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Agricultural subsidies aren’t
merely a commercial problem,
as it might be inferred by the fact that they are discussed and judged by specialized groups, such as the World Trade Organization. They’re a sustainable development issue, as can be seen in texts written in the 1980’s and 1990’s.
For several reasons (such as the lobbying power of producers), rich countries have maintained subsidies for their farm products, even though the adverse consequences of this procedure have been very well known for a long time. Subsidies were already condemned in the 1988 report Our Common Future, which identified them as a source of poverty for developing countries. The eradication of poverty is one of the recommendations of the Rio Declaration, of 1992, and the Agenda 21, also resulting from Rio’s 1992 Summit. Furthermore, in the year 2000 the UN established Millennium Development Goals. Being one of the most important ones – if not the essential one – is the goal to reduce by half, by 2015, the extreme poverty of a world in which 2.8 billion people live on US$ 2 per day or less (more than one million survive with less than US$ 1 per day).
In April 2004, the World Trade Organization (WTO) made a preliminary announcement saying that it had accepted the arguments of the proceeding filed by Brazil and determined that the United States should withdraw the subsidies granted to its cotton producers. The decision was confirmed in June. Even American newspapers agree that subsidies are immoral; it is now proven that they’re also illegal. In early August, two pieces of good news. On August 3, together with the G20, a group of developing countries lead by Brazil, China and India, Brazil got the United States and the European Union (EU) to make a commitment to reduce subsidies over a ten-year period. On August 4, the WTO required the EU to reduce sugar subsidies from 17 million tons to 14 million tons. This suit was filed by Brazil, Australia and Thailand. Good news. Good and late. Furthermore, we’re far from solving all of the problems. Claiming that a dumping practice was involved, the United States decided to charge taxes of more than 67 percent on shrimp exported by Brazil.
The adverse effects of subsidies and other protectionist measures, especially on less favored countries, have been known for a long time. Wealthy nations, however, continue to grant them prodigiously, although their administrators and economists are perfectly aware of their perverse consequences and that poorer nations cannot defend themselves. It’s an absolutely unfair battle. Every year, it’s calculated that the United States and European countries spend US$ 350 billion in subsidies. This corresponds to seven times the amount they spend on international aid. The case of American cotton is typical: the average production cost in Brazil, is US$ 1.01 per kilogram, while in the United States, it’s US$ 1.41. The average price in the international market is US$ 1.21, but the US government pays the producers US$ 1.59 per kilogram. The inevitable result is that American cotton producers make money anyhow, regardless of their efficiency and competitiveness. When they enter the international market, they cause prices to drop, with serious losses for poor nations, such as Mali, Chad and Burkina Faso. According to calculations made by American economist Daniel Sumner, if the United States didn’t subsidize cotton production, between 1999 and 2002 production would have been 28.7 percent lower, exports would suffer a 41.2 percent reduction, and prices would have had a 12.6 percent increase.
It may seem surprising to some people, but more than 15 years ago these problems were presented not by trade agencies, but by a group created for discussing ecology and economy: the World Commission on Environment and Development, or the Gro Brundtland Commission, named after the prime-minister of Norway who lead the efforts, which resulted in a book titled Our Common Future. Here’s a quote from that work:
“The excess of food observed in North America and Europe is principally a result of subsidies and other incentives, which stimulate production even when there’s no demand. Direct or indirect subsidies, which today encompass almost the entire food cycle, have become very expensive. In the United States, the cost of farming subsidies increased from US$ 2.7 billion in 1980 to US$ 25.8 billion in 1986. In the European Community, these costs increased from US$ 6.2 billion in 1976 to US$ 21.5 billion in 1986.
“From a political perspective, it has become more attractive, and usually cheaper, to export the excess – often in the form of food aid – than stock it. Strongly subsidized excesses bring down the prices of primary products, such as sugar, in the international market, and that has been creating problems for several developing countries whose economies are based on agriculture. Non-emergency food aid and imports at low prices also cause the lowering of prices obtained by Third World farmers and discourage the increase of internal food production.”
Sugar, mentioned as an example in the text, costs three times as much for the United States and European Union countries if compared to international market prices. With regard to this product, here’s what Our Common Future says:
“The survival of 3 million poor people living in the Third World depends on sugar cane. Several developing countries have comparative production advantages and might obtain valuable capital by expanding production. Some small States – Fiji, Mauritius and several Caribbean islands – depend on sugar exports for economic survival.
“Industrialized countries had aggressively stimulated and protected the production of beetroot sugar, that competes with the product obtained from sugar cane, which had extremely adverse effects for developing countries. Beetroot sugar production, that has a high cost and is protected by subsidies, stimulates the use of artificial sweeteners; the shares have excluded Third World imports (except for some imports guaranteed by the European Economic Community’s Sugar Protocol), and the excess is dumped in world markets, causing prices to drop.”
In the World Development Report 1986, the World Bank estimated that sugar-related policies caused developing countries to have revenue losses of around US$ 7.4 billion, in 1983, reduced real income by US$ 2.1 billion, and caused an increase of about 25 percent in terms of price stability. There’s more in Our Common Future:
“However, in addition to the impoverishment caused by these practices in developing countries, the encouragement of beetroot sugar production in industrialized countries had adverse side effects for ecology. Modern beetroot cultivation is highly capital-intensive, strongly dependent on chemical herbicides, and plantations have little regeneration capacity. The same product could be cultivated in developing countries at a lower cost, as is the case of sugar cane, using more labor and less chemical additives.”
Although a 1987 publication (in the United States), organized by a high-level commission, raised concern about the consequences of subsidies on the income of the most needy, wealthy countries didn’t seem concerned about extinguishing grants that distort international trade. All of this despite the fact that they have signed two documents that recommend the eradication of poverty. One of them is chapter 3 of the Agenda 21, from which we have extracted some quotes:
“Poverty is a complex multidimensional problem with origins in both the national and international domains. No uniform solution can be found for global application. Rather, country-specific programs to tackle poverty and international efforts supporting national efforts, as well as the parallel process of creating a supportive international environment, are crucial for a solution to this problem. The eradication of poverty and hunger, greater equity in income distribution and human resource development remain major challenges everywhere. The struggle against poverty is the shared responsibility of all countries.
(...)
“Promote international cooperation to address the root causes of poverty. The development process will not gather momentum if developing countries are weighted down by external debts, if finances for development are inadequate, if barriers restrict access to markets and if commodity prices and the terms of trade in developing countries remain depressed.”
The calculated average annual cost (1993-2000) of program funding equals US$ 30 billion – less than one-tenth of what wealthy countries spend on subsidies.
This is the full text of principle 5 of the Rio Declaration:
“All States and all people shall cooperate in the essential task of eradicating poverty as an indispensable requirement for sustainable development, in order to decrease the disparities in living standards and better meet the needs of the majority of the people in the world.”
It’s important to stress that subsidies and protectionist measures not only benefit some countries in detriment to others, but they create social categories within these developed nations. Surtaxes charged on imported consumption products, for instance, represent extra expenses for the poorer individuals of affluent societies, while subsidies are aimed at certain groups of producers, not all farmers. This means that, regardless of whether the comparison is between countries or individuals, discriminatory commercial measures generate unsustainable income patterns that give origin to various forms of disparity.
We should bear in mind that, in today’s world, disparity is a reason for concern for the governments of several countries, since it permits several forms of radicalism to take root, resulting in disorder and violence. The loss of income in the farming activity, as seen in poor countries, causes environmental degradation, as increasingly more people turn to nature to obtain resources such as food, power sources, etc. And the consequences of environmental degradation, as well as of violence, in the current scenario, are global. The search for a more balanced world in which more opportunities are given to those who are worse off, is without a doubt, an important step towards peace, which is essential for sustainable development.
Subsidy in the USA
aggravates poverty
This is part of an article published in the New York Times
in July 2003, written by Amadou Toumani and Blaise
Compaore, presidents of Mali and Burkina Faso, respectively. It’s a strong statement about the consequences of American cotton subsidies on Africa’s poor countries. It also shows that it’s impossible to achieve sustainable development on a planet where disparities are such that, out of each dollar negotiated in international transactions, only three cents go to poor countries, whose situation is worsened by the decrease in the prices of primary products that support their economies. The commitment to eradicate poverty, accepted in the Agenda 21 and the Rio Declaration, seems to be utopian.
Studies performed by non-governmental organizations show that the withdrawal of American cotton subsidies could represent an extra US$ 1 billion per year in exports for Western African countries. But let’s see the text written by the presidents:
“After too many years of Africa being pushed to the global background, it’s encouraging to see the world’s attention being focused on our continent. International support – both financial and otherwise – is certainly needed to help combat the severe poverty and disease gripping our nations.
“But first and foremost, Africa needs to be allowed to take its destiny into its own hands. Only self-reliance and economic growth and development will allow Africa to become a full member of the world community.
(...)
“As the presidents of two of Africa’s least developed countries – Burkina Faso and Mali – we are eager to participate in the multilateral trading system and to take on its rights and obligations.
“Cotton is our ticket into the world market. Its production is crucial to economic development in West and Central Africa, as well as to the livelihoods of millions of people there. Cotton accounts for up to 40 percent of export revenues and 10 percent of the gross domestic product in our two countries, as well as in Benin and Chad. More than that, cotton is of paramount importance to the social infrastructure of Africa, as well as to the maintenance of its rural areas.
“This vital economic sector in our countries is seriously threatened by agricultural subsidies granted by rich countries to their cotton producers. According to the International Cotton Advisory Committee, cotton subsidies reached almost $5.8 billion in the production year of 2001 to 2002, nearly equal the amount of cotton trade for this same period. Such subsidies lead to worldwide overproduction and distort cotton prices, depriving poor African countries of their only comparative advantage in international trade.
“Not only is cotton crucial to our economies, it is the sole agricultural product for our countries to trade. Although African cotton is of the highest quality, our production costs are about 50 percent lower than in developed countries even though we rely on manual labor. In wealthier countries, by contrast, lower-quality cotton is produced on large mechanized farms, generating little employment and having a questionable impact on the environment. Other, more valuable crops could replace Cotton there.
In the period from 2001 to 2002, America’s 25,000 cotton farmers received more in subsidies – some $3 billion – than the entire economic output of Burkina Faso, where two million people depend on cotton. Furthermore, United States subsidies are concentrated on just 10 percent of its cotton farmers. Thus, subsidies to about 2,500 relatively well-off farmers have the unintended, but nevertheless real effect, of impoverishing some 10 million rural poor people in West and Central Africa.”
(...)
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