Global Policy Forum

By Siddhartha Nath

This may sound familiar, but isn't a story from India. Consider this — a handful of large farmers capture a bulk of agricultural subsidies. They are geographically concentrated, have large surpluses and form a powerful lobby that ensures a perpetuation of the hand-outs that distort crop-mix and raise prices and subsidise exports.

Sounds familiar! Well that's the story of the US, and it could apply to the European Union as well.

Latest estimate of agricultural subsidy given by OECD countries during '01 was $311bn (India's total GDP at factor cost was $431bn in '01-02) representing 1.3% cent of GDP of the OECD area. Seventy per cent of the subsidy went as direct payments to producers. In terms of size of the agricultural sector, the support is disproportionate. The latest US farm bill promises to increase spending on agriculture by $180bn over the next 10 years. Its farm support programme was designed in the 1930s, and reflects the geographical and commodity distribution of that period. Sixty per cent of US agricultural produce gets only 3% of the subsidies, while subsidies are concentrated in a handful of crops, such as corn (27% of the bill, but 10% of the value), and cotton (with 13% of subsidies, against a 3% share in value).

The geographical concentration of production in the ‘corn belt' or the ‘cotton belt' leads to concentration of lobbying power, and hence subsidies, geographically as well. That is similar to farmers in Punjab, Haryana, West UP and AP getting a large part of the foodgrain subsidy, compared to the relatively poorer price support program for coarse cereals and pulses. In the US, too, it has been estimated in a recent New York Times report that one fourth of US farmers get 84% of the subsidies.

High subsidies in the West are imposed in the name of the small farmers or to "preserve the rural way of life." However, the Australian think-tank ABARE reckons that large farms in Europe, which constitute 17% of the farming community, get 50% of total subsidies. IMF figures (in the World Economic Outlook) show that support to producers has come down to 31% of OECD farm revenue in '01, from 38% in 1986-88. Yet there is a long way to go. In the European Union, 35% percent of total farm income still came from government support in '01.

The EU is worried at the prospect of having to increase its subsidy bill by 50% to cater to prospective new members of the EU (such as Poland, which has more farmers than France and Germany put together).

It announced a plan in June '02 to reduce production linked subsidies and instead spend more on rural development and the environment to curtail overproduction and fall in line with WTO rules. The high level of government support to sectors like textiles and agriculture reduce the credibility of US negotiators pressing for liberalisation abroad.

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