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| Sunday, 25 July 2004 |
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Developed country agricultural subsidy - bane of our farmers Prof. Jagath Wickramasinghe, Professor of Economics, Sri Jayawardanepura University The ministers of trade and agriculture had negotiations with the private sector paddy dealers and importers of wheat flour, Prima Company, with a view to contain the rapid increase in the prices of the essential food items. The result is not clear. Trade Minister has brought wheat flour under the purview of the Consumer Affairs Authority so that the price of wheat cannot be changed without the approval of the authority. It is not clear of the position with regard to paddy. Some are of the view that there are sufficient stocks in the hands of the farmers and the dealers. Others try to show that there would be a shortage in the market and recommend to import some stocks. Inspite of all these, the final outcome is that the prices of essential food items are still at a fairly high level. The purpose of this article is not so much to analyse the attempts made by the two ministers but to show a more fundamental aspect of agricultural commodity pricing to the readers, particularly by placing the major recommendations of the World Bank on non-plantation agriculture in Sri Lanka in the regime of agricultural subsidy paid to farmers by the developed country governments, in particular the triad, US, EU and Japan and oligopolistic market structure in the world grain trade. In report No.14564-CE, Sri Lanka Non-plantation Crop Sector Policy Alternatives a World Bank team dealt with paddy and other food crops. It says, "Overall, Sri Lanka currently shows no comparative advantage in production of rice or other food crops in either major or minor, irrigated or rainfed agriculture. Domestic production is much more costly than imports... This non-competitive output is currently maintained by massive transfers amounting to $ 250m or 3% of GDP annually." This statement has to be analysed in the context of the massive agricultural subsidy given by developed country governments, which is responsible for depressing world market agricultural prices. Does the World Bank advice in the same tone to the developed countries? However, what probable benefits expected are undermined by the oligopolist market. In this present global environment where protection is generally on the decline and the benefits of free trade are universally accepted, the market distorting influence of agricultural subsidies continue in developed world unabated. The OECD recently put the total value of agricultural subsidies in the developed world at $ 475 billion in 2002. The European Union' Common Agricultural Policy (CAP) and USA's pork-laden Farm Security and Rural Investment Act 2002 are massive in financial size. The impact of such subsidies to the world economy is that developed economies are producing products at an inefficient price and larger quantities, more than what they need, at a very high cost and artificially depress the prices. These subsidies allow American and European farmers to dump their products at prices they could never be produced, hampering economic progress of the farmers of the developing countries. Agriculture in the OECD countries is characterised by an exceptionally high level of protection in the region of 31% of the producer income. Three giants US, Europe and Japan have the highest level of agricultural protection. The Common Agricultural Policy of Europe has grown from a small experiment in 1950s to a bureaucratic monster today. These production subsidies are one of the most perverse forms of protection; the national producer is given incentives to produce large quantities of protected product. Not only inefficient production is protected but also it is deliberately encouraged. As a result of this hypocratic policies, EU has huge surpluses of grain, dairy products. 40% of the entire EU budget is spent to celebrate inefficiencies, to stymies competition and for the benefit of food conglomerates. In brief EU agricultural subsidies are destroying livelihoods in developing countries. By encouraging over-production and export dumping, these subsidies are driving down world prices of wheat, rice, sugar, dairy and other cereals. Large landowners and agribusiness under this subsidy system get rich and smallholder farmers in developing countries suffer the consequences. On the current subsidy basis EU share of world wheat market will increase from 7.85% to 19.7% in 2012. Mozambique is a country, which was adversely affected by EU sugar subsidy policy; production cost was 286 Euros a ton, which was the lowest in the world. It employed 23000 workers in 2001. Dumping of European surpluses reduced Mozambique's export revenue. A World Bank study shows that EU sugar regime has caused world market prices to fall by 17%. Dairy dumping had serious impact on Jamaica's domestic market. Many local dairy farmers have had to abandon production because most local processors use the cheaper imported milk powder instead. Faced by declining world market prices for cotton, a phenomenon that threatened livelihoods of some 10 million people, four African states- Benin, Burkina Faso, Chad and Mali farmers started to protest. 10000 farmers in Brazil were impoverished by the US subsidy scheme on cotton growers. The US, which claims to be the most free market economy has the highest protection to the farmers. Under the Farm Security and Rural Investment Act subsidies paid to the farmers were increased to 80% in some cases. Total value of the package is approximately $ 325 billion over 10 years. However, American scheme is not quite as market distorting as the European scheme. Unlike the EU scheme US system does not involve a link between production levels and subsidies, and hence it does not generate ludicrous overproduction as in Europe. The world grain market is oligopolistic. Giants such as Cargills-Continental, Archer Danish Grains, Zen Noh control 42%, 28% and 11% of the market share respectively, totalling 81% of US market. This type of oligopolistic market will undermine whatever advantages this subsidy schemes attempted to deliver to the poor customers. When considering the domestic subsidy policy for agriculture these issues have to be carefully considered and accounted for, so that the poor domestic farmer is not pushed into proverbial fire from the frying pan. What is stated here is only a brief account of ruinous impact of the agricultural subsidy and the distributive structure of developed countries on the rural farmers of the developing world. I really cannot understand why the World Bank cannot take such situations as realities in the modern international order when they advice the third world on development policy. In such a distorted international trade regime can one expect a small developing country, such as Sri Lanka to achieve rapid economic development by trusting free market economy? |
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