Subverting Subsidies—Trade takes its toll
Since 2001, the World Trade Organization (WTO) has been engaged in a series of negotiations known as the Doha Round. The round seeks to lower international trade barriers in an effort to promote free trade. At the recent June 3-5 FAO summit in Rome discussing the world’s food crisis, WTO Director-General Pascal Lamy spoke of the role the Doha Round could play in a solution to the food crisis.
“Trade will help,” said Lamy, arguing that open trade will strengthen production capacities of farmers in developing countries, rendering them less vulnerable to volatile market conditions.
“Through greater and fairer competition, international trade can help lower prices. But all of this presupposes that the trade-distorting agriculture subsidies that have given an unfair advantage to rich world farmers, will be tackled. It would also necessitate tariff reduction.”
It is no secret that high agricultural subsidies in rich countries have played a significant role in the often dramatic decline of rural farming in poor countries. According to the WTO, in 2006 alone, rich countries paid $171.5 billion in trade distorting subsidies. These subsidies allow rich farmers to undersell competitors, including farmers in some of the world’s poorest countries.
“That provides a powerful disincentive for farmers in the developing world to produce,” said Keith Rockwell, WTO spokesperson. “When you combine that with high tariffs in rich countries and in neighboring poor countries you get farmers saying ‘I can’t compete, I’m getting out.’” This in turn facilitates the rural-to-urban migration that has been so detrimental to food security and domestic production in poor countries.
In a joint press statement, over 200 aid organizations, including Action Aid International and Oxfam, argued against Lamy’s claim that the Doha Round could be a solution. According to these NGOs, trade liberalization as advocated by the WTO only worsens the volatility of food prices and creates greater agribusiness exploitation while failing to address issues of climate change and low crop yield. Thus, the answer lies in investment in local markets and greater emphasis on rural development.
Rockewell was quick to agree on several points, conceding “trade is only a medium term answer. You have to have in place conditions that will ensure greater stability in the future. And the way to do that from a trade perspective is to get these distortions minimized. What we’re talking about is reducing the kind of farm subsides, as much as 66-73 percent in the US, that have had a very injurious effect on producers in developing countries.”
International Union of Food workers (IUF) General Secretary Ron Oswald, in an address to the International Labor Union, June 11, challenged the view coming out of the FAO summit that completion of the Doha Round will offer a plausible solution to the present crisis. “Where is the linkage between commodity prices, retail prices, wages and purchasing power the WTO assured us liberalized trade would achieve through the ‘optimal utilization of resources’?” asked Oswald. “Dependence on volatile global commodity prices has pushed entire populations to the brink of starvation.”
Aggravating hunger pains around the world has been the panicked implementation of trade restrictions in commodities by countries such as India, China, Argentina and Kazakhstan. In recent weeks, desperate cries for relief materialized in the streets of Afghanistan as the hungry protested Pakistan’s ban on the export of wheat.
“Right now we cannot buy the wheat we need for Afghanistan with the 78 million dollars donors have given us,” said Tony Banbury, the World Food Program’s Asia Director. “We simply can’t get it. And it’s the same in East Timor right now: they can’t buy the food they need—the rice—on the commercial markets. So there are some very big challenges we have to wrestle with now.”
These policies do little to provide a solution, reducing supply and in turn driving up prices in the regions affected.
“Having food readily available through international trade is absolutely crucial,” said Rockwell. “These kinds of measures restrict the flow of grains and other food stuffs that are on the market and available internationally, and this can be especially detrimental to net food importers.” Trading Food for Fuel The increase in oil prices, consistently over $130 a barrel since the end of May, are felt along the entire chain of production affecting such things as the fertilizer poor farmers—the majority of whom are female—use on their fields, mechanized harvesting, transportation and storage. With the rise in oil prices have come calls for alternative energy solutions. Until recently one solution seemed to be biofuels, especially corn-based ethanol.
Significant trade distorting subsidies have been paid to U.S. and E.U. farmers specifically in order to encourage biofuel production, with U.S. taxpayers supporting corn-based ethanol 51 cents per gallon. The U.S. continues to work closely with Brazil to encourage biofuel production, taking advantage of bilateral agreements between the two countries to set renewable energy standards at 35 billion gallons of ethanol a year in the U.S. alone. But with the food crisis growing, many argue that the trading of food for fuel must be lessened, if not stopped altogether.
Biofuels have set the stage, in the words of Lester Brown from the Earth Policy Institute, “for direct competition for grain between the 800 million people who own automobiles, and the world’s 2 billion poorest people.”
Prime Minister Pakalitha Mosisili of the Kingdom of Lesotho described the diverting of food into fuel as “deplorable” and “sinful.” Mosisili asked policy makers in the U.S. and the E.U. how to “explain to a hungry person, sitting on an empty stomach, that you are using food to produce fuel?”
In the United States, many charge that biofuels are being unfairly targeted. Rick Tolman, CEO of the National Corn Growers Association, argues that there are other factors contributing more to high food prices, citing export restrictions, drought, and high energy costs. Tolman said that a moratorium on biofuels would be a huge mistake.
“Abandoning biofuels would send a very negative signal to the growing biofuels industry and undermine the progress we are making with one of the few solutions to keeping oil prices lower, which is one of the real solutions to the global food crisis,” said Tolman. “According to the U.S. departments of energy and agriculture, in the absence of any growth in biofuels production in the United States, the global food commodity price index would have still have risen by up to 42 percent, as opposed to 45 percent.”
Echoing those claims, U.S. Agriculture Secretary Edward T. Schafer, noting that 2007 saw the largest grain harvest in world history, downplayed the role of biofuels in the food crisis, telling reporters in Rome they are responsible for only 2-3 percent of the increased price of food worldwide.
Meanwhile, U.N. estimates say biofuels account for as much as 30 percent of the increased price of commodities, and aid groups like Oxfam say even a 1 percent increase imperils another 16 million people, furthering their stance that U.S. plans to allocate more than a quarter of its corn crop to biofuel production are unacceptable and unsustainable
Feeding the Hungry: Developing Solutions
“Only 3 percent of aid to developing countries for science and technology innovation is now targeted at agricultural research,” said WFP Executive-Director Josette Sheeran, making the case that real solutions will only come in the form of investment in rural development, encouraging greater production and food security in poor countries. But, says United Nations Conference on Trade and Development Secretary-General Supachai Panitchpakdi, “it is not very surprising that many developing countries have not invested substantially in agriculture,” when the markets are awash with subsidized exports from the developed world.
The IUF’s Oswald agreed but noted “no matter how many billions or even trillions flow into agriculture, this investment fails to deliver decent work and fails to advance the right to food. The missing link between investment, production and decent work is social regulation.” As the debate over tenable solutions goes back and forth, there is no denying the influence of trade, both domestic and international, on the global food crisis. Knowing what we know now, the question is whether world leaders will come together to use trade to promote peace and food security. Several solutions that have been offered to the crisis, all of which are mutually inclusive.
In the short term, getting relief to those who need it most is essential. The WFP is in desperate need of support and countries must continue to do their part to ensure the humanitarian obligation to ensure the right to food for of all people is met. Aid should not come in the form of food handouts, but rather cash handouts, thereby allowing aid to be invested in farms closer to the epicenter of the crisis as to not disrupt local markets.
In the long term, several things must happen. Restrictions and fees associated with food importing should be reduced, financial structures must be implemented in developing countries to protect them from speculation and futures trading, production capacity and means must be researched and crop yields increased, social regulation with respect to gender inequities must be leveled and competition policies must develop to ensure that small farmers driven off their land by subsidies can return and integrate into global markets.
In turn, the rich countries must reevaluate policies on biofuels and reduce if not completely halt trade distorting subsidies. Only through development that leads to increased crop yields and market autonomy in the poorest countries can the crisis be alleviated.
“The time has finally come for the African farmer,” said Sheeran. Indeed, the time has come for all poor farmers around the world to have a chance. Only through the nourishing of farms in developing countries can they in turn do the same for the hungry around the world.