Global Policy Forum

By Barry James

The estimated billion dollars a day that taxpayers in wealthy countries pay in farm subsidies ends up largely in the hands of families that do not need it, according to a report issued Thursday by the Organization for Economic Cooperation and Development.

A lot of support goes to people who are not farmers, including landowners and suppliers of farm inputs like machinery and fertilizers, the organization said in the report analyzing farm household incomes. In the worst of cases, only about one quarter of the subsidies result in a net gain for the rural households, and in the best, no more than half do.

"The great bulk of support to agriculture in the OECD area is still delivered through mechanisms that distort production and trade and are inefficient in generating increased net income for farmers," the study said.

Issued at the International Green Week in Berlin, the report seeks to establish a reliable statistical basis to illustrate the inefficiency of agricultural subsidies and provide governments with a tool for reducing or eliminating them. Although the wealthier nations have promised to do this under the Doha round of world trade negotiations, mutual suspicions about each others' subsidies have so far prevented any progress.

The OECD, a Paris-based body that provides strategic thinking for government decision-making and has long opposed trade-distorting subsidies of any kind, said one of the most cited reasons for agricultural support is to improve the income of farm households. Yet because subsidies are granted across the board, rather than being targeted on the families that need them, "the greater share of that money ends up in the pockets of others," it said.

Indeed, subsidies have the perverse effect of making many poor families poorer, or driving them out of farming altogether, by pushing up the price of land beyond what they can afford, the organization said. This is consistent with other studies, including a report by the conservative Heritage Foundation last year that said the bulk of U.S. farm subsidies went to corporations and big farmers, and helped them buy out small farmers.

"Large farms and agribusinesses, which not only have the most acres of land, but also, because of their economies of scale, happen to be the nation's most profitable farms, receive the largest subsidies," the Heritage Foundation report said. "Meanwhile, family farmers with few acres receive little or nothing in subsidies. In other words, far from serving as a safety net for poor farmers, farm subsidies comprise America's largest corporate welfare program."

Another, earlier, study by the Environmental Working Group, which analyzed some 30 million U.S. federal payments to farmers, concurred in finding that "the flow of farm subsidies has never been more biased in favor of large operations than it has been in recent years under the controversial 'freedom to farm' policies introduced in 1996." It said 10 percent of the highest-paid recipients collected more than 61 percent of the money nationwide, with even greater disparities in Southern states.

The situation is apparently no better in Europe.

"When I came to Brussels in 1992, 80 percent of the subsidies went to 20 percent of the farmers," said Roger Waite, editor of Agra Facts, a specialist newsletter on the European Union's Common Agricultural Policy. "There were reforms in 1992, and in 2000, and today the situation has not changed one jot or tittle. It is still 80-20."

Speaking for COPA, the Committee of Agricultural Organizations in the EU, Dominique Souchon, the director of coordination, said it was only logical that the bulk of subsidies on production should go to those who produced most - namely, big farmers. "They produce 80 percent of the goods, that's why they get 80 percent of the subsidies," he said. "They have the biggest investments."

Souchon said the Common Agricultural Policy, by providing secure supplies of food, is actually a good deal for taxpayers since its annual cost of about E40 billion ($42 billion) represents only about 1 percent of the gross domestic product of the European Union. But surplus production has to be subsidized to compete on world markets, and this can have a disastrous impact on competing producers in developing countries.

At the world conference on sustainable development in Johannesburg last year, the development agency Oxfam produced a report alleging, "European consumers are paying to destroy livelihoods in some of the world's poorest countries."

For example, it said that countries in southern Africa that can produce sugar at one-third the price of European sugar are barred from world markets because EU export subsidies enable the Europeans to sell their product even more cheaply.

When President George W. Bush last year promised an additional $190 billion over 10 years to American farmers to grow many of the products that developing nations depend on, the EU commissioner for agriculture, Franz Fischler, alleged that Bush had undermined the credibility of frequent U.S. statements on the need for a global reduction in agriculture support. Contesting this, the U.S. government said the EU pours $5 billion into subsidizing exports every year while the U.S. spends no more than $200 million. In fact, it said the EU accounted for 90 percent of subsidies on exports. But Souchon said that one way or another, "everyone subsidizes. There is a lot of hypocrisy about it."

The EU farm reforms in 1992 and 2000 set out to separate, or "decouple," subsidies from production, by making direct payments to farmers regardless of output. Fischler wants to expand this by further reducing the minimum payments that farmers may expect for their products while shifting support to rural development, in effect giving farmers a wage for maintaining the countryside as an environmental asset.

Some experts argue that if this idea is carried to its logical conclusion, farmers should also be charged for the damage they cause to the environment through the use of fertilizers and pesticides, a move that would have the added advantage of encouraging organic farming.

Fischler this week released details of six studies into the impact that the changes proposed by the European Commission may have on farming, prices and the environment. "Decoupling will lead to some production adjustments, but in no way will it lead to farmers abandoning their land," he said. "And the most substantive result is that farm income will be positively affected by the reform."

The studies will be reviewed by EU agriculture ministers when they next meet Jan. 27 for what is known as a mid-term review of the Common Agricultural Policy.

The Union is sharply divided by countries like France, the major beneficiary of the Common Agricultural Policy, and those like Britain that are eager to cut subsidies.

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