Global Policy Forum

Cancun: Subsidies for Agribusiness


By Jacques Berthelot*

Le Monde diplomatique
September 2003

The crucial issue at the World Trade Organisation conference in Cancun was farming. What the world actually needs is protection for the fragile rural economies of the South and an end to subsidies, both open and hidden, given to agribusinesses based in wealthy Northern countries.

The World Trade Organisation (WTO) ministerial conference in Cancun, Mexico, on 10-14 September marked an important halfway stage in the Doha development round launched in November 2001 and due to end in January 2005. Farming is central to the negotiations and the agreements reached will form a single package, requiring a single undertaking from each member state. They must accept all or none.

Pascal Lamy, trade commissioner for the 15 member states of the European Union, told the French National Assembly on 18 December last year that the EU had been a prominent proponent of the Singapore subjects: trade facilitation, competition, investment and transparency in government procurement. If the council adopted the commission's common agricultural policy (CAP) reform proposals, the EU might or might not use the additional room for manoeuvre in the negotiations, depending on its interests. He mentioned this again in London on 19 March 2003, in reply to questions from a House of Commons select committee: "On the market access side, we will have to pay for agriculture; we can win a lot on industry and services" (1).

The CAP reform was agreed by EU agriculture ministers on 26 June and Franz Fischler, the commissioner responsible for agriculture, has confirmed that the EU would only use its increased negotiating capital at the ministerial meeting in Cancun if it got something back in exchange. The Doha round will cover the Singapore subjects, and the EU will clearly go beyond the WTO proposals for a new agreement on agriculture. These include a 36% reduction in customs duties on imports of agri-foodstuffs, a 55% reduction in internal support linked to production (Lamy made a 60% reduction on 31 July), measures that do not offset a 45% reduction in export subsidies or refunds, welcomed by the rest of the world. The joint US-EU agreement of 13 August on a further series of reductions is not credible. It suggests that the two conspirators will continue to cheat on a massive scale when reporting on their subsidies to the WTO (2).

The agreement on agriculture adopted in 1994 did not help either the North or the South but the proposals to renegotiate it show that nothing has been learned: they are likely to make matters worse. This is essentially an agreement between the United States and the EU. It reflects the agricultural policies embodied in the 1992, 1999 and 2003 CAP reforms and the 1996 and 2002 US farm bills, weapons of war designed solely to benefit the multinational agri-foodstuffs industry - all wrapped up in talk of consumer interests, the environment and animal welfare in nations of the North, with a few tears for the starving peoples of the South (three-quarters of them, mainly farmers, living in rural communities).

There are three reasons for this suicidal policy: economic obfuscation by both North and South; pressure from the agri-foodstuffs industry in the North; and the mistaken idea in the South that there is more to be gained from opening up Northern markets than protecting domestic production.

Agricultural policies are based on concepts such as protection, world prices, consumer surpluses, dumping and decoupled subsidies - the definition of the last two is a piece of political and legal trickery. Dumping was defined in 1948, in the General Agreement on Tariffs and Trade (Gatt), forerunner of the WTO, as export at a price below the price on the domestic market, not below the price of production. This explains the 1992, 1999 and 2003 CAP reforms: by gradually bringing farm prices down to the level of the world price, the EU will be able to export without refunds and so, officially, without dumping. Farmers' incomes can be made up by decoupled subsidies: subsidies that are not linked to production or the price for the current year and are consequently permitted under the agreement on agriculture, at least until the end of 2003.

The guaranteed or intervention price of grain has been held at €101.31 a tonne since July 2001. This is the same as the world price but much lower than €160 a tonne, the production cost of wheat in France, the most competitive of the 15. The difference was made up by a direct subsidy to producers amounting to €63 a tonne, based on acreage and yield in the period 1989-91, allowing the EU to export wheat from July 2001 to June 2002 without refunds but not without massive dumping in real terms. With the increase in the value of the euro, refunds had to be resumed until this summer, when the world price rose and they could again be abolished. The European Commission hopes to increase wheat exports in this way from 16.6m to 18.8m tonnes between 2002 and 2010.

In the US all measures to control production (set-aside, public storage, subsidies for storage on farms) were suspended in 1996. World prices collapsed and Washington had to increase its direct subsidies four-fold between 1996 and 2000, and largely recouple them for 10 years in the 2002 farm bill. As a result, dumping by the North on the South is increasing, helped by the customs disarmament terms imposed on Southern countries by the International Monetary Fund and the World Bank despite the room for manoeuvre permitted under the agreement on agriculture. Southern countries now have a growing agri-foodstuff deficit. The prices of their tropical products collapsed just as they were starting to grow crops for export, because dumping by developed countries meant there was no profit in producing basic crops.

Wheat imports in black Africa were typical of the trend, increasing by 35% between 1996 and 2000, while the import value fell by 13%. In Burkina Faso imports were up by 84% although the invoice increase was only 16%. This dumping of basic foodstuffs caused French-speaking West Africa to invest heavily in cotton production, where it has a clear advantage over its competitors because production costs in that area are the lowest in the world. But then the price of cotton collapsed. The cause was not so much the substantial subsidies to American, European and Chinese producers, which were not new, but the ending of controls on US supplies in 1996. The result was that West Africa lost $200m a year between 1997 and 2001 (3).

Direct EU subsidies will be deemed to be coupled at the beginning of 2004 and therefore subject to reduction in the WTO on the expiry of the peace clause (Article 13 of the agreement on agriculture). That is why Franz Fischler managed to persuade the council of agriculture ministers to reform the CAP on 26 June 2003. Subsidies were to be completely decoupled, on the pretext that recipients of the new single farm payment, equal to the average amount of the direct subsidies received between 2000 and 2002, would not necessarily produce the commodities on which the subsidies were based: COP products (that is cereals, oilseeds and protein crops), beef or lamb. Then they might produce something else.

To pretend that these payments will have no effect on production or prices is a huge hoax. Most of the negotiators from the South and all the NGOs in both North and South know it, but the US and the EU persist in the subterfuge because the agreement on agriculture allows it.

The EU should soon realise its mistake. Most cereals and protein-rich oil plants are grown for animal feed (108m tonnes of cereals, 12.6m tonnes of bran and 18.3m tonnes of protein-rich oil plants in 1999-2000). So they attract input subsidies, which are coupled and therefore subject to reduction in the developed countries under Article 6.2 of the agreement on agriculture. Even if they are completely decoupled, it will not affect farmers, who will continue to produce COP products for export. Poultry and pig production will also be hit, because feedstuffs account for more than 50% of their production cost.

It will also be easy to challenge "green box" subsidies (4) authorised by the WTO after 2004 by proving that they cause real damage through dumping (5). Franz Fischler's attempt to protect CAP subsidies in the WTO green box is doomed to failure and the new reform will be obsolete from the outset.

The strategy of the 15 for reforming the CAP and the agreement on agriculture is dictated entirely by the agri-foodstuffs industry. On 19 June 2003, the confederation of food and drink industries of the EU (CIAA) said it thought the proposal to abolish the [45%] export refunds was too ambitious. Refunds would continue to be necessary as long as prices paid by firms on world markets differed from those paid on the EU market. Commissioner Lamy, invited to speak on that occasion, reassured the CIAA. The agri-foodstuffs industry was fortunate in having three commissioners to speak for it: Fischler on agriculture, Erkki Liikanen on industry and Lamy on international trade. EU products should benefit from lower tariffs as a result of the WTO negotiations and Lamy hoped he could count on the CIAA for suggestions when it came to setting priorities.

The most depressing aspect is that the governments of the Southern countries have been conned into campaigning for open markets in the North instead of defending their own markets against Northern dumping, if only to protect them against imports of certain basic foodstuffs. This export strategy has failed. The South's agri-foodstuffs deficit has increased and the only winners are the multinationals.

Via Campesina, an international farmers movement with some 70 member organisations including the French Confédération paysanne, and ROPPA, a network of farmers' organisations and agricultural producers from West Africa, put the case clearly on 17 July 2001. The first priority for farmers and their families in the less developed countries (LDCs) was production for the family, then access to the domestic market. Export came a poor third. Unfortunately LDC governments do not take that position in inter national negotiations.

To prevent more starvation in the South and deserted fields in the North, the CAP and the agreement on agriculture will have to be rebuilt on the principle of sovereign control over food production and no dumping of any kind. Without sovereign control and protection against imports, there will be no general development in the South, where farmers are still in the majority. And without such development, the North will be unable to export high-added-value products and services to the South. The EU would have been well advised to advocate this strategy at Cancun, since subsidised exports represent only 10% of cereals and dairy products, 8% of the meat and 30% of the sugar produced in the EU. But it has chosen not to go down that road.

*About the Author: Jacques Berthelot is a researcher at the Dynamiques rurales laboratory, Institut national polytechnique, Toulouse

(1) See: www.parliament.the-stationery-office
(2) See L'agriculture, talon d'Achille de la mondialisation. Cles pour un Accord agricole solidaire í  l'OMC, L'Harmattan, Paris, 2001; "Pourquoi et comment la libéralisation des échanges agricoles affame les paysans du Sud et marginalise ceux du Nord", in Cetim, Via Campesina, une alternative paysanne: la mondialisation néo-libérale, Geneva, 2002.
(3) Daryll Ray, Notice to Mali farmers: Forget subsidy levels. Focus on lack of policies to limit production, APAC Agricultural Policy Advisory Centre, University of Tennessee; Louis Goreux, Préjudices causés par les subventions aux filieres de l'Afrique de l'Ouest et du Centre, Ministí¨re des affaires étrangeres, Paris, 2003.
(4) Defined in Gatt negotiations as domestic support policies, which are not subject to reduction commitments under the agreement on agriculture.
(5) Didier Chambovey, "How the expiry of the peace clause might alter disciplines on agricultural subsidies in the WTO framework", Journal of World Trade 36 (2), 2002.

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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.