are US$50 billion and US$58 billion.
The professed reason for exempting these subsidies in the developed
countries from reduction is that they do not distort trade. However, such
subsidies clearly enable the farmers to sell their products at lower prices than
would have been possible without the subsidy.
They are therefore trade-distorting in effect.
The
exemption from reduction applicable to developing countries is limited to four
items: input subsidy given to poor
farmers; land improvement subsidy; diversion of land from production of illicit
narcotic crops; and provision of food subsidy to the poor. The scope is very
limited and hardly half a dozen of the developing countries use these subsidies
(Das 2000, 1998). Furthermore, subsidies exempted from reduction and used mostly
by developed countries (Annex 2 subsidies) are immune from counteraction in the
WTO; they cannot be subjected to the countervailing duty process or the normal
dispute settlement process. But those exempted from reduction and used by
developing countries do not have such immunity.
With
regard to export subsidies, the developed countries to retain 64 per cent of
their budget allocations and 79 per cent of their subsidy coverage after six
years. The developing countries, on the other hand, had generally not been using
export subsidies, except in a very few cases. Those that have not used them are
now prohibited from using them, whilst those that have subsidies of little value
have also to reduce the level.
Another
inequity is in the operation of the "special safeguard" provision.
Countries that had been using non-tariff measures or quantitative limits on
imports, were obliged to remove them and convert them into equivalent tariffs.
Countries that undertook such tariffication for a product have been given the
benefit of the ‘special safeguard’ provision, which enables them to protect
their farmers when imports rise above some specified limits or prices fall below
some specified levels. Countries that did not undertake tariffication did not
get this special facility. This has been clearly unfair to developing countries,
which, with few exceptions, did not have any non-tariff measures and thus did
not have to tariffy them. The result is that developed countries, which were
engaging in trade-distorting methods, have been allowed to protect their
farmers, whereas developing countries, which were not engaging in such
practices, cannot provide special protection to their farmers (Das 2000a;
1998a).
This
inequity and imbalance appears aggravated when one considers the limitation to
the use of the general safeguard provision (in GATT) in the agriculture sector.
One necessary requirement for taking a general safeguard measure is that there
be injury (or threat thereof) to domestic production, which will be extremely
difficult to demonstrate in this sector because of the large dispersal of
farmers across the country.
Apart
from these specific problems in the areas of subsidy and protection, there is a
basic problem with the agreement. The AoA is based on the assumption that
production and trade in this sector should be conducted on a commercial basis.
But agriculture in most of the developing countries is not a commercial
operation, but instead is carried out largely on small farms and household
farms. Most farmers take to agriculture not because it is commercially viable,
but because the land has been in possession of the family for generations and
there is no other source of livelihood. If such farmers are asked to face
international competition, they will almost certainly lose out. This will result
in large-scale unemployment and collapse of the rural economy, which is almost
entirely based on agriculture in a large number of developing countries.
(TWN 2001).
C.
FAILURE OF DEVELOPED
COUNTRIES TO EFFECTIVELY REDUCE THEIR PROTECTION OR SUPPORT
After
many years of the implementation of the AoA, two major problems have arisen.
Firstly, the developed countries have not met their commitments (at least
in spirit). Secondly, the
developing countries have encountered serious problems arising either from the
first, or from their having to meet their own obligations.
The first problem is discussed in this section.
The
AoA was supposed to discipline the high levels of protection in the developed
countries, and by doing so offer very substantial benefits in terms of market
access to many developing countries, as they have a comparative advantage in
agricultural products. In reality,
however, the developed countries have made little progress in reducing
agriculture protection and subsidies.
High
tariffs on selected items of potential interest to the South have had to be
reduced only slightly.
In
the first year of the agreement, there were tariff peaks at very high rates in
the United States (e.g., sugar 244%, peanuts 174%); the EEC (beef 213%, wheat
168%); Japan (wheat 353%), and Canada (butter 360%, eggs 236%) (Das 1998: 59).
According to the agreement, developed countries needed to reduce their tariffs
by only 36 per cent on average to the end of 2000, and thus the rates for some
products remain prohibitively high (Das 1998).
·
Domestic support has increased rather than
decreased.
Although
the agreement was supposed to result in decreases in domestic support in
agriculture, in fact, the overall value of such support has increased.
The agreement obliged developed countries to reduce the Aggregate
Measurement of Support (AMS). However, only some types of subsidies fall under the AMS, and
two categories of subsidies are exempted. While
developed countries reduced their AMS, they also increased their exempted
subsidies significantly, thereby offsetting the AMS reduction, and resulting in
an increase in total domestic support. According to OECD data, the Producer Subsidy Equivalent (PSE)
for all developed countries rose from US$247 billion in the base period to
US$274 billion in 1998. (In the EEC
it rose from US$99.6 billion to US$129.8 billion, and in the United States from
US$41.4 billion to US$46.9 billion) (Das
2000: 2-3). A more comprehensive coverage of domestic support in agriculture
calculated by the OECD is the Total Support Estimate (TSE), which for the 24
OECD countries rose from US$275.6 billion (annual average for base period
1986-88) to US$326 billion in 1999 (OECD
2000).
As
explained earlier, what is even more ironic is that most developing countries,
by contrast, had previously little or no domestic or export subsidies. They are
now barred by the Agriculture Agreement from having them or raising them in
future (Das 1998a: 62). There is a great imbalance in a situation in which
developed countries with very high domestic support are able to maintain a large
part of their subsidies (and in fact, due to loopholes in the agreement, to
raise their level) while developing countries with low or no subsidies are
prohibited from raising their level beyond the de minimus amounts..
·
Export subsidies are still high.
Regarding
export subsidies, the agreement also committed developed countries to reduce the
budget outlay by 36 per cent and the total quantity of exports covered by the
subsidies by 21 per cent. The base level was the average annual level for
1986-90 and the reduction is to be done over the period 1995-2000. Thus, even in
the year 2000 the level of export subsidies is allowed to be as high as 64 per
cent of the base level (Das 2000: 3).
D.
TYPE OF SUBSIDIES IN DEVELOPED COUNTRIES MAY SHIFT, BUT EFFECT OF
PROTECTION REMAINS
As
discussed earlier, the AoA has categorised domestic support measures into three
categories: the "market distorting" measures that have to be
disciplined and reduced ("Amber Box"), and the supposedly less or non
distorting subsidies that do not have to be disciplined or reduced and in fact
can be increased without limit (the "Blue Box" and "Green
Box").
Due
to this peculiar categorisation, there has been a shift in the developed
countries in their domestic agriculture subsidies from directly price related
subsidy (which are subjected to reduction commitments) to direct payments and
other “indirect” subsidies (which are exempted).
This has enabled these countries to increase their overall level of
domestic support.
In
particular, the US has already redesigned its subsidy system and moved the bulk
of their subsidies from the Amber to the Blue and Green Box type of subsidies.
According to one estimate, in the US, the green subsidies have predominated for
the past several years. In
1998, it was estimated that the US had US $50 billion green box subsidies and
$10 billion amber box subsidies. The
EU is also in the process of shifting. According
to one estimate, the EU in 1995/6 year had US$48 billion amber-box subsidies and
$40 billion Blue and Green subsidies. In 2002, it would have shifted to $34 billion amber box and
$52 billion blue box and green box subsidies.
The overall subsidy level would be about the same ($88 bil moving to $86
bil).
This
shift in the EU can also be seen in projections for the Common Agriculture
Policy (CAP). Under the CAP,
subsidies under Pillar 1 (commodity support regime, especially price based) has
taken up 90% of the CAP budget whilst subsidies under Pillar 2 (payments to
farmers for structural adjustment, diversification, environment management) form
10% of the CAP budget. There are
also indirect measures (state assistance) for example to deal with disease
control, regional income disparity. It
is estimated that Pillar 1 subsidies will be reduced from 90% to 21% of CAP
budget in 2006. (Actionaid 2002: p6-7). Most
subsidies will be moved to direct payments to farmers to form 68% of the CAP
budget in 2006 (Actionaid 2002: p8). For
example, payments made supposedly to limit production (equivalent to WTO Blue
Box subsidies) are paid on the basis of area grown and/or a fixed number of
livestock owned, and are thus said to be not directly linked to production.
Known as direct payments, these were introduced in the EU under the CAP
reform process in 1992, either to compensate various sectors for cuts in market
price support (arable, beef) or simply as a means of giving further support to a
sector (sheep). In the WTO, direct
payment subsidies fall within the "Blue Box."
(Actionaid 2002: p8) and thus are not subjected to reduction disciplines
and can instead be increased.
Subsidy
payments in the EU favour the largest producers.
Data from 1996 show that 17% of farms that are large or extra large
received 50% of agricultural support under the CAP (Actionaid 2002: p8).
Another study shows that in 1997-98, direct payments in the UK's arable,
sheep and beef sectors totalled about Sterling 2,730 million, and 16% of the
largest holdings received 69% of the subsidies.
(Actionaid 2002: p9).
Although
there is a shift from one category of subsidies (which is considered
market-distorting and thus subject to reduction discipline) to other categories
(that are not considered market distorting because they are said to have no or
little impact on the market or trade, and are thus allowed to be maintained and
to increase), in fact these other categories of subsidies have significant
effects on the market and on trade. For
the farmer, what is important is whether he can obtain sufficient revenue and
make a profit (i.e. the revenue is more than the production cost).
It is not so important whether he obtains this sufficient revenue from a
higher price (through price support measures) or from direct payments and
various forms of grants from the government.
If a subsidy, in whatever form, is assisting the farmer to obtain revenue
and to be economically viable, then that subsidy is having a significant effect
on production and on the market.
An
example of the comparison of the effects of amber-box and blue/green box
subsidies as methods of making a farm viable is given in Table 1.
In Model A (amber box) the subsidy is given through price support
(considered to be market distorting). In
Model B (blue and green box) the subsidy is given through direct payment or
grants of various types to the farmer (wrongly assumed to be not market
distorting). In both models
it is assumed that the world price and cost of production is the same.
In
Model A, the domestic price is pulled up much higher than the world price
through price support. This enables
the farmer's revenue to be above the production cost, thus resulting in profit. The farm is viable even though its production cost is far
above the world price. Moreover,
part of the output is exported. This
is made possible through a high export subsidy that enables the farmer to sell
at an export price equivalent to the world price.
In this model, the domestic and export subsidies are clearly market
distorting and they have to be subjected to reduction or elimination.
In
Model B, there is no price support, nor is there tariff protection.
Thus the domestic price is the same or lower than the world price (in
this example, slightly lower). The
farmer gets a price which is much lower than his cost of production.
But he receives a high subsidy in the form of a direct payment or/and
other types of grants. This enables the farm to have the same revenue level as
in Model A, and to make the same profit. Thus,
the farm remains viable due to the high subsidy. Moreover, since the grants enable
the
farmer to sell at a price level below the world price, he is able to export at a
competitive price (which is artificially low because of the subsidy).
The farmer does not need an export subsidy to sell abroad.
In Model B, the effect of the subsidy is perhaps less obvious or visible
than the clearly visible price support and export subsidy of Model A.
In Model B, the country is assumed to be "in the clear" as far
as meeting its AoA commitments; it
is seen as not using market-distorting subsidies nor export subsidies. Yet the effect of the Model B subsidies are effectively also
market-distorting in that it enables the farm to be viable although it is
inefficient; and moreover it
enables the farm to "dump" its produce onto other counties (i.e.
selling below the cost of production) even though it does not receive export
subsidies. In this manner, Model B
could be considered even more trade distorting.
The
conclusion is that AoA has erroneously categorised several types of subsidies
under the so-called Blue Box and Green Box and made them respectable and not
subject to discipline, even though they give an unfair advantage to the farms
receiving the subsidies. This has
allowed the developed countries to maintain or even increase the level of their
total domestic support, with damaging effects on the developing countries,
whilst they can claim to be meeting their legal obligation of reducing the
amber-box subsidies under the AMS.
Table 1
Example:
Comparison of method of Farm remaining economically viable through
amber-box and blue/green box subsidies
Model A
Model B
ITEM
AMBER SUBSIDY BLUE/GREEN
SUBSIDY
A.
World price per ton
73
73
B.
Domestic price per ton
130
70
C.
Cost of production per ton
113
113
D.
Direct payments (grant) per ton
0
60
E.
Farm revenue (B plus D)
130
130
F.
Farm profit (E minus C)
17
17
----------------------------------------------------------------------------------------------------------
Type of subsidy
1.
Export subsidy (B minus A)
per ton for the part of the output
57
no need
that is exported
2.
Price-support subsidy or
consumer subsidy (with tariff
57
no need
protection) for the part of output
that is locally consumed
(B minus A)
3.
Direct payment (grant) subsidy
-
60
D.
EFFECTS OF DEVELOPED COUNTRIES' SUBSIDIES ON DEVELOPING COUNTRIES
The
effect of agriculture subsidies in developed countries is that their farm
production levels are kept artificially high and their producers dispose of
their surplus in other countries, and often dumped on world markets at less than
the production cost of the exporting countries.
Farmers in developing countries can make losses in three ways:
(a)
They lose export opportunities and revenues from having their market
access blocked in the developed countries using the subsidies;
(b)
They lose export opportunities in third countries, because the
subsidising country is exporting to these countries at artificially low prices;
(c)
They lose their market share in their own domestic market, or even lose
their livelihoods, due to the inflow of artificially cheap subsidized imports.
The
following are some examples of the effects of developed-country subsidies
D1.
UK Wheat
In
2000, the world price of wheat was £73 a tonne, the production cost of UK wheat
was £113 a tonne, and the UK wheat
price was £70 a tonne. Thus the
selling price in the UK was £43 below the production cost.
How could the UK farmer sell below the production cost? Because of
massive subsidy paid by the government in the form of direct payments, eg
subsidy on each acre of wheat to compensate for reducing the previous system of
price support (£226 per hectare in 2001);
and subsidy for “set-aside” (another £226 per hectare).
In 2000, £458 million was paid for 2 million hectares of wheat and
another £127 million for set-aside for 550,000 hectares.
Previously
the system of support was for the government to subsidise through price
intervention, ie to buy from the farmers at a price higher than the world market
price, and this contributed to the farmers being able to stay in business.
In the period 1992 to 1999, the intervention price has fallen, and thus
the EU wheat price has fallen in ten years, to a point now where there is little
price support and the EU wheat price is similar to the world price.
But there has instead been an increase in direct payments.
Farmers get their extra revenue not in the form of being paid an
artificially high price, but by being given direct payments (or grants).
The effect is the same, ie the farmers get a revenue higher than if there
were no subsidy, and they remain economically viable, even though the price they
are paid is far below the cost of production.
Moreover
this shift from price support subsidy to grant (or direct payment) subsidy
enables the UK or European farms to have a price similar to (or even below) the
world price, and thus they are able to sell in the world market at an
artificially low price, and without needing an export subsidy.
Examples of Effects:
(1) Cheap wheat exported from UK/Europe was imported
by a developing country. The wheat
was processed and the country could export cheap wheat flour to other countries.
One country (Kenya) found that low priced wheat flour imports undermined
the local flour industry. It also
affected the market and livelihood of wheat farmers that supplied to the local
flour industry.
(2) Indonesia has found that EU
and other exporters dumped wheat flour on its market.
(Source
of D1 subsection: Actionaid
2002).
D2.
EU Sugar
The
EU maintains high domestic sugar price above the world market price, then
provides export refunds (totaling Euro 1.5 billion) to local farmers/companies.
The refunds are the difference between the local and the world prices.
This allows the inefficient farms to sell at prices below the EU price
and the EU cost of production. The
UK produces 1.3 mil tons of sugar, exports 608,000 tons outside EU and 90,000 to
the EU. (Source: Actionaid
2002).
Effect:
EU sugar regime allows the high-cost European farmers to benefit at the
expense of the much more efficient South African producers, who lose in terms of
lost jobs and exports. (Source:
Cafod 2002).
D3.
US Cotton
Brazil
and African countries are affected by US subsidies. The US production cost is twice the world market price
of 42 cents a pound. Yet US growers
raised their share of global exports in 15 years and it is now at one third.
In 2001, US$4 billion subsidy was paid on $3 billion worth of crops in
the US. (Financial Times)
Effect:
According to an Oxfam report, African countries lost $301 mil in lost
exports. Burkina Faso, Mali and
Benin lost the equivalent of 1 to 2 percent of their GDP. (Source: Oxfam
report on cotton 2002).
E.
REDUCTION OR ELIMINATION OF SUBSIDIES BY DEVELOPING COUNTRIES
As
explained above, developing countries have also been constrained in regard to
domestic subsidies for local farmers. The
overall amount of the relevant subsidies was recorded for 1995 as a ceiling, and
developing countries (except LDCs) are required to reduce this amount by 13.3
per cent over the period of 10 years. There is a small general de
minimis exclusion from the subsidy discipline for developing countries of 10
per cent of the value of production (for product-specific subsidies) and 10 per
cent of the value of total agricultural production (for non-product-specific
subsidies); and also exemptions for limited purposes (such as investment
subsidies and input subsidies for poor farmers). These exclusions apart,
developing countries are now constrained from increasing the level of domestic
support to their farmers and instead have to bring down the level.
Developed countries, which in general have offered very high levels of
domestic support have committed themselves to only slightly reducing these. Most
developing countries have previously maintained low levels of subsidy and are
unable to increase them, beyond the exemptions. And even in areas where domestic
support is permissible, most developing countries cannot avail themselves of the
facility because of the lack of financial resources.
The
concessions to developing countries are that the rates of reduction (of tariffs,
domestic support and export subsidies) are two-thirds those for the developed
countries, and that there is a longer implementation period (10 years compared
to six years for developed countries). LDCs are exempt from reductions. These concessions are minor,
especially in view of the fact that developed countries are allowed to continue
to maintain very high levels of import protection and agricultural subsidies.
Meanwhile,
serious problems of implementation have emerged in developing countries. Some
countries were asked to reduce or eliminate subsidies, or institutions set up to
assist farmers in marketing their products, under the loan conditionalities of
the international or regional financial institutions.
There is thus an unfair practice of double standards.
Whereas the developed countries have maintained or increased their very
high domestic support, several developing countries have had their agricultural
subsidy system dismantled or their rates reduced.
The
following are examples.
E1.
Southern Africa
Subsidies
in Southern Africa countries were reduced or eliminated, together with closure
of marketing boards, under the influence of World Bank loan conditions. A study
was done on Malawi, Zambia and Mozambique on the effects.
There was a collapse of input and credit supply in some cases, and food
reserves were liberalized. In
Zambia, maize and fertilizer subsidies were removed.
An internal World Bank study in 2000 said: ‘The removal of subsidies led to stagnation and regression
instead of helping Zambia’s agriculture sector.’ (Oxfam report on reduction of subsidies in
developing countries, 2002).
E2. Pakistan
Pakistan,
to follow conditions of an ADB loan, slashed government procurement targets
(from 8.5 to 4 million tonnes) for wheat and shut down many procurement centers.
This had negative effects on many small farmers who could not sell at the
procurement price and had to sell cheaply to traders, often at a loss.
(Source: Actionaid 2002).
F.
EFFECTS OF IMPORT LIBERLISATION ON DEVELOPING COUNTRIES
F1.
General
Under
the AoA developing countries (including LDCs) have to remove non-tariff controls
on agricultural products and convert these to tariffs. Developing countries are
then required to progressively reduce these tariffs, while LDCs are exempt from
this requirement. In many
developing countries this has threatened the viability of small farms that are
unable to compete with cheaper imports. Many millions of small Third World
farmers could be affected. The process has also increased fears of greater food
insecurity, in that the developing countries will become less self-sufficient in
food. For many, food imports may not be an option due to shortage of foreign
exchange.
F2.
FAO studies 2000-2001
Import
liberalization had a significant effect.
The average annual value of food imports in 1995-98 exceeded the
1990-94 level in all 14 countries, ranging from 30 per cent in Senegal to
168 per cent in India. The food import bill more than doubled for two
countries (India and Brazil) and increased by 50-100 per cent for another
five (Bangladesh, Morocco, Pakistan, Peru and Thailand).
Increases
in food imports were generally significantly greater than increases in
agricultural exports. In only
two countries was export growth higher while in most other countries import
growth far outstripped export growth.
The study also measured the ratio of food imports to agricultural
exports and found the ratio was higher in 1995-98 than in 1990-94 for 11 of
the 14 countries. An increase
in the ratio indicates a negative experience, as it shows food import bills
growing faster than agricultural export earnings.
The worst experiences were those of Senegal (86% rise in the ratio),
Bangladesh (80%) and India (49%) (ibid.: 22-24).
As the FAO's Senior Economist concluded:
'A majority of the studies showed that no improvement in agricultural
exports had taken place during the reform period…. Food imports were
reported to be rising rapidly in most of the countries, and import surges,
particularly of skim milk powder and poultry, were common. While trade
liberalization led to an almost immediate surge in food imports, these
countries were not able to raise agricultural exports due to weak supply
response, market barriers and competition from subsidized exports’ (FAO
2000: 30).
Although
bound tariffs were generally high, the applied tariffs were on average much
lower for the countries surveyed. Most countries had already reformulated
their domestic policies under structural adjustment programmes. The simple
average of the applied rates for 12 of the 14 countries was 22 per cent
whereas the bound rate was 90 per cent. Some countries were obliged to set
applied rates well below their WTO bound rates due to loan conditionality.
While bound tariffs were high on average, there were several exceptions:
Egypt's rates (28% average) were low; India's tariff binding was zero
for 11 commodities (including sensitive items like rice and some coarse
grains), and all of Sri Lanka's agricultural tariffs were bound at 50 per
cent with applied rates capped at 35 per cent for 1999.
Several
case studies reported import surges in particular products, notably dairy
products (mainly milk powder) and meat. In some regions, especially the
Caribbean, import-competing industries faced considerable difficulties. In
Guyana, there were import surges for many main foodstuffs that had been
produced domestically in the 1980s under a protective regime (FAO 2001).
In Sri Lanka, policy reforms and associated
increases in food imports have put pressure
on some domestic sectors, affecting rural employment: There is clear evidence of
an unfavourable impact of imports on domestic output of vegetables, notably
onions and potatoes. The resulting
decline in the cultivated area of these crops has affected approximately 300,000
persons involved in their production and marketing.
The immediate possibilities for affected farmers to turn to other crops
are limited. Consequently, the economic effects of import liberalization in this
sector have been significant. (Ibid.: 325-26)
There
was ‘a general trend towards the consolidation of farms as competitive
pressures began to build up following trade liberalization’ and this has
led to ‘the displacement and marginalization of farm labourers, creating
hardship that involved typically small farmers and food-insecure population
groups, and this in a situation where there are few safety nets’ (ibid.).
The study noted especially the case of Brazil, where consolidation taking
place in the dairy, maize and soybean sectors has affected traditional
cooperatives and marginalized small farmers.
F3.
Media Reports on Effects of Agricultural Import Liberalisation on Asian
Countries
The
adverse effects of import liberalisation on the agriculture sector in several
Asian countries have also been reported in recent years in media reports.
The following is a sample.
·
"China's
leaders worry that economic reforms could be placing more burdens on farmers
than they can bear. Farmers are on
the receiving end of the earliest and sharpest changes from the new poliocies
that China agreed to implement to gain entry to the WTO. Protective tariff must be lowered. Foreign foods must be allowed into the country to compete
with local produce….According to a report by China's State Council, the
country's WTO commitments are likely to wipe out the livelihoods of 13 million
farmers who grow wheat, rice and cotton, while creating new ones in n ongrain
crops for only about 1.5 million. Some
economists reckon that China will eventually need to find jobs for about 200
million farmers as its market reforms continue.
'The Chinese farmer is in a very unenviable position,' said Ke
Bing-sheng, director general of the Research Centre for Rural Economy, which is
part of China's Ministry of Agriculture. 'The
impact of reforms on agriculture is profound.'
(Peter Goodman, International Herald Tribune, 26 Sept. 2002).
·
"China is facing big challenges in
raising the incomes of farmers and keeping a lid on social unrest in 2002, its
first year in the WTO, said Agriculture Minister Du Qinglin.
China's entry into the WTO will bring a flood of foreign farm imports and
speed lay offs in a country where almost two thirds of its 1.3 billion people
live in the countryside. 'After WTO
entry, imporst will lash China's agriculture. The difficulties will be more
prominent,' Du told a news conference….Analysts say farm product prices are
likely to fall this year as imports increase after WTO entry, since domestic
prices are far higher than in the international market.
China must find jobs for 40 million 'surplus' rural workers between 2001
and 2002, officials say. Du said 78
million rural dwellers migrated in search of jibs at some point last year." (Bill Savadove, Reuters, 5 Feb. 2002).
·
India: The import of 17,000 tonnes of skimmed milk powder from Denmark at zero
duty a couple of years ago resulted in a political uproar in Punjab.
The dairy industry is once again up in arms.
New Zealand has dumped a large quantity of butter oil into India.
Even after paying an import duty of 35.2%, the butter oil imports have
been at less than US$1,000 per tonne against the prevailing global price of
US$1,300 per tonne. Domestic prices
crashed, coming down by 10-15 per cent….It took India nearly 30 years to
achieve self-sufficiency in milk production, involving farmers through a network
of cooperatives….The logic behind allowing MNCs to import milk powder without
countervailing duties is difficult to fathom, when their own governments are
giving them massive subsidies. The
Producer Subsidy equivalent (subsidy as a percentage of value of milk produced)
in 1997 was 82% in Japan, 59% in Canada, 54% in EU, 47% in the Us and 23% in
Australia. Further, the per tonne
subsidy of US$811 for milk powder declared by the EU in 1998 or the US$875 per
tonne subsidy by the US under its dairy export incentive programme constituted
55% of the prevailing international price of US$1,500 per tonne in the same
year….Such has been the high level of protection that even with the stipulated
reduction in subsidies, the EU and US can continue to flood and dump their
highly subsidised milk and milk poweder onto the unsuspecting developing
countries, which have little safeguard mechanisms to protect their small dairy
producers. The signs are therefore
ominous. Highly subsidised imports
of milk flowing into India will only further marginalise millions of milk
producers. Thousands of dairy cooperatives which pulled the poverty-stricken
masses into a path of economic emancipation will collapse faced with imports of
cheap and highly subsidised imports. (Devinder
Sharma, "Destroying India's White Revolution", 17 April 2002, ag-impact
listserver).
·
Indonesia has spent the last few years adjusting its
import policies with WTO agreements. But
lowering import duties and lifting bans on various commodities have not sat well
with local producers, who say they are being forced to close shop as a result.
Complaining loudest are those in agriculture-related businesses as well
as poultry and animal husbandry entrepreneurs, who grumble that the flood of
imports is hurting them most. Food
imports have been growing. Indonesia
is already a major importer of rice. Intensifying
dependence on expensive corn imports, meanwhile, has led to an 80% contraction
in the chicken industry, which uses corn for feed.
When the price of imported feed soared in mid-January, many poultry
farmers went out of business. Now,
an upcoming lifting of a ban on imported chicken legs has local chicken breeders
up in arms again; at least 48,000
breeders have suspended their operations. The
local industry is not yet ready to compete with cheaper imports….When
Indonesia experienced a food crisis in 1999, Jakarta lowered import tariffs on
rice and corn. The imported
varieties made such an impact on the local market that the domestic rice and
corn industries are now described as being paralysed.
These days, the "foreign food" bogey is scaring farmers of
other crops. Last week, hundreds of
sugarcane growers from Java and South Sumatra flocked to the compound of the
Industry and Trade Ministry and poured sacks of sugar and sugarcane onto the
ground in protest of the sugar import. The
farmers say they have simply been unable to compete with imported sugar.
They are demanding the import duty increase from 20 to 110 percent.
(Kafil Yamin, IPS, 28 April 2002).
·
Asian farmers: Seven years after the AoA, small farmers are not experiencing the
prosperity promised by the agreement's proponents, according to a seven-country
study by the Pesticide Action Network Asia and the Pacific.
Its executive director Sarojeni Rengam said:
"These were empty promises, and for millions of small farmers and
peasants, especially women, the result has been the entrenchment of poverty,
destruction of livelihoods, increased burdens and for many it has literally
meant empty stomachs. Agricultural trade liberalisation has indeed harmed small
farmers and impoverished the poor further, making them more food insecure."
The study examined cases in Thailand, the Philippines, Indonesia,
Malaysia, Korea, India and Pakistan, most cases focusing on a single crop
important to the area…. In Thailand, small soybean and cassava farmers have
come under heavy pressure from cheap imports of soybean and export barriers to
cassava in Western markets, and are forced to work harder in efforts to increase
production. In Indonesia, farming
credits were planned as a safety net to hep those affected by falling rice
prices but the implementation was ineffective.
Korean farmers faced falling prices and rising costs, stagnating farm
incomes, and farmers have to take up additional work or migrate.
In ten villages in India, a shift fropm food to cash crops led to higher
food prices, lower employment and income and lower food consumption among
marginal farmers and landless women workers.
In Pakistan, privatisation policies increased the cost of agricultural
production, leaving more people without access to land.
(PANAP press release, 7 March 2002).
·
Sri Lanka: First it was protests by potato farmers; then from chili and onion producers; now Sri Lanka's chicken farmers are up in arms against cheap,
ruinous imports. With Sri Lanka's
once-thriving poultry business buckling, farmers say they are forced to sell
below production cost. There are
75,000 chicken and egg farmers with more than 200,000 involved in the trade.
Thousands of small farmers, worried about growing imports of chicken meat
and eggs, took to the streets in April, demanding the government ban imports
since it was affecting their livelihoods. They
had good news. Two weeks ago the
government said it would permit imports only under license and put in place a
proper pricing formula for imports…..Globalisation, as in many of Sri Lanka's
traditional industries, is hurting the country's poultry industry and
threatening to squeeze out small farmers. Potato,
onion and chili farmers have been complaining about the influx of cheap imports
from India and Holland. Local
farmers are unable to produce food cheaper than their foreign counterparts and
are demanding protection through higher import duties, lower local taxes and
reduced tariffs on imported inputs. (Feizal
Samath, IPS, 30 Aug 1999).
· Asian farmers' associations grouped in the Asian Farmers Group for Cooperation at their second meeting held in Jakarta will ask the WTO ti let Asian countries continue to protect their agricultural products. Its president, Sutrisno Iwantono (also chair of the Indonesian Board of Cooperatives) said the WTO was tending to be more representative of developed countries' aspirations, and wanted to abolish import duties particularly of developin