Green Box Subsidies Must Go
DEVINDER SHARMA (India) 21apr04
The United States and the European Union are at it again. After browbeating, coaxing and luring several leading players among the developing countries back to the negotiating tables, the entire exercise is back to square one. The rich and industrialized countries refuse to move even an inch on the contentious issue of massive domestic support they continue to dole out to their farmers.
The US Trade Representative Robert Zoellick has already reiterated his call for the total elimination of all export subsidies but refuses to mention the equally and in lot many ways more harmful and pernicious protection that is granted through the ‘green box’ mechanism. Equally canning, EUs Agricultural Commissioner Franz Fischler told a group of WTO Ambassadors at the re-launch of the negotiations at Geneva in mid-April: “the 'green box' is by definition non-trade distorting and therefore there is nothing to be cut. If some clarification is necessary, it is a technical issue to be discussed by the experts. However in principle, the 'green box' has to be left untouched.”
The ‘green box’ covers subsidies that are expected to cause minimal or no trade distortions. Such subsidies have to be publicly funded but must not involve price support. In simple words, it includes direct income support to European, American and Japanese farmers, which is formally decoupled from production levels and prices. ‘Green box’ also includes subsidies granted in the name of environment protection and preservation, and for agricultural research and development.
In reality, these subsidies are termed ‘non-trade distorting’ because of the ability of only the rich countries to provide for such support. Knowing that the developing countries do not have the financial resources to pose any threat to the protection provided through ‘green box’, the US and EU are refusing to open up the can of worms. With mainline economists and many European and American NGOs justifying the ‘green box’ measures as least trade distorting, and that questions the very foundations of the trade economics that prevails, trade negotiators use the unsound economic arguments to push through their own agenda. Developing countries are left seeking an overall cap on all the support programmes, so that the industrialized countries do not agree to cut some subsidies, and then shift them to the ‘green box’.
The G-20 (group of countries that stood up on the issue of agriculture at Cancun Ministerial) too refrained to drive home the point. Instead of standing firm on the removal of domestic support before any further negotiations are opened, many are making contradictory statements. Not realizing that maintaining a status quo on domestic support through the ‘green box’ (and to some extent through the ‘blue box’) will be catastrophic for millions of farmers in their own countries. Third World farmers have already been hit badly by cheap agricultural imports and unfair rules. And yet, their respective governments are not standing up collectively to demand removal of all kinds of agricultural subsidies as a pre-requisite to further consultations.
When all political coercion and economic arguments fail to defend the huge domestic support, the big players are ready to even use the ‘moral’ and ‘ethical’ concerns to justify the illegality of maintaining these subsidies. At the ongoing dispute settlement case against sugar export subsides, brought up by Australia, Brazil and Thailand, the EU has invoked a “good faith” defense by arguing that in negotiating its export subsidy reduction schedule under the Uruguay Round, it did not include cut in export subsidies for certain kinds (based on quality) of sugar. Earlier, when the developing countries had wanted sugar subsidies to be discussed, the EU stand was that sugar was off the negotiating table. The same answer came whenever the developing countries wanted the dairy subsidies to be examined. But when it comes to domestic support on sugar and dairy subsidies, developing countries are asked to keep their hands off !
Developing countries need to worry about the “green box” subsidies because it actually operates like ‘income insurance’ scheme for the farmers in the industrialized countries. They remain insulated from the volatility of the global markets. Whether the international prices slump or go on a meteoritic rise, they remain unruffled, as their life style has already been protected by the state subsidies. Take the case of US farmers. "It's a welfare check," a Chicago Tribune report sometimes back quoted Robert Johnson, 57, who farms 500 acres of corn and soybeans. "I don't like welfare and I know other people don't either--but you have to take it to survive." He said prices for his crops are too low for him to make a living. He drives a truck at night and his wife drives a school bus to make ends meet.
In Illinois alone, the average income of a farmer before President George Bush came out with the notorious Farm Bill in 2002, averaged at US $37,000 of which, US $16,000 came from government farm subsidies. These subsidies reportedly help farmers meet their current debt liabilities. In the two years of 2000-02, direct government payments to farmers in America rose 86 percent to reach US $22.7 billion, and have gone even higher this year. Whether it is cotton, beef, sugar, or even tomato paste, the brunt has to be borne by the developing country farmers. And yet, we were always told that the market is the best mechanism to ensure efficiency. The market, in reality, is meant only for the developing country farmers. For the farmers in the developed countries, the governments provide the welfare check. The market argument is only used to force open the developing countries to accept the subsidized produce.
Let us move to another part of the world. Monica Shandu was adjusted the best small-scale sugarcane grower for 2001 in the Entumeni hills of South Africa. She farms four acres with sugarcane, and the harvest brings her an equivalent of US $200. Despite being a progressive farmer with high productivity levels, Monica lives in penury barely managing to survive against all odds. Los Angeles Times reported that far away in France, Dominique Fievez cultivates his farm of 400 acres with sugar beet. His is an average farm, which remains untouched by the price fluctuations in international market since 1984. The reason: Fievez receives a huge subsidy support under the European Union's Common Agricultural Policy at the rate of US $23,000 for each of the 33 acres that he grows with beet.
Such heavy subsidies not only depresses the international sugar prices making it difficult for developing countries to export but also insures French farmers against any downslide in their incomes. When faced with a drop in prices, Minica Shandu on the other hand will first cut back on sugarcane and then abandons agriculture and move out into the urban slums. With her livelihood lost, she either lands in a menial job or the chances are she would end up committing suicide. Whether it is sugarcane, wheat or coffee the result is the same. In India, farmers in the southern state of Karnataka, hit by low coffee prices and a loss of markets, have reportedly started taking their own lives. The French farmers on the other hand can go off on a cruise in the Atlantic, and return after the holidays to be sure to milk the ‘income-generating’ farms.
In other words, the rich and developed countries have perfected a well-established state intervention programme to ensure that their farmers get a minimum level of income come what may. Markets therefore have no meaning for the developed country farmers. These farmers, whether they live in the US, France, Germany, Switzerland, Japan or Australia, are ensured. It is only the poor farmers in the developing countries who are being forced to face the vagaries and cruelty of the markets. For the rich, the scandalous cover of “green box” subsidies protects direct payments. For almost 3 billion farmers in the developing world, even their own governments (and of course the economists), are refusing to address the consequences of the grossly uneven playing field to which they are being exposed.
That the developed countries are not willing to re-open the “green box” first became evident when the concept of a ‘development box’ for the developing countries was proposed. It was backed up by some large western NGOs who too were trying to protect the home turf. Many developing country NGOs, receiving funding support from these western outfits, too had begun to chant the mantra saying that export subsidies were the only culprit. Then came the ‘multi-functionality’ of agriculture, a term coined by the EU to protect its massive agricultural support. It doesn’t mean this writer is against income support to western farmers, but it is unfair to use faulty economics to pamper one class of farmers in the developed countries at the cost of millions of poor and subsistence farmers in the majority world.
Economists tell us that elimination of agricultural subsidies (and that includes the ‘green box’ payments) actually changes nothing. Land has a greater influence and the withdrawal of subsidies would mean that farmers change the cropping pattern. Such a change doesn’t have a significant impact on reducing the global prices and therefore there is no economic sense in phasing out agricultural subsidies. Several American institutes and European university studies now point to the same conclusion. The reason is obvious. It is not economics that drives the analysis but politics, and the line between economics and political economy has now blurred. Such analysis is the outcome of a faulty prism being used to actually protect the subsidies. Let me explain.
For an Indian rice farmer, for instance, it doesn’t matter what the prevailing international price is. He doesn’t know what constitute competitiveness in a globalised world. But what shocks him is that despite having one of the lowest cost of production for rice in the world, the Indian government refuses to pay him an assured price on the plea that the ‘minimum procurement price’ that he is supposed to get has actually become a ‘maximum support price’ since rice is available at a much power price in the international market. The government therefore has frozen the rice procurement price at the 2002 level of Rs 6.10 for a kilo of rice paddy.
In reality, an average Indian farmer produces a kilo of rice at Rs 6.10. Taking the prevailing conversion rate of Rs 43 for a US dollar, each dollar would buy roughly seven kilos of rice. Can the economists tell us where in the developed world can you get seven kilos of rice for a dollar? How come than the Indian farmer is then priced out of the market? In that case, isn’t there something terribly wrong with the way economics is dictating the trade agenda? Even in the retail market, a kilo of rice is available for Rs 10, which means you can get more than four kilos for a dollar. On the other hand, look at the retail market in the UK. A kilo of rice is available at 2.54 pound sterling, good enough to buy 20 kilos of rice in India. And yet, the Indian farmer does not receive any income support. His income is not secured, and the growing volume of ‘green box’ subsidies merely forces him to abandon farming and migrate to the urban centers. Domestic support in the developed countries is leading to the newly emerging phenomena of agriculture displacements in the developing countries. In the years to come, developing countries will witness an upsurge in the displacement of farming populations from their only economic possession – meager land holdings.
- The G-20 countries, therefore, must strive to bring the ‘green box’ subsidies to zero before any meaningful talks on agriculture trade are re-initiated. There is no other way out. There is no other formula to strike a compromise.
- G-20 must use the expiry of the ‘peace clause’ to fight the issue of agricultural subsidies. It cannot be left to ‘good faith’. Developing countries should not forget that whether it was the obligations under the Trade-Related Intellectual Property Rights (TRIPs) or the removal of quantitative restrictions (QRs), the US and EU had never allowed any exemption in ‘good faith’.
Devinder Sharma is a New Delhi-based food and trade policy analyst. Responses can be emailed at: email@example.com