No End to Subsidies in Sight


By Julio Godoy

Inter Press Service
June 17, 2005

Most countries in Europe and North America do not foresee an end to the billions of dollars they pay out in subsidies to their farmers, a leading expert says.

Former European Union commissioner for agriculture Franz Fischler told IPS that most OECD countries are not willing to discontinue the financial support they provide to their agricultural sector despite complaints from developing countries that such subsidies distort world markets and constitute a barrier to their exports.

Fischler chaired a meeting on agricultural policies that the Organisation for Economic Cooperation and Development (OECD) hosted in Paris this week where representatives from Brazil, China, India, and South Africa also participated. These four countries are leading members of G20, the group of 20 developing countries set up in 2003 to coordinate international trade policy positions in the Doha round of international negotiations on agriculture and services.

The 230 billion dollars in subsidies that OECD countries pay to their farmers -- at a conservative estimate -- is the main bone of contention in the Doha round and in the World Trade Organisation (WTO). The OECD represents 30 industrialised countries including the United States, European Union (EU) members, Japan, Australia, and also other countries that still rely heavily on agriculture, such as Mexico and Turkey.

Fischler made it clear that the meeting in Paris had no negotiating or even pre-negotiating character. "The objective was to get a common understanding of the global dimension of agricultural policy reform," he said. Although the meeting had no definitive agenda, subsidies for the agricultural sector in the richest countries was the main subject, and served to prepare further negotiations on agriculture in the Doha round.

Most developing countries have long ceased to pay out heavy subsidies to their farmers. A new report to be published by the OECD later this year confirms this contrast. The report's preliminary findings, to which IPS had access, underlined that the producer support estimate (PSE) in France and in the United States amounts to 31 and 16, while the Brazilian value is less than 10.

The PSE is the indicator the OECD uses to measure "the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers, measured at farm gate level, arising from policy measures which support agriculture, regardless of their nature, objectives or impacts on farm production or income." The PSE values for China, India, and South Africa are also considerably lower than those of the European Union and the United States, according to the preliminary findings of the OECD study. But despite such findings Fischler says most OECD countries continue to maintain subsidies. "There is no timetable for putting an end to this support," he said. Fischler argued that the agricultural policy reform undertaken in the European Union since 2003 has only changed the nature of the subsidies.

The EU spends roughly 40 percent of its budget (some 50 billion euros/60 billion dollars) in subsidies for farmers. France is the main beneficiary, taking 23 percent. Following reform of the European common agricultural policy (CAP) launched in June 2003, EU subsidies are due to remain unchanged until 2013, but decoupled from the level of production. "Decoupling the subsidies from the level of production has been a big step in the right direction," Fischler claimed. Decoupling means that the European states still pay subsidies to their farmers, but at a level based on past income. Financial support comes now in the form of a one-off payment every year, and is aimed at encouraging farmers to rationalise production to focus on real market demand.

"Now subsidies for agriculture do not represent an incentive to produce more, but a price the state pays to farmers for providing public services," Fischler added. This was reflected in the declaration released after the OECD debate. The declaration recognises that progress towards reduction of subsidies has been slow, but adds that "the contributions that agriculture can make beyond producing food and fibres have gained in appreciation." These "contributions" are said to include "countryside and nature management, biodiversity, rural amenities, and rural community well being, amongst others." Such claims go against the general perception that OECD subsidies have led to environmentally damaging intensive farming and are partly responsible for provoking a health crisis such as the mad cow disease.

Despite the OECD defence of subsidies, representatives from Brazil, China, India, and South Africa and also from the WTO see the subsidies even after decoupling as distorting the market mechanism. Ben Van Wyk, senior manager for economic analysis at the South African ministry for agriculture said the OECD countries should follow the example of developing countries "which have largely liberalised the sector."

Ivan Wedekin, head of the department of agricultural policy in the Brazilian government said that Brazil, together with China, India, South Africa and other developing countries will continue "working at the WTO to see that Europe and North America reduce their subsidies for agriculture, which distort prices and affect millions of farmers across the rest of the world." He added that the preliminary findings by the OECD on subsidies "fortifies our negotiating position" before the WTO and the Doha round. "Brazil, as well as other developing countries could win from the liberalisation of world trade," he said. "But our agricultural potential is negatively affected by subsidies paid to farmers by the richest countries." Wedekin described the European plans of reforming financial support for sugar producers as "a first small step in a long path."

The WTO ruled EU support for sugar producers as illegal last month after Brazil, Thailand, and Australia filed a complaint. In April 2004 another WTO verdict established the illegality of U.S. subsidies for cotton, despite the U.S. government claim that it had "decoupled" its support from the level of production.

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