Agri-Trade Subsidies: Agri-Trade Subsidies: Recommendations to WTORecommendations to WTO

Maxwell WTO Team:Maxwell WTO Team:Maithreyi Seetharaman &Maithreyi Seetharaman &Han Sic ChoHan Sic Cho

What Are Agricultural Subsidies?What Are Agricultural Subsidies?

Financial assistance Financial assistance through direct through direct payments or through payments or through indirect means such indirect means such as price cuts and as price cuts and favorable contractsfavorable contracts

SSupplement the upplement the income of recipient income of recipient farmersfarmers

Agri-Subsidies: A Distortion?Agri-Subsidies: A Distortion?

Trade is distorted if:Trade is distorted if: Prices are higher or Prices are higher or

lower than normallower than normal Quantities Quantities

produced/bought/soproduced/bought/sold are also higher or ld are also higher or lower than levels lower than levels that would usually that would usually exist in a exist in a competitive market.competitive market.

Agri-Subsidies: The ArgumentAgri-Subsidies: The Argument

To make sure that To make sure that enough food is enough food is produced to meet the produced to meet the country’s needscountry’s needs

To shield farmers from To shield farmers from the effects of the the effects of the weather and swings in weather and swings in world pricesworld prices

To preserve rural To preserve rural societysociety

Agri-Subsidies: The WinnersAgri-Subsidies: The Winners

Developed countries determine eligibility Developed countries determine eligibility based on crop production and not incomebased on crop production and not income

US: Corn, wheat, cotton, soybean, rice US: Corn, wheat, cotton, soybean, rice growers receive over 90% of total growers receive over 90% of total subsidies ($ 40bn) subsidies ($ 40bn)

EU: Sugar, dairy products, wheat growers EU: Sugar, dairy products, wheat growers receive over 60% of total subsidies receive over 60% of total subsidies ((€ 100bn approx. $ 121bn) 100bn approx. $ 121bn)

The Questionable Winners: United The Questionable Winners: United StatesStates

0

10

20

30

40

50

60

70

Top 10%

11-20%

Bottom80%

10% large farms 10% large farms get 65% of get 65% of subsidiessubsidies

80% small family 80% small family farms get 19% farms get 19%

13% farms 13% farms received over $ received over $ 1mn in subsidies1mn in subsidies

The Questionable Winners: United The Questionable Winners: United StatesStates

102

103

104

105

106

107

108

109

110

Riceland

12 Statescombined

Riceland Foods : $ Riceland Foods : $ 110mn in subsidies110mn in subsidies

All farmers in 12 All farmers in 12 US States: $ US States: $ 105mn in subsidies105mn in subsidies

The Questionable Winners: EUThe Questionable Winners: EU

EU total subsidies EU total subsidies € 100bn 100bn 78% farmers get less than 78% farmers get less than € 5,0005,000 Less than 2,000 large scale farmers Less than 2,000 large scale farmers

receive more than receive more than € 1bn 1bn Food processors are major Food processors are major

beneficiaries beneficiaries

6 major sugar processors receive € 6 major sugar processors receive € 819mn out of € 833mn sugar export 819mn out of € 833mn sugar export subsidiessubsidies

EU: A Case of Dumping?EU: A Case of Dumping?

90%Of Global

Agri Subsidies

18% of world

sugar exports

28% of world

dairy exports

8% of world

wheat exports

At 34% of Production

Cost

At 50% ofProduction

Cost

At 75% ofProduction

Cost

Comparative Costs of Sugar Comparative Costs of Sugar ProductionProduction

0

5

10

15

20

25

30

World EU Zambia Thailand Brazil India

cent / lb

Comparative World Sugar ExportsComparative World Sugar Exports

0 2 4 6 8 10 12

Brazil

EU

Thailand

Australia

Cuba

Guatemala

South Africa

mn ton

US: Extinction of Small FarmersUS: Extinction of Small Farmers

Big FarmsConsolidate Via Buy-Outs

Size of FarmsIncrease by

350%

No. of FarmsDecrease by

70%

Small Farms Sell

& BecomeTenants

The Losers: Developing WorldThe Losers: Developing World

Can’t provide the same levels of Can’t provide the same levels of Subsidies as Developed WorldSubsidies as Developed World

Subsidy related Global Price Subsidy related Global Price Distortion impacts exports, domestic Distortion impacts exports, domestic market & national economymarket & national economy

The LosersThe Losers

India:India: 10mn people in 80,000 10mn people in 80,000

villages produce 84mn villages produce 84mn ton of milk per annumton of milk per annum

EU subsidizes:EU subsidizes:60% of int’l price of 60% of int’l price of milk powder milk powder 136% of int’l price of 136% of int’l price of butterbutter

Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute

Against United States Cotton subsidies Against United States Cotton subsidies US breached subsidy capUS breached subsidy cap Brazil states subsidies distort trade by Brazil states subsidies distort trade by

depressing world cotton pricesdepressing world cotton prices Brazilian cotton producers claimed they lost Brazilian cotton producers claimed they lost

out on sales worth $600m in the 2001-2 out on sales worth $600m in the 2001-2 season aloneseason alone

US share of world cotton exports had risen US share of world cotton exports had risen from under 20% in 1999 to more than 40% from under 20% in 1999 to more than 40% in 2004in 2004

Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute

If Not For Subsidies, If Not For Subsidies, Brazil claims:Brazil claims:

US output would US output would have fallen by 29%have fallen by 29%

World prices would World prices would have risen by have risen by 12.6%12.6%

Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute

Other CountriesOther Countries

Supporting Brazil:Supporting Brazil:

West African West African countries, including countries, including Burkina Faso, Burkina Faso, Benin and Mali Benin and Mali

IndiaIndia IndonesiaIndonesia

Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute

US Argues:US Argues: ““None of the WTO’s business” None of the WTO’s business” Farmers do not get extra for more cottonFarmers do not get extra for more cotton Farmers paid according to the number of Farmers paid according to the number of

acres they planted/cotton produced in the acres they planted/cotton produced in the pastpast

Do not tempt cotton farmers to Do not tempt cotton farmers to overproduce therefore subsidies do not overproduce therefore subsidies do not artificially inflate supply or depress pricesartificially inflate supply or depress prices

Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute

Panel Findings:Panel Findings: Some US farm Some US farm

payments cause payments cause adverse effects to adverse effects to Brazil Brazil

US measures such US measures such as export credit as export credit guarantees are guarantees are prohibited for some prohibited for some agricultural agricultural commodities. commodities.

Case In Point: SugarCase In Point: Sugar

Accusation Against EU:Accusation Against EU: Unfair subsidization Unfair subsidization Over-production & dumpingOver-production & dumping

Example of Impact: MozambiqueExample of Impact: Mozambique

The single largest source of formal employmentThe single largest source of formal employment Produces refined sugar at far less than EU Produces refined sugar at far less than EU

average COP average COP Unable to expand production due to: Limited Unable to expand production due to: Limited

access to the EU market & Unfair competition access to the EU market & Unfair competition from dumped EU sugar in Africa from dumped EU sugar in Africa

Case In Point: SugarCase In Point: Sugar

WTO panel found:WTO panel found: EU is violated WTO EU is violated WTO

commitments commitments Exported up to four Exported up to four

times as much times as much subsidized sugar subsidized sugar onto world markets onto world markets than it is allowedthan it is allowed

Recommendations to the PanelRecommendations to the Panel

Subsidies to be retained for small farmersSubsidies to be retained for small farmers Subsidies to be based on income levelsSubsidies to be based on income levels To replace majority of agri-subsidies with a To replace majority of agri-subsidies with a

‘subsidized crop insurance program’‘subsidized crop insurance program’ Phase out export subsidies Phase out export subsidies Support the introduction of a Development Support the introduction of a Development

Box in the WTO agreement on AgricultureBox in the WTO agreement on Agriculture