common ground: how changes in the common agricultural policy affect the third world poor

8/7/2019 Common Ground: How changes in the common agricultural policy affect the third world poor

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COMMON GROUNDHOW CHANGES IN THE

COMMON AGRICULTURAL POLICYAFFECT THETHIRD WORLD POOR

ADRIAN MOVES

OXFAMLIBRARY


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First published in January 1987Reprinted in March 1988Oxfam 1987

British Library Cataloguing in Publication DataMoyes, AdrianCommon Ground: how changes in the CommonAgricultural Policy affect the Third World poor.

1. Developing Countries. Agricultural industries.Effects of European Economic Community.I. Titles II. Oxfam338.1'8'09172ISBN 0-85598-078-8 Pbk

Published by Oxfam, 274 Banbury Road, Oxford 0X2 7DZ, UK.Typeset by Typo Graphics, OxfordPrinted by Oxfam Print Unit

This book converted to digital file in 2010


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CONTENTSIntroduction 2Summary of Findings 4Members of the Panei 51 The Common Agricultural Policy 62 Animal Feeds 183 Wheat 3 14 Food Aid 425 Sugar 536 Conclusions 65Notes and sources 73Appendix: Summaries of the Evidence 75


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INTRODUCTIONIn the rich world the problem of food is one of plenty in the Third World thereis not enough. But perhaps things are cha ng ing or at least changeable. In theCommon Market or European Community (EC) the cost of the foodsurpluses and their effects on world trade have led to pressures so strong thatchange of some kind seems inev itable. And Bob Geldof has voiced the concernof m illions tha t for the Third World such shortages of food should never happenagain.

It is easy to believe that the surpluses in the EC can be used to relieve theThird World's poverty or tha t EC po licies have in some degree caused it. (Ithas been estimated that about 36 million acres in the Third World is used toproduce the EC's animal fee ds .)1 Both beliefs are based on only partial truths;th e CAP has contributed to som e of the poverty, bu t most of it has other causes,including the policies of other rich and poor countries, and fluctuatingexchange rates. And while surpluses can be vital to feed the starving (as theSend-a-Tonne to A frica scheme showed) the effec ts o f the CAP on the poor gofar beyond food aid .For the EC is not self-contained; it is the largest importer of agriculturalproducts in the world, and 60% of these imports come from the Third World.Some of them canno t be grown in Europe tea , coffee, rubber, for instance.But others can animal feeds , tobacco, cotton and sugar. The EC is also theworld's second largest exporter of agricultural products. Many of these exportsare also grown and consumed in the Third World sugar, cereals, dairyproducts, m eat. So the EC is both a source of supply and a co mpetitor.What is grown in the EC therefore , has effects on the crops tha t many ThirdWorld farmers grow in their fields, on the prices that the poor of Third Worldcities pay for the ir food, and on the foreign exchange available to Third Worldgovernments for ag riculture, for developm ent, for luxuries, or for arms.Mo unting costs and pressures from other trading coun tries make changesto the CAP almost certain. Equally certainly the changes will affect poor peoplein the Third World, some of them adversely. It is to high light these effects, andto suggest what can best be done about them , that the Enquiry on the Effect ofChanges in the Common Agricultural Policy on the Third World has been set up.It has taken the form of a panel of farmers , po liticians, academ ics and tradesunionists which held a series of hearings in agricultural areas of Britain in thesummer of 19 86 . Atth e hearings, expert witnesses gave evidenc e and otherswho did not attend the hea rings also subm itted written evidence. A list of thePanel mem bers is given on page 5, summ aries of all the evidence are given inthe Appendix.Although the EC is only one of the m ajor factors in world agricultural trade,the Panel concen trated on it pa rtl y because it is so big, especially in relationto the Third World (see Section 1), partly because it is so likely to change, and


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partly because it is the policy which farm ers, p oliticians and others in Britain aremost interested in, and are most likely to be able to influen ce.The first section of the report summarises the main features of the CAP.There follow separate se ctions on animal feeds, wheat, food aid, and sugar. Afinal section brings together the Panel's conclusions. A series of five Case-boxes are used to portray the everyday lives of a few of the many people in theThird World who are affected by the CAP. The people in the Case-boxes are real,but their names have been chang ed.

The political leaders of Europe have wisely realised that there is more toagricultural policy than food; there are other interests to be considered besidesthose of farmers. Rural communities deserve protection, farm workers needimproved conditions, the environment and the food security of nations is atstake. In this report we have described another interest that of the ThirdWorld. It is one that has been largely ignored to date , but it affec ts in one wayor another perhaps as many people as live in the EC.

The Panel believe tha t almost any of the changes in the CAP tha t are on thehorizon will bring harm to some poor peop le in the Third World. To argue for nochange is clearly unrealistic and undesirable. Europe does not possess theoptimal agricultural policy at present, and there are legitimate pressures forchange . No new CAP w ill give primary conside ration to the hungry in the ThirdWorld, but the Panel is convinced tha t with forethoug ht, care and political w illit is possible to m inimise the harm and to com pensate for damage done to thepoor.The Panel has considered what such a strategy m ight consis t of. This reportdescribes its view of a new approach to agricultural policy. It is an approach thatis pragmatic, that balances the requirements of the people of the EC with theneeds of the Third World's poor, and that could be supported by farmers,po liticians and the public of the EC alike.

Farmers in the EC do not want to contribute to other peop le's misery. On th econtrary, the challenge of ensuring that no one in the wo rld adu lt or child goes hungry to bed is the ultimate purpose of farming, and one that farmerseverywhere have a part in . This is the shared interest o f farmers and consumersin the North and in the South. The hope of the Enquiry is to b uild on this commonground.


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SUMMARY OF FINDINGS1 The EC's large-scale imports and, more recently, exports, make it a majorforce in world agricultura l trade . Any change in the CAP therefo re, w illaffec t poor people in the Third World many of them unfavourably.2 Besides looking after its own peop le, the EC has as responsibility to treatits trad ing partners fairly especially those who have little power and alotto lose.3 The EC should therefore establish machinery for iden tifying who in theThird World is likely to be hurt by any proposed change, and should

present such information to EC decision-makers.4 The EC should accep t the p rinciple of mak ing good the harm it causes topeople in the Third World through any change in the CAP.5 It is in the interes ts of the rich countries tha t the poor shou ld get richer;as incomes increase, so does profitable trade.6 The EC's surpluses are in general dam aging to the Third World; theyshould be reduced, eventually to zero. The method of reduction isimportan t; some methods would reduce Third World m arkets or lower the

prices of Third World exports.7 The CAP harms ThirdWorld countries by increasing world price instability.This could be reduced if the CAP were m ade more responsive to w orldmarkets.8 Wherever possible the EC should offer the market to those who need it. Itshould not grow (expensively) for itself products which can be grown(more cheaply) in the Third World and provide an income for peop le whomay have few alternatives. The EC should maintain its imports of sugar

from the Third World at near CAP prices.9 The EC shou ld help Third World countries get the maximum value fromwhat they produce by cu tting the import taxes (tariffs) it currently chargeson processed agricultural products. Such cuts would have effects onemployment and profits in the EC, and they would have to be made withcare.10 In the forthcom ing nego tiations on agricultural trade at GATT (the GeneralAgreement on Tariffs and Trade) the rich countries should listen to thevoices of the Third World.11 The EC shou ld open m embership o f the Lome Convention to any of the te n'least developed countries' not currently members who wish to jo in.12 Food aid should not be used to jus tify the EC's surp luses. Its use inemergencies should be increased. Its organisation should be improved.


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MEMBERS OF THE PANELJack BoddyNationa l Secretary, Agricu ltural and Allied Workers Nationa l Trade Group.Margaret DalyConservative MEP for Somerse t, member of the European Pa rliament'sDevelopment and C ooperation Comm ittee.Tony LeeksVis iting Fellow at the Institute o f Development Stud ies, Sussex University,former Director, Trade and Comm odities D ivision, FAO.Richard LivseyMember of Parliament for Brecon and Radnor, Liberal Spokesman onAgriculture.Adrian Moyes, SecretaryDevelopment Secretary, Oxfam, formerly Field Director, Tanzania andformer head of Oxfam's Public A ffairs Unit.Derek PearceFarmer and business consultant, Master of the Worshipful Company of

Farmers.John QulckeFarmer, cheese manufacturer, Countryside Commissioner, past PresidentCountry Landowner's Assoc iation.David Richardson, ChairFarmer, Presenter of 'Farming Diary' on Anglia TV and Columnist for 'BigFarm Weekly'.Chris Stevens

Research Fellow at the Centre for European Policy Studies in Brussels andat the Institute of Development S tudies at Sussex University, and ResearchOfficer at the Overseas Development Institute, London.John TomllnsonLabour MEP for Birmingham West, Member of Euro-Parliament BudgetsCommittee.


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1 THE COMMONAGRICULTURAL POLICY"In the U nited States, the government pays farmers not to grow grain; in theEuropean Community, farmers are paid high prices even if they produceexcessive amounts. In Japan rice farmers receive three times the w orld price fortheir crop; they grow so much that some of it has to be sold as animal feedat half the world price. In 1985 , farmers in the EC received 18 US cents a poundfor sugar that was then sold on the world markets for 5 cents a pound; at thesame time, the EC imported sugar at 18 cents a pound. Milk prices are kept highin nearly every industrial country, and surpluses are the result; Canadianfarmers w ill pay up to eight times the price of a cow for the right to sell that cow'smilk a t the government's support price. The United States subsidises irrigationand land clearing projects and then pays farmers not to use the land for growingcrops."World Bank, World Development Report, 1 986 2Many countries, developed and developing, protect and subsidise theiragriculture. The EC is not unique and it is not the only cause of the effectsthat protectionist policies have on the Third World. But it is one of the mostimportant causes, because it is one of the world's major trading blocks particularly with the Third World.

"The CAP was and rema ins the 'marriage contract of the EC as the ECComm ission puts it.3 There are two main reasons for th is: the agricultural policies of member coun tries differed markedly, resultingin different prices for food. Since the price of food affects wages, it alsoaffects industrial competitiveness between member countries. France, Italy and the N etherlands would only agree to let in Germanindustrial ised goods in return forGermany takin gthe iragricu ltural exports.Even so, the CAP had a stormy ge nesis; it took seven years to get ag reement onthe key measure of cereal prices, and then (1964) only after the entireComm ission had threatened to res ign.4 Its basic a ims are to improve food security really a form of insurance against war, weather orpests. This aim leads to the objective of greater self-sufficiency, achievedthrough higher agricultural productivity. maintain jobs on the land, preferably on family farms ,


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ensure a "fair standard of living for the agricultural community" stabilise markets keep consumer food prices stable and reasonable

The EC contains 3 2 1 million people and 10 .7 m illion farm ers. But theagricultural comm unity that the CAP caters for is rather differe nt from th at insome of the Mem ber states, such as Britain. In 19 84 5 1 % of the holdings in theEC were less than 5 0 acres, indeed 3 0% were less than 12 acres. The add itionof Spain and Portugal has increased the number of sma ll farme rs.5All developed cou ntries support their agriculture; the EC's arrangements aredescribed in Box l.A.

Pressures for changeThere are pressures for change from both inside and ou tside the EC.

On the inside , the main worry is the cost. The budge t for the CAP for 1986 is1 4, 63 8 m il lion not only a big sum in itself, but nearly two-thirds of the to talEC budget.6The ind irect cost may we ll be higher. Because of the CAP, agriculture in theEC is more profitable tha n it would be without i t s o investment is diverted intoland, machinery, research etc, which would otherwise go into manufacturingindustry. As usu al, there are different estimates of the scale of the effects ofthis; one study suggests that since 1973 the CAP has reduced the EC'smanufactured output by 1.5% and its manufactured exports by 4%; hasincreased its manufactured imports by 5% and resulted in an extra 1Y2mil l ion unemployed.7People are also worried about what the money is spent on. Some goes tosubsidising exports 406 million on wheat throughout the EC in 1985,1,401 million on dairy products. Some goes to storing the surplus; the'mountains' and 'lakes' cost 2 ,0 65 mil l ion in 19 85 .8 Also, in the EC as in mostdeveloped coun tries, the ma in beneficiaries of agricultural p rotection are land-owners and quota-holders; poor consumers bear a disproportionate share ofthe co st because they spend a large share of their income on food. The CAP isan inefficient way of transferring money between various sections of society;the W orld Bank estima tes that for every 1 that farmers gain, taxpayers andconsumers pay 1.50. 9 Nor do all farm-workers gain indeed many areparticularly low-paid.10A third worry, particularly strong in Britain and the Netherlands, concernsthe e ffect of intensive farm ing on the coun tryside. M any are concerned that asfields are enlarged and drained, hedges, woods, heaths and ponds are lost.Pesticides affect humans, wild anim als, insects and p lants. These costs couldperhaps be accepted if that were the only way to produce enough food. But inthe face of the surpluses they are seen by many as increasingly unacceptable.Some of the suggested changes to the CAP, such as lower prices for cereals


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might lead to greater use of pesticides and fertil isers as farmers a ttempted togrow more and ma intain their incomes.All these concerns have been well publicised. Some farmers report thatnowadays they are made to feel tha t growing food is some thing disreputab le, to

be ashamed of.11At the same time farmers themselves are worried by falling incomes andinvestment, high borrowings, and general uncertainty about the future of theCAP.Another pressure for change comes from the two new members of the EC,Spain and Portugal both at the poor end of the EC spe ctrum , and likely torequire some of the resources of the richer members.

On the outside, the pressure for change comes from other agriculturalexporters, most importantly from the USA, which sees subsidised exports fromthe EC both competing for markets and lowering prices. Since the 1 95 0s , theUSA has bu ilt up its food exports with strong governm ent support (farm supportin the USA is probably as h igh as in the EC see Box 3.B, p 38 for de tails). Ithas also used food a id to generate subsequ ent food sales. It now exports some45% of its harvested acreage (and hopes to increase it to 50% by the year2000) .1 2 A recent US law (the Food Security Act, 1985 ) gives teeth to the policyof subsidised grain sales and seems spec ifically designed to undercut EC salesof surpluses.

Not surprisingly the USA is concerned about the effect of the CAP on itsexport prospects. In Spring/85 it announced a 1 ,3 00 m illion plan to subsidiseUS exports to give them the edge over those subsidised by the EC. But obviouslythe USA would prefer negotiated changes in the CAP to such expensivemeasures.

The EC's trade with the Third WorldThe EC is the largest importer of ag ricultural products in the world 23 ,0 00mil l ion in 1 98 4, of which 6 0 % came from the Third World. After the USA it is thesecond largest exporter in the world, with agricultural exports of 15,000million in 19 83 . The value of this trade is increasing rapid ly imp orts by nearlyfour time s between 19 65 and 19 80 , and exports by about eight time s.

Agricultural products can usefully be considered in two categories th oseproduc ts which can be grown in the EC, and those which cannot (such as coffee,tea and cocoa). The CAP a ffects the fi rs t category more strongly, because whatfarmers in the EC grow may compete with Third World farm ers, and because ECfarmers could grow for themselves what they currently import from the ThirdWorld.

Case-box 1 describes the life of some of the peop le producing these impo rts a fam ily of B razilian cotton-workers. C harts 1 and 2 give a picture of the EC'sagricultural trade. They cover external trade only not trade between ECmembers.138


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Imports1 The main ImportsOver half the EC's tota l ag ricultural imports com e from the Third World andthe EC takes about a third of their exports.

Coffee is (1983) the largest agricultural import nearly four times thevalue of cocoa, and nearly nine times that o f tea (Chart 2) .The EC imports a lot of animal feeds because they are cheaper thandom estically produced grain.Most of the imports come in unprocessed form because tariffs (i.e. importtaxes) pena lise processed goods . This means tha t Third World countries are notable to get the fu llest value from their p roducts. Table 1.1 gives the tariffs forsoybeans.Table 1.1Tariff barriers on soybeans and soybeanproducts

25% -

20% -

15% -

10% -

5% - 7%10%

15%

25%

soybeans soymeal crude refined margarinesoyoil soyoilSource: Evidence to the Enquiry, Geoffrey Bas tin.


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These (and many similar) taxes on processed agricu ltural p roducts drama ticallyreduce the potential income of Third World countries and, as the World Bankputs it, "severely disrupt the process of deve lopment."2 The main suppliersBrazil is (1984) far and away the largest Third World supplier; its trade is overthree times the value of the next two largest, Argentina and the Ivory Coast(Chart 1). To many people in Brita in, used to think ing of the Third World in termsof the Commonwealth, the scarcity of Commonwealth members amongst thebiggest suppliers is surprising.

The importance of the EC's trade to Third World countries can be seen byexpressing it in terms of the exporting country's popu lation. Here the Ivory Coastleads, with an astonishing 91 worth of exports to the EC per head ofpop ulation. The Philippines (57) and Cameroun (37) are also high.3 The importersGermany is (1983) the largest importer (3,600 million, or 59 per head ofpopulation), followed by France (2,700 mil l ion 50 per head) and Britain(2,600 4 6 per head).These figures show the point of entry into the EC, not the ultimatedes tination . Some imports th os e of the Netherlands, with its huge Euro-portat R otterdam, in particular are re-exported to other mem ber countries.

France imports the h ighest p roportion from the Third World (57% ), followedby the N etherlands (54%) and Germany (51% ). Britain (45%) is a bit below theaverage for the whole of the EC (48%).ExportsNearly half of the EC's agricultural exports go to the Third World, making 28%of their agricultural imports. Dairy products are the most valuable (1,473million in 1983), followed by cereals (1,258 million). Note that these figuresare for 1 98 3, before the m ilk quotas were imposed; dairy exports have fallen asa result of the quotas.A major effect of the EC's exports is their influence on world prices. Thiseffect does.not depend on the destination of the export it is obtained simplyby putting the product on the market.Britain is the third b iggest agricultural exporter to the Third World (1,0 99million in 1983), after France (1,962 million) and the Netherlands. Thesefigures show the exporting country, not the country of origin, so the Netherlandsfigure in particular includes some re-exports. Benelux (Belgium, Netherlandsand Luxembourg) and Ireland export the highest proportion of their totalagricultural exports to the Third World (6 6% and 58% ).

Concessions to Third W orld countriesThe CAP allows a number of concessions to certain Third World countries, for1 0


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example the M editerranean, and a group of former co lonial countries under theLome Convention, (see Box I B )

Net tradeThe success of the CAP in producing more food than consumers in the EC needhas resulted in sizeable exports and quantities of food aid. The publicityattached to this easily gives rise to the impression that the EC is a net supplierof food to the Third World. In fac t it is the Third World which is a net supplier o fagricultural products to the EC it exports about 7,000 million a year moreto the EC than it impo rts, even without counting wood, rubber or cotton ; toBritain it exports 1 ,5 0 0 m illion more than it impo rts.The effects of the CAPThe CAP affects the poor in the Third World in three main ways through itsexports to them and to the world market, through its imports from them, andthrough its effect on price stability. Just how it affects any given countrydepends on the mix of agricultural products produced, imported and exported.How it affects the poor depends also on local government policies and on howthe crops are produced on plantations or small-holdings, for exam ple.

The Enquiry focused on four of the major areas where the CAP affects theThird World the import of anima l feeds , the export of wheat, the import andexport of sugar, and food aid. They are dealt with in turn in the followingsections.

Boxl.AHOW THE EC PROTECTS ITS AGRICULTUREThe system the EC has devised and refined over the years in order toprotect its agriculture is a complex one. Basically the CommonAgricultural Policy gives farmers a guaranteed price for their produce,controls impo rts which migh t compete, subs idises exports, and limits orencourages production. The CAP covers most produc ts that can be grownin the EC except potatoes.Here is a very simplified explana tion.PricesThe Commission sets a Target Price' (reviewed annually) w hic h is theprice it wants producers to ob tain . Any crops which cannot be sold on theEC market are bought 'into intervention' at the 'Intervention Price', whichis usually only a little lower than the Target Price. Unless limite d by Quota(see below), farmers may produce as m uch as they I ike with a guaranteedsale. This has led to the surpluses .

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Box 1.A cont.ImportsSince EC prices are usually higher than world prices, it is necessary toprevent cheaper imports from competing with EC produce. This isachieved by import taxes (also known as levies, duties or tariffs) andquotas.Import taxesThe most impo rtant import tax is a system of variable levies which ensuretha t however cheaply outsiders sell, they are taxed up to the EC price. Thissystem is used for cereals, dairy products, sugar, rice and olive oil.There are also fixed du ties and tar iffs wh ich are based on the value ofthe import. Because they are based on value, they bear heavily onprocessed agricultural products and thus discourage Third Worldcountries from processing their own products before export. Becausethey are fixed, EC consum ers pay less if outside prices fal l . Sometimesduties are combined with a variable levy (as for pork and po ultry wh ichare classified as 'processed cereals'), or with a 'Reference Price', whichsets a minimum import price and is used for wine and some fruit andvegetables.QuotasIn a few, but importan t, cases the EC sets absolute limits to the amountof a product that may be imported. There are quotas for sugar, beef andcassava. Som etimes, as with sugar, imports within the quota may be at aspecial price.ExportsThe EC's policy of providing farmers with a guaranteed price no matterhow much they produce, has led to surplus production. In order toencourage sales on the world market, the EC has a system of 'ExportRestitutions' (or refunds); the trader sells products competitively on theworld market and the EC pays the difference between the EC price and theworld price.ProductionIn a few cases the EC limits or encourages produc tion. Quotas are used tocontrol production; absolute quotas in the case of milk, price quotas inthe price of sugar, where production over the quota is allowed, but pricesupport is not paid.

Other types of control such as limiting the input of fertilisers or theacreage of land (a key part of the US system) are under discussion.The EC also encourages production of some products, by the use of'Production Aids', through which the farmer is paid the differencebetween the support price and the world market price. This gives a good

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Box l.A cont.income to the farmer, while keeping consumer prices low. It is used fortobacco (the EC grows 40 % of i ts own tobacco), cotton (at a 198 6 cost of1 32 m illion ), olive oil and durum wheat.Boxl.BTHE L0M CONVENTIONThe Lome Convention is a trade and aid agreement between the EC and66 Third World Countries. They are all in Africa, the Caribbean or thePacific (there are no Asian ones) and are thus often c alled ACP countries.They are mostly (apart from Nigeria and Kenya) small and poor, and allhave co lonial connections with Europe. Theircom bined population of 36 8million is a little less than a tenth of the total Third World population(about 4,0 00 mil l ion).Nearly a ll are very dependent on the EC as a market for their exports around 50% in most cases, up to 80% for some of the smaller onessuch as Barbados and M auritius.There are three ma in parts to the Convention:1 Concessions on Imports from ACP countriesACP countries are given duty-free access for some of their products andmore favourable treatment than other countries for others. In most casesthese concessions are not very valuable (either the ACP countries do notexport much of the products involved, or the tariffs are already low) butsome, especially those for sugar (see Box 5.C page 60) and beef areextremely valuable, providing major sources of income for the producingcountries.2 The European Development Fund the EC's aid program me.3 STABEXSTABEX is an export earnings stabilisation scheme designed tocompensate ACP countries when the price of their major exports fallsrapidly. The EC spends over 100 million/year on STABEX. The mainproducts supported are cotton, sisal, coffee, cocoa and groundnuts none of them covered by the CAP, except cotto n. The main bene ficiariesin 19 83 were: Million Senegal 51Sudan 40

Ivory Coast 22Mauritania 20Tanzania 15Sources: 'LOME III', The Courier. No. 89, Ja n-Feb /85. BrusselsWorld Development Report, 1986. IBRD, Wash ington.

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Case-box 1THE COTTON WORKERS BRAZILBrazil is the fifth largest producer of cotton in the world. The EC currentlysubsidises its own domestic production of 430,000 tonnes. Any changein this level of subsidy up or down could affect cotton-workers inBrazilCotton-workers in Brazil have a rough time; they have to contend withlow wages, seasonal work and pesticide poisoning. But the income fromcotton at least enables them to get by.

* * *Dona Lia and Senhor Ze-Maria (both 50) live with the four youngest oftheir seven children aged between 10 and 19 . The 18-year-old works inthe field and contributes money, but keeps two days pay for his own use.The 13-year-old (disabled) son is already helping in the cotton pickingseason. Their 28-year-old daughter works in a hotel in the town earning400 cruzados (CZS), (20 ) a month. She usually gives her money to thefamily, but this month she has had to spend it on her teeth.The family lives in an adobe brick house about 1 0 ' x 25 ' which theybuilt themselves. They have wired it up for electricity and are waiting forit to be connected they are one of the few areas in the neighbourhoodthat does not have electricity. Water comes from a covered well; themunicipality is slowly putting in piped water but the supply is veryirregular. The only sanitation is a pit lavatory.The house has a 'sitting room' and a kitchen. The walls of the sittingroom are adorned with the pictures of saints and spiritist leaders.Life is hard. A day's work begins at 4 .3 0 am, "It makes you want to erfsays Dona Lia "as you see women bustling along with their little onesbundled up against the cold beforework". Women prefer to leave theirchildren with neighbours, friends or private child-minders "guardadeiras"(75p a day about a third of the average labourer's daily pay). Or elsethey leave the kids unattended "There aren't too many criminalsaround, so It's OK". There is a free creche in town run by the Rotary club it provides a bus that collects the children from the street corners in themornings but there are only 90 places.At 5 am the workers wait for the contractors on the street corners huddled against the cold in what clothes they can afford. The drive in thebacks of lorries lasts for up to an hour, or maybe two along dirt roads.Accidents are common, "The drivers are crazy and they're always lookingat the curves in the women rather than the curves in the road...."Around 1 1 am they take a quick break to eat. Dona Lia complainsbitterly that she can't stomach cold food any more. "I just wish I couldretireI can't bear cold beans anymorethey just don't go down".During the week they work until 5 pm or so, not getting home until 6

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Young workers returning home.15


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Chart 1EC Agricultural ! ports - 1984EC Agricultural Imports froma) World

b) The 14 largest Third World exporting countriesBrazil

Argentina

vory Coast

Thailand

Colombia

M a l a , * -

India

C a . e r o u n

K,.Indonesia

Israel

S.Afr ic .

Philippinem

China

a2.6i

Total elporu to EC countrU*

'HI^MHHHHHI 632 H H63 7

63 4 wsUtw

s295 f || f| |

Etporta pet head[ population

| t 2 0

|28

1 3

j 23| E 3t

0.55

| t 3 7

| tl 82.20

8 :

[ t o

| t 5 7[0.26

1} 'kgrlcultural Iapor ta' are deflntd u SITC CUaara 0, 1 andTMa eidHdca natural rubber, wood and cotton.11) 'Third World' la dcflMd aa Claaa 2 countries plua S.Ahicaand China.

Chart 2Main EC Agricultural Imports irom Third World countries - 1983

coff ee (071) 1,639 B

aalaal fda (061)

source: Euro-aut Analftkal Ttblea of Foreln Trade - SITC Rev 2. 1983I*poTt 0.0-4, Tabla 1.

n o te : l a p o n * ' are defined aa product* enterin* Che EC, and do notInclude iaporu froa other EC counulra (Le. InCra-EC trade).

cocoa (172)vegetable oil* (4) eg. pala oil (42'tobacco (121)cotton (263)auear hone; (061)natural nibher (232)eeoa for ej. cola (22) e|.ao ra^ H n t (01)tea (074)ceraala (04) eg. rife (042)

..20)

tana (222.20)

732m B * f * " ^ a H a H P |692 < ( N d y492 p H U338


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The cotton workers cont.or 7 pm depending on transport. Saturdays are better as they finish a bitearlier. Sunday is the only day off; that's when Dona Lia catches up on thewashing etc. "Holidays? That's only when we don't have work".The cotton harvest is paid on a piece rate basis. An ordinary pickergets about the average daily labourer's wage of CZS 50 (2.50): anexperienced picker can make three times that.Each day's work is paid in vouchers. These can be exchanged for foodat local corner shops or supermarkets (and where workers tend to run updebts), or else on Sundays for cash from the contractors. The importanceof the cotton harvest is that It's a way of zeroing debt. "If we don't workhard In the cotton season we might as well give up!" Dona Lia thinks it'sthe best work because you can go at your own pace (but you have to be"OK In the joints")The most common problem, they say, is "stroke". Men, they say arefinished by the early 30s . One of the problems is the poison in the fields "Sometimes we're working when they come along and spray".Defoliants are used to speed up the process of bud-opening. "If someonegets sick In the fieldstoo badhe'll have to wait until the lorry comesto take us home". It's not unheard of for people to die before reaching thetown.

Their household income fluctuates; there are times when nothing iscoming in. It is probably on the generous side to say that they are gettingaround 2 - 3 minimum salaries a month CZS 2,400 or 120.00 between the six of them. They spend almost all of this on enough food "toeat badly".There is hardly anything left for clothes, transport, health,entertainment.Dona Lia's dream? Well she would like to go to the sanctuary of thepatron saint of Brazil, "Our Lady of Aparecida", but even more than thatshe'd like to go and see "Bom Jesus dos Milagres", in the city of SaoPaulo. The days when she hasn't got work she goes to her daughter'shouse to watch a TV programme at 7 am, showing a "Padre" in Sao Paulowho performs miracles she wants to go and pay a visit to his sanctuaryin the capital because she has a kidney p ro bl em ...Source: Frances Rubin, Oxfam Recife

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2 ANIMAL FEEDSThe EvidenceThe EC is the world's largest buyer of animal fee ds ne ar ly 4 0 m illion tonnesfrom all sources in 19 84 . About 60% comes from th e Third World (see Box 2.A).It has been estima ted tha t some 3 6 m illion acres in the Third World are devotedto producing the animal feeds that are sent to the EC.14 Case-box 2 describesthe life of soyabean growers in Brazil.

Animal feeds are also one of the largest categories of agricultural importinto the EC. Chart 2 (page 16) shows that they come third after coffee (whichcannot be grown in the EC) and the catch-all category of Tropical and Sub-tropical Fruits, Vegetables and Nuts. Box 2.A shows how much of each of themain types of anim al feeds is imported, and Box 2.B describes them and liststhe main places they come from .The EC's impo rts of animal feeds are not only la rg e the y are also likely tochange. Since the changes are likely to reduce imports, rather than increasethem, the effects in the Third World will be adverse, affecting significantnumbers of peop le.

Animal production on the scale now practised in the EC is entirely dependenton an imal feeds, whether to supplemen t grazing or to replace it. Box 2.C showswhich type of anima ls consume the animal feeds .

When the CAP was negotiated in the early '60s the possibility of grow ingmore than a small proportion of the EC's animal feeds requirements wasrem ote. So, largely to placa te US opposition to the CAP, the EC agreed not to tax(or not much) impo rts of oil-seeds/meals/cakes or 'cereal subs titutes', such ascassava or fruit residues. These low levels of protection were written into theGATT (General Agreement on Tariffs and Trade the ma in intern ational tradeagreement see Box 6.A, page 70). They are now, therefore, very difficult tochange and the imported products are much cheaper than anythingcomparable produced under the CAP. Table 2 .1 gives the com parative costs ofvegetable o il production in five areas; production in the EC is nearly 5 time s thecost of that in Indonesia. The Table shows oil-seed costs; oil-cake and mealcosts are broadly similar.

The consequence is tha t the EC animal feed market is not insulated from theworld market, so imported animal feeds are available to farmers a t much lessthan the cost of internally produced grains or oilseeds.Not surprisingly, EC imports of animal feeds have grown rapidly by fourtimes between 1970 and 1982. Although these cheaper imports suit ECfarmers who use them extensively to raise livestock, they do not suit theCom mission. Because livestock farmers buy imported cereal substitutes ratherthan EC-grown cereals, the Comm ission is landed with the problem of storingsurplus cereals or selling them (at a subsidy) on the world m arket. Nor do theysu it all farmers equally; those in France and South Germany, for instance, use18


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Table 2 .1Costs of vegetable o il production In selected countries 1985

Aonne1000 "

8 00 -

700 -

600 -

500 -

400 -

300 -

20 0 -

100 -

type of oil

9 0 0

6 4 8

4 6 3

2 4 01 8 5

palm palm soybean rape rapeIndonesia Malaysia USA

Source: Evidence to the Enquiry, Geoffrey Ba stin, page 7 6.Canada EC

them much less than those in the Netherlands and North Germany.The original reason why the Commission was worried about imports ofanimal feeds was a fear of dependency. In 1973 the USA stopped soyabeanexports. The Peruvian fish-meal supply failed, and there was a bad soyabeancrop in the USA. Since at th at stage the USA supplied over three-quarters of theEC's soyabeans, and soyabeans comprise some two-thirds of all animal feeds(includ ing EC-produced) used in the EC, this aroused serious anxiety. Althoughthe em bargo on ly lasted three w eeks, it gave a major boost to the EC's policy of19


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increased se lf-sufficiency. Since then o ther factors have entrenched the pol icy,which now includes a m ajor research programme on rapeseed, field beans andother possible alternatives to imported anima l feeds , and a subsidy (currentlyf 170/tonne) on rapeseed.The EC spent over 70 0 million on encouraging the domestic produc tion ofoi lseeds in 19 85 , some 6% of the total CAP budget.While the EC is worried about dependency on imports, many Third Worldcountries are worried about over-dependency on particular export crops. Themost striking example of this is Thailand which took advantage of the low ECprotection on cereal substitutes to develop a quarter-mill ion-acre cassavaindustry on which som e three m illion people came to depend see Box 2.D. Inan attempt to limit imports, the EC has negotiated a 'Voluntary RestraintAgreement' which costs Thailand 1 00 million/year in lost exports. The EC has,

however, agreed in aid programme as compensation though only of 32million over 5 years (and perhaps not all of that truly 'additional' aid).

What may happen1 Imports of both vegetable p rotein and cereal substitutes may fa l l . Productionof both rapeseed and sunflower seeds is rising in the EC. Research on fieldbeans and other a lternatives is under way. At the sam e time there is pressureto reduce production of cerea ls (to lower the scale and cost of the surpluses) perhaps by switching to alternative crops such as rapeseed . The likelihood istherefore that there will be a steadily increasing supply of EC-grown vegetableprotein for animal fee ds.On the other side, the dem and for animal feeds may fal l ; livestock numbersmay decrease . The introduc tion of m ilk quotas has already reduced the numberof dairy cattle in the EC, attem pts to reduce the beef surplus may be successful and demand from consumers may fal l ; the trend seems to be to eat lessmeat. Any of these w ould reduce livestock numbers, especially of c attle. At thesame tim e genetic improvements may lead to the more efficient use of anim alfeeds so less may be needed to produce a given quantity of meat or dairyproducts.

The supply of EC-grown anima l feeds may rise there fore and the tota l ECdemand for anim als, and thus for anima l feeds may fal l .2 Cereal prices in the EC may fa l l ; if they do, so will the price of anim al feeds .Changes in the CAP designed to reduce the grain surplus may result in lowerprices. If they do, EC farmers would reduce their use of imported animal feeds both vegetable protein and cereal substitutes . But grain prices would have tofa ll a long way before serious inroads were made on cassava impo rts.3 Even if the price of anim al feeds fall s, Third World coun tries w ill con tinue toexport. Many animal feeds are by-products principally of vegetable oils orcotton. So if farmers are producing the main product, it stil l pays them to sellthe by-product even at a very low price inde ed , in order to continue w ith the2 0


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main product, they have to dispose of the by-product somehow. Third Worldcountries, therefore, keen to get as much foreign exchange as possible, willprobably continue to export, even if the price falls considerably.This does no t apply to cassava (a human food in its own right), soya (whichis produced primarily for anima l feed usually more than 6 0 % of its value), orfishmeal (which is produced entirely for animal feed).

The effect on the Third WorldAs usual, some countries and people would gain (from lower prices for theanimal feeds they import) and some would lose (from lost markets and lowerprices for the an imal feeds they export). Table 2.2 shows the m ain Third Worldgainers and losers if EC imports declined.Table 2.2

M ain gaine rs and losers i f EC Imports of An ima l Feedsdecl ined

oilcakeBrazilMalaysiaArgentinaPhilippinesIndonesia, India

oilcakeMexicoVenezuelaS. Korea

Since many animal feeds are by-products (or co-products) of vege table oils, anychange in either the animal feeds or the vegetable oil market will affect theother. Both producers and importers of vegetable oils would therefore beaffected at one remove.2 1


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ConclusionsThe Panel accepts that the evidence suggests tha t any of a number of possiblechanges in the CAP could lead to lower imports of animal feeds. If thathappened a lot of people in the Third World would get hurt; they would lose theirmarkets and thus their l ivelihoods.The Panel believes that the aim of greater self-sufficiency in vegetableproteins is both costly to the EC and harmful to poor producers in the ThirdWorld. It would be better to o ffer the market to those who need it and at thesame tim e save money. Farmers in the EC would be given incen tives (e .g. cashfor conservation) to ensure that they did not lose out by not growing what isbetter imported.

If changes to the CAP are to be introduced which have the e ffect of reducingthe EC's impo rts of animal feeds , steps should be taken to identify people in theThird World who would be harmed by this.The Panel noted the precedent set by the case of the cassava industry inThailand, where the EC has attemp ted to make good the damage its policieshave caused. It considers that the principle of m aking good should be appliedwherever changes to the CAP can be shown to hurt poor people in the ThirdWorld. The STABEX scheme of the Lome Convention (the EC's trade agreem entwith 66 mainly sma ll and poor ex-colonial Third World Coun tries see Box l. B ,page 13) could cushion the effects o f changes on its member countries butthey contain only 10% of the Third World's poor, and ACP countries produce onlyabout 2 % of the animal feeds tha t the EC imports.One form of m aking good should take the form of help to develop productionof staple foods. Another should be to develop appropriate local Third Worldanimal feed industries, together w ith help in using the outpu t appropriately toboost local consumption of meat, eggs or dairy products. Box 2.E describessome of the work on this cu rrently under way.The best way of helping Third World countries to increase their incomeswould be to encourage them to do more processing of their agriculturalproduc ts. This would involve reducing or cutting the tariffs on processed goods.Since this w ould have an effect on em ployment in the EC, however, it would beimportant to analyse the effects very precisely in advance, and to devise waysof minimising them .

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Box2.AEC IMPORTS OF ANIMAL FEEDS 1 9 8 4

SoyabeansCassavaMolassesWheat offals etcCitrus pulpCopraSunflowerseedPalm kernelFishmealLinseedCotton-seedRapeseedMaize germGroundnutsMaize glutenOtherTotal

Total imports*'000 tn16,4345,2572,2361,1961,417

6339526516086384325821,0362043,7341,78337,793

m2,708490124103149

801047018292606611931412213

5,003

* imports of oilseeds are taken to be

% of totaltonnage fromThird World

5310084866110065100716696512686

34660

from Third World'000 tn8,6975,2541,8671,033860

63360465142942041329527117612581722,545

meal/cake equ ivalent at

m1,4244901039083

80707062615733292714802,773

x 0.8 for soyabeans and various equivalents for all other oilseeds . 75 % of molasses is taken

Source: Jan Klugkist,

to be used in anim al feed

De Veervoerexp ort van Ontwikkelingslanden narde EGNIO Association, Amsterdam, 198f

Box2.BWHAT ANIMAL FEEDS AREThe original animal feed was grass, growing or dried . Stil l today, about58% of the EC's anim al feed is supplied by grass (grazing and hay). Butthe current level of animal production would not be possible withoutsupplementary feeding raw cereals (about 23% in the EC), andcompound feeds.

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Box 2.B cont.The contents of these compound feeds are computer controlled toproduce the required mix (which varies for different animals andpurposes) using the lowest cost ingredients. Because the price of ECgrain is higher than that of imported alternatives (see main text), ECanima l feeds contain a high proportion of imported produc ts, particularlythose used for rum inants.Some notes on the main ones;

Soyabeans and meal provide nearly half the EC's imports of anim al feed s.The bigge st producer is the USA with 60% o f world production (57 milliontonnes in 19 85 /6) , follow ed (a long way behind) by Brazil, Argentina andChina (where a lot is used directly by humans). Like other oil-seeds,soyabeans produce both oil and cake/meal. Currently the cake/mealproduces about 6 0 % of the bean's value. Soyabeans are used in anim alfeeds for all types of anim al.Cassava is a tuber rather like a large da hlia, which is used as human foodin many parts of the Third World. Though a low-grade human food, it cangrow on poor soil with little water. Its use as animal feed took off in theearly 70s when two EC companies realised its potential as a cerealsubs titute given the high price of EC grain and the low level ofprotection on imported cassava. It has a high starch content and is usedin all animal feeds. The main supplier is Thailand see Box 2.D;Indonesia also exports som e.Molasses is a by-product of sugar. It can be produced either from beet orcane. Molasses is mixed with all types of animal feed, especially forruminants; it is a good source of carbohydrates and it makes the feedpalatable. Main Third World suppliers to the EC; Pakistan, Thailand,Sudan, Mexico.Wheat offals consist of the o utside of the wheat grain when it is milled toproduce white flour; milled wheat produces 2 0 - 2 5 % offa ls. It is a usefulsource of protein (1 4 -1 6 % compared to whole cereals at 11% ). Thelevy on offals has been increased to pro tect EC producers and imports aredeclining. Main Third World suppliers to the EC: Argentina, Indonesia,Nigeria, North Africa.Citrus pulp consists of the skin and pips of citrus fru its; it is a by-productof the industry which produces fruit juices and canned fruit for humanuse. It is used in cattle feed. Main Third World supp liers to the EC: Braziland Morocco.Copra-cake is made from the flesh of the coconut; the meal/cake is theresidue after the oil has been pressed out. Coconut palms are usuallyowned by small-holders, but the processing is done mainly in largeplants. Copra-cake is largely used in animal feed for ruminants.

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Box 2.B cont.Sunflower seeds produce a meal that is rather high in fib re , but which canbe used for all livestock. EC production is increas ing, especially in Franceand Spain.Rapeseed is the main oilseed product of the EC, because it is the onewhich grows best in a temperate clima te. Its yellow flowers are becom inga fam iliar sight in May and June. It is used alm ost entirely in cattle feed.Fishmeal is made mostly from fish not suitable for human consum ption.It is high in protein and very beneficial in pig and poultry foods, thoughusually expensive compared to soya-mea l. Main Third World suppliers tothe EC; Chile, Peru.Cotton-seed is a by-product of both cotton and cotton-seed oilproduction. The oil is often used locally and the residue (in the form ofcake or meal) is exported. It is used mainly for c attle . Its use in the EC isdeclining.Groundnuts are also a dec lining component of the EC's animal feeds; theyare readily contaminated by a carcinogenic excretion from a fungus,called aflatoxin, and their import is restricted by EC health regulations(although d e-toxification plants are available).Maize germ is the residue tha t is left after the maize has been crushed tomake maize oil. It is used mainly in ruminants' feed. Main Third Worldsuppliers to the EC: South Africa, Argen tina, Brazil.Maize gluten feed is a by-product of the USA's starch and isoglucoseindustries. Because of the EC's high cereal prices, it fetches a betterreturn in the EC than d om estically. It is used mainly in feed for ruminants.Hardly any comes from the Third World.Source: Brian Rutherford, Proteins and other feedingstuffs, paper at Trade EducationCourse, 1986

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Box 2.CTHE ANIMALS THAT EAT ANIMAL FEEDSEC usage of anim alCattle & calvesPigsPoultrySheep, horses,rabb its, etcTotal* based on average

feeds 19 83 /4Million tonnes29.626.521.33.781.1

price of 125/ton ne

million*3,7003,3122,66246210,137

Source: FEEFAC, quoted in Digest of Facts & Figures 1985/6

% of value3633265

Box 2.DCASSAVA IN THAILANDThe EC's cassava trade with Thailand is an example of where the EC has(albeit inadvertently) created a market and given it to those who need it(in this case , three m illion very poor people). Because of the s ituation inThailand (lack of land rights, declining fertil ity, erosion, etc), cassavaproduction is fragile enough. An Agreement w ith the EC at leastrecognises the EC's responsibility and enables a sizeable level of exportto continue.Cassava is one of the animal feed components that is imported intothe EC on a large scale because of the CAP. Four parts of cassava plus oneof soyabean meal produce a mixture with the nutritional value of maize.There is a 6% import tax on cassava, and 0% on soya-beans. So the p riceof cassava-soya mix is lower than either imported maize (which hashigher impo rt tax) or dom estically produced cereals.Thailand was well placed to take advantage of this situation. In theearly '60s population growth and political immigrants in North-EastThailand meant a lot of people were looking for som ething profitable togrow. An access network of po litical/m ilitary roads had been bu ilt, largelywith US help . Cassava grows well on the poor so ils. Since it is not a localfood (rice is) it can all be exported. And, crucially, its peak labourrequirements fit in well with rice cultivation .The result was a rapid growth in Thai expo rts from V4-million tonnesin 1960 to nearly 7 mill ion in 1984. Cassava now ranks fourth inThailand's exports. The EC also imports small quan tities from Indonesia,China, India and Brazil, but Thailand holds 9 5% of the market.In Thailand about 1.5 m illion hectares are under cassava, some 7% ofthe total agricultural land area. About 20 m illion tonnes of cassava are

26


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Box 2.D cont.produced annually (it takes 2Y2 tonnes of cassava tubers to m ake 1 tonneof the exported pellets). Mos t (95%) is grown on small farms (less than6Y2ha).Including those involved in transpo rt and process ing, about 3 mill ionpeople depend on the cassava trade. They do well out of it; they get 5 0%of the R otterdam port price. And it makes up a lot of their income 4 0 %for the average farmer, up to 8 0 % for the poorest who have fewer othersources of income.But the Thais do not cultivate cassava on a long-term sustainablebasis. Permanent cropping gradually takes out the nutrients from thealready bad soil, and it takes up to 20 years of fallow to recover. As aresult yields fal l steadily after three years of cro ps from 1 5 -2 5 tonne s/ha, down to a minimum of 6 tonnes/ha. Since few farmers have legalrights to their land, they have no incentive to improve it to reduceerosion or restore fe rtil ity.Although the cassava trade su its EC anim al farmers (who get cheapanimal feed) and the Thai farmers (who get a good incom e), it does notsuit the Commission (which has to pay for buying and storing surplusgrain which could be fed to anim als). In the late 70 s pressure to lim it theimports grew. The EC cou ld no t tax cassava impo rts because of the GATT(see Box 6.A). Instead, in 1982, it agreed a 'Voluntary RestraintAgreement' with Thailand (and other suppliers a lso). Under this, Thailandmay export 4.5 mil l ion tonnes in 1985 and 1986, plus 450,000 tonnesspread between the two years.Thailand was not a t the tim e a member of the GATT (see Box 6.A, page70) though it has since joined. So the EC was not com pelled to givecompensation. However the Agreement also included an aid packagedesigned to promote diversification and to spot new markets both forcassava and for any new crops. The Agreement is renew able from the endof 1986 in 3-year periods at the 1 98 5/6 qu an tities. It is estima ted to costThailand about 100 million/year in lost exports. The aid package isabout 32 million over five years though there is some discussion

about how much of this is truly 'add itional' aid i.e. aid which would nothave been given anyway.In the face o f this Agreement, the Thai Government is caught betweenencouraging farmers to diversify, and maintaining their income fromcassava. For the mom ent produc tion continues to rise.Source: Tapioca from Thailand for the Dutch Livestock Industry, Andre A Van Am stel, Els E.M. B aars, Jos Sijm and Huub M. Venne, trans lated by Paul Bruijin , IDES Research Report No.2 0 , Free University of Ams terdam, 19 86See also: Study ofAlternative Markets forThaiTapioca PelletsandSorgh um, Dr. R.Wollframand Dipt Ing agr G. Jeub, MBR Consultants, Brunswick, W. Germany, for the EuropeanCommission, 1984.

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Box2.EANIMAL FEEDS IN THE SOUTH PACIFICMany islands in the South Pacific are trying to develop their very small-scale pig and pou ltry industries . To do this, they import compound animalfeeds from Australia and New Zealand. There are three disadvantages tothis policy; the imported anim al feeds are expensive they de terioratein transit and they are made from raw materials in the islands thatconsume them .

The British Government's Tropical Development and ResearchInstitute (TDRI) has made an analysis of what is needed to ge to u t of thissitu atio n to enable islands such as Fiji, W. Samoa and Tonga to converttheir own agricultural products into animal feeds and feed themsuccessfully to the pigs and poultry.

Copra-cake, cassava and palm-kernel cake are used on a small scaleat present. Their use could be increased . The juic e o f sugar-cane , grownextensively in Fiji, can be used for animal feed as work by the TDRI inthe Caribbean and Latin America has shown. The false peanut {cassiatora) grows like a weed on some of the islands (especially Vanuatu); theTDRI has also worked out how to process, detoxify and feed it to poultry.The TDRI has developed small-scale machinery which can processthese raw materials into compound feeds and ways of amplifyingmachinery that already exists in the islands. What is needed in additionis training, quality control, and technical advice. Currently the mainsource of advice is comm ercial companies in Australia and New Zealand;most coun tries fee l 'technically exposed' when dealing with them andlack of local expertise leads to many unsound animal feeding practices.

The islands of the South Pacific are smaller than most countries, butthe same techniques for making local use of raw materials to produceanimal feeds could be used in many other cou ntries.Source: TDRI

Case-box 2THE SOYA WORKERS BRAZILBrazil is the second largest world producer of soya beans after the USA.It is the largest exporter of soya meal and the second of soya-oil.Production in 1984/85 was 17.4 million tonnes from 9.5 millionhectares, with the export of 789 ,3 00 tonnes of oil, 8 .1 million tonnes ofmeal and 3.5 million tonnes of beans.In the late 1960's the Brazilian government encouraged small

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Case-box 2 cont.farmers to plant soya under the slogan 'Plant, and the Government willguarantee your produce'.Each year they planted a larger area until many of them wereproducing almost 100% soya. Then came a combination of fal l ingproductivity through con tinuous monocu lture, lack of managerial ab ility,fallin g product prices and increasing prices for herbicides and fertil isers ,plus, more recently, drought. As a resu lt, many sm all farmers are keen tofind an alternative crop. * * *In southern Brazil Dona Teresa (52) and Sr Silva (55) have been living ontheir present p lot of 12 hectares for the last 2 0 years. They have five sonsbetween 12 and 3 0 and a daughter of 2 6 . The sons live at home thedaughter is a teacher and lives in the town about 5 km aw ay."In the old days we had a mixed farm maize, rice, potatoes,cassava, pigs. Things were easier then. A nd (the son adds) there wasn'tso much soya about". Three years ago they got a loan to buy lime to try torestore the land but they have not been able to pay the debts. One ofthe sons added, "Our hope now is the wheat. We've planted (also with abank loan) 7 of our 12 hectares w ith it".The day's work begins between 6.30 and 7 am, breaking for luncharound 11 am and continuing t i l l evening. "Small-holders don't haveholidays", they say. They mainly cultivate with oxen, from time to timeborrowing a neighbour's tractor. W ith their sons at home they don't needto call in extra help. The two younger boys go to school in the tow n in theafternoon (a half hour wa lk away). It costs only 1 a year each. Books areextra.Water from their own sp ring is pumped into the house . They have hadelec tricity for the last five years and they have a fridge , TV and rad io. Thebill varies between 1 and 8 a month . Like most of their neighbours,they have a gas and a wood stove.

Clothes, as one son comments, are expensive: "You need CZS 500(25) for a bad shirt and jeans".With no free health services, the threat of medical expenses hangsover them. Fortunately a revolutionary municipal health programme isbeing started nearby. It aims to provide free m edical care, and training forhealth agents. If it succeeds it will greatly relieve their worry.In this part of Brazil there are not the usual health problems due topoor nutrition. But, as in many other areas there are health problemsresulting from chem ical sprays.The elder son, who has tried his fortune in the new frontier areas ofMato Grosso and Goias comments "There's never a lack of work to do here we can complain, but you just go and try to earn a salary outside deep down this life is better".

Source: Frances Rubin, Oxfam Recife

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SenhorSllva and his family.

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3 WHEATThe EvidenceMost of the wheat traded internationally is used for food, while most of thecoarse grains (maize, sorghum, barley, etc) are used for animal-feed. Since itis wheat tha t forms by far the greatest part of international trade and whichcauses most of the difficulty and controversy, the Panel concentrated on wheat.Viewed from inside , the EC's exports of whea t seem very impor tant. But in aworld context, desp ite sharp rises in recent years it accounts for less than a f i f thof world exports. Table 3. 1 shows that the USA with 30 % and Canada with 20 %both export more.Table 3.1W orld w heat t rade, 1985/6

e x p o r t sUSA 30%

CanadaAustralia

ECArgentina

others

26%

20%

7%

7%

18%

18%

Far EastAfricaUSSR

Near EastS. America

others

m p o r t s

20%20%

12%8%

14%

Source: Evidence to the Enquiry, John Ellis, page 83

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Table 3.1 also shows that the biggest single importer is the USSR, with a fifthof world wheat imports in 1985/6. Developing countries form by far the biggestcategory; they take over half of all wheat imports. Box 3.A shows the main ThirdWorld importers.The EC's surpluses do not look so excessive on a world scale. The ECproduced and imported some 14 mi ll ion tonnes of wheat more than it consumedin 1986 about 22% of its own tota l production. But the surplus amounted toonly about 3.6% of world production.The World Bank estimates that Third World imports of food (mainly wheat)will continue to increase perhaps to double their present level within 10years. Many Third World incomes are rising; as they do so, the tendency is forboth governments and individuals to spend more on food.But even when supplies are short, people tend not to eat much less. Thismeans that variations in supply cause quite marked variations in price.The four main influences on the world wheat market are: The USA's loan Rate', which is similar in concept to the EC's 'interventionprice' (see Box 3.B). It tends to set a floor to world prices when wheat is insurplus as it is now. The 1985 Food Security Act will sharply reduce theLoan Rate and world prices are likely to fall inconsequence. The USSR's purchases. The USSR's import needs vary a lot by more thanall the imports of Third World countries combined. It does not provide a

constant effect on prices. Currency instability fluctuations in the US dollar affect the export pricesof other suppliers, especially Argentina. The EC's surpluses.As supplier of around 20% of total exports (and rising), the EC is an importantinfluence on the world market but not the only and not the dominant one.There is strong pressure within the EC to reduce the amount of wheatproduced. Consumption in the EC is static , but production continues to rise. Theincrease is almost entirely due to increased yields; since 1976/7 the totalacreage down to cereals has remained almost static at 27 -28 million hectares but yields for wheat have risen from 3.4 to 5.7 tonnes/ha.Table 3.2 gives the production and export figures:

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Table 3.2EC WHEAT SU RPLU S, selected years 1975/6-1985/6Million tonnesProductionImportsTotaldomestic usageSurplus(production/imports lessconsumption)ExportsCarry-overstocks* E C 1 2

1975/637.47.144.937.5

7.49.58.3

1984/576.42.779.153.2

25.917.217

1985/6*65.81.567.353

14.315.519.6

Source: Evidence to the E nquiry, John E llis

It costs a lot to store the surplus, or to sell it on the world market at the worldprice (under the CAP, the EC must pay the difference between the EC price andthe world price currently about 6 5/ton ne ). In 19 85 the EC spent 564million on storing cereals, and 323 million on subsidising the export ofwheat.15 A further cost, curren tly worrying the Euro-Parliament's Budget ControlCommittee, is the fa lling value of the EC's stocks. The EC values its stocks at theprice at which it bought them; since the price of wheat is fallin g, so is the valueof the stocks but EC figures do no t show this.Forecasts suggest that unless something is done to reduce production anddispose of the surpluses, the EC's cumu lative stock of all grains (not only wheat)will build up to 80 m illion tonnes in five years' time (1991/2) enough to feed44 4 m illion people on refugee rations for a year. The cost of sto ring it would be1 ,80 0 mil lion a year.16

What may happenAs Box 3.B shows, the US Loan Rate (which e ffects world p rices) is set to com edown stil l further and US export subsidies are likely to contribute to the trend .Since most of the proposed changes to the CAP wou ld resu lt in higher wheatprices on the world market, the next few years, with US policies m aking for lowerprices, are a good time to make such changes.In the EC the Commission has already begun to try to reduce the surplus. Itwill probably continue to do so. It may be successful. If it is, the Third Worldwould be affected in four different ways:

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Domingo and Christita Sendina are two of the people who depend on the EC as amarket The copra they grow in Barangu ay Tinguin in the Philippines provides90% of their income. It is made into coconut oil and animal feed.

The nine To sisters grow cassava in Thailand. Their only market is the EC, wherethe cassava is mixed with soybean-cake to make animal feeds.34


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1 The current surplusThere are many obstacles to putting the current surplus onto the world market.To do so would raise political problems with other wheat exporters mostobviously the USA. The likelihood of a 'gra in price war' with the USA would beincreased. World prices would fall fu rther , w ith a resu lting extra cost to the EC'sbudget; the EC must pay the difference between the world price and the ECprice, so it would pay more unless its internal price fell by a similar amount. Butthe Com mission seems prepared to face the sho rt-term disadvantages in orderto ob tain the long-run gains of not having such a large surp lus.17In the Third World grain exporters would lose and importing coun tries wouldbenefit at least their governments would, and their urban people;governments tend to use imports to give cheap food to their politically activetownspeople. The effect of cheap food imports on local agriculture may not beso beneficial see below.Table 3.3 shows which countries would ga in and lose from higher world wheatprices.

Main short-term gainers and losers If world wheat prices rose

ChinaEgyptS. AfricaArgentinaThailandZ imbabwe

ArgentinaUruguayBrazilS. KoreaNigeriaMexico

2 A smaller continuing surplusIf there were a much reduced surplus in the future (or even none at all), theimmediate effect would be to raise world prices. The effects would be the

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reverse of putting the current surplus on the world market and lowering prices.In the short term , this would bene fit a few Third World countries wh ich exportwheat, and hurt quite a lot which import it. In the long-term higher world pricesmight encourage Third World countries to give their own agriculture a higherpriority, and their farmers better prices for their p roduce. Higher prices do oftenresult in higher production.18 But while low world wheat prices enable andperhaps even encourage Third World governments to neglect their agricu lture,it seems unlikely that slightly higher ones alone would be enough to persuadethem to change them .

In any case, in the longer run other producers would probably step in to fillthe market and bring the price down again. Some of these other producersmight be Third World countries but the USA would probably take the lead role.

3 InstabilityIf world production of wheat rises, someone, somewhere must pay less and/oreat more. But even when world prices are low because of rising production,consumers in the EC do not pay less and are not encouraged to use more orto grow less. So world prices have to fal l furthe r be fore the marke t clears.Annual world cereals production has varied much more in the last twodecades than in the period immed iately before that. The reasons are unc learbut this increased variability has coincided with increased EC cereals exports.Some research suggests that the CAP is responsible for over half this increasedvariability in wheat prices 19 though est imates vary, and otherfac tors (such asUSSR purchases and pro tection by other countries) play a part. A continued highvariation in production and therefore in prices is likely.This price instability works very much to the detriment of Third Worldcountries because they are heavily dependent on agricultural marke ts. Assuredgrain imports and markets for exports are very important to Third Worldcou ntries; they are already trying to cope with very variab le production (weather,disease, etc) themse lves. The combination of local and world variability makeeffective planning alm ost impossible. This applies to both imports and exports(it adds to the risks of exporters, and undermines investment).The CAP'S effect on price instab ility is therefore an adverse influence on thefood security of Third World countries.

4 The method by which the EC reduces its productionThe Third World may also be affected differently by different methods used bythe EC to reduce its surp lus of wheat. Box 3.C se ts out the m ain poss ibilitiescurrently being considered.If prices were reduced in an effort to cut production, fo r example, EC farmersmight respond in the short term by growing more wheat to keep up theirincomes. In that case, no extra land would be available for growing cropscurrently imported from the Third World. But if homegrown cereals (other than3 6


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wheat) became cheap enough to replace some animal feed imports, then ThirdWorld countries would lose the ir current marke ts. If quotas were used to controlproduction, then farmers would probably switch to growing other things,including products currently imported from Third World countries such asoilseeds. Either way Third World countries would lose .A suggestion currently being discussed in Britain is to tax or rationagricultural inputs, especially nitrate fertil ise rs. The argumen t is th a tth is wou ldreduce production (and perhaps costs), and also p ollution . Opponents of theidea emphasise the administrative problems and the scope for abuse. Inaddition they point out, new varieties giving yields with less nitrogen wouldprobably soon be developed. From the point of view of the Third World, theproposal is attrac tive because it does not involve using land taken ou t of cerealproduction for another crop which compe tes with a Third World export.

The Commission is currently investigating new uses for cereals, such asethanol (as engine fuel) and starch. At present there is no sign of acommercially viable development but if there were, Third World countriescould lose markets if the new products replaced current imports from the ThirdWorld.

ConclusionsThe Panel noted that there is disagreement about the extent of the EC'sinfluence on world wheat prices; changes in the CAP would clearly affect pricesin the short-term but perhaps not much in the long-term. The Panel alsonoted the experts' disagreements about the e ffect on the Third World poor ofhigher wheat prices; while farmers and long-term agriculture could perhapsbenefit in the longer term, some of the very poorest people of all, in the town s,would suffer for a perhaps lengthy short-term. So the Panel concentrated onissues where he lpful action can be seen more clearly.

Whether or not Third World countries benefit, the pressures to reduce ECwheat production are sure to continue. The Panel considers it important thateach proposal to reduce wheat production should be checked for its effect onthe Third World; this particularly ap plies to a lternative crops, or alterna tive usesfor existing crops.The exact extent of the EC's effec t on world price instability may be in doubt but its unfavourable effect on Third World countries is clear. Some wayshould be found to reduce this ins tability probably by linking EC productionand consumption m ore closely to world prices.The Panel received two suggestions to use food aid programmes to solvesome of the problems created by the over-production of wheat one tocompensate fo r price instab ility and one to ge t rid of current EC surp luses.Though attractive on paper, the Panel felt that these proposals would beunlikely to be productive, given the general limitations on the productive use offood aid (see next sec tion).

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Box3.AMAIN THIRD WORLD WHEAT IMPORTERSThird World countries importingequivalent (including flour)Million tonnesChinaEgyptBrazilIranIraqIndiaS. Korea

9.87.34.33.63.02.52.5Source: International Wheat Council

more than 1 million

AlgeriaMoroccoNigeriaCubaBangladeshIndonesiaChile

, 1983/4tonnes wheat

2.42.31.71.71.61.61.0

Box3.BTHE US SYSTEM OF AGRICULTURAL PROTECTIONIn the USA about 8 0 % of farmers take part in a voluntary price suppo rtscheme for such p roducts as wheat, co tton and rice . Here is how it worksfor wheat: the farmers agree to take a percentage of their 'base agricultural land'out of production (they can choose the least productive). Thepercentage is currently 2 7 .5 % for wheat. they are entitled to put their harvest under a 9-month ' loan' to thefedera l Com modity Credit Corporation (CCC). Afte r9 mo nths, farmerstake their harvest out and sell it. They can either sell it on the openmarket or to the CCC a t what is called the 'Loan Rate'. Sometimesthe Loan Rate is higher than the market price (as it is for maizecurrently), sometimes not (as for wheat currently). The CCC thusprovides a gua ranteed m arket for farmers' output and the Loan Ratethus determines farmers' minimum prices and also the minimumprice on the domes tic market. they are en titled to Deficiency Payments to make up the differencebetween the Loan Rate and the Target Price. The Target Price is set by

the government to reflect reasonable production costs. The TargetPrice is often substantially higher than the Loan Rate; the currentTarget Price for wheat, for instance, is $4.38 /bus he l, while the LoanRate is $2.28. The Target Price affects farmers' incomes andgovernment cos ts, but not the price on the open market.

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Box 3.B cont.Part of the Defiency Payments are made in Generic Certificates.Farmers can either exchange these for government owned foodstocks, or sell the actual ce rtificates. This device tends to off-load thegovernment-held surplus onto the market and thus to push pricesdown.

In addition, the Government pays an export subsidy to shippers toencourage them to se ll selec ted products (for example wheat) to selectedmarkets (for example North Africa and the Middle East). This subsidy,currently around $20/tonne, is paid in Generic Certificates. A sum of1 ,3 00 m illion/yr has been allocated to this subsidy.The Government can also pay farmers to keep additional acreages ou tof production beyond the 2 7 .5 % they have already agreed.

The futureIn an attem pt to cut expenditure and production in 198 5 the Governmenttried to cut both Target Price and Loan Rate over a 5-year period. ButCongress froze the Target Price (on which farmers' incomes depend) forthree years (i.e. until 1 98 8) , allow ing it to be lowered therea fter at 5% ayear for 2 years. The Loan Rate however (which affects US and worldmarket prices) has been cut by nearly 20 % for ma ize, and nearly 30%for wheat. The Government has authority to cut it further; there areindications tha t it will be cut by an additional 20% ove rthe next two years.

The effect on world pricesBy linking Deficiency Payments to reductions in acreage, the US systemto some extent prevents higher prices from encouraging production which would lower domestic prices. On the other hand, the use of GenericCertificates re-cycles some of the surplus onto the open m arket thuslowering prices.The USA is the dominant world grain exporter, and has few ways ofinsulating its domestic prices from world prices. The minimum USdomestic price is set by the Loan Rate. So the Loan Rate also sets thebasic price in the world marke ts. Thus US plans to cut the Loan Rate arelikely to resu lt in further fa lls in world prices.Sources: Agriculture Dep artment, US Embassy, London. World Development Report, 1986,IBRD, Washington, p. 119

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Box3.CWAYS TO CHANGE THE CAPA number of ways of changing the CAP are under discuss ion: some want to cut the cost by limiting imports others seek to cut the cost by lim iting production stil l others want to reduce protection and let in more impo rts.These different views are reflected in the various proposals put forwardfor reform of the CAP: Lower prices to farmers for their productsw ould reduce the cost ofthe CAP and the surp luses. But this method would hurt the very group

the CAP was set up to p rote ct farm ers , especially smaller ones. Quotas to limit p roduc tion. Many in the Commission are stronglyaga inst quo tas because they are very costly to administe r and, in theCommission's view, they lead towards 're-nationalisation' and thesp litting up of the EC. They are also likely to ossify production patternsand limit opportunities for growth to small-scale farmers. In manyparts of the EC this would be particularly serious because of the lackof alternative opportunities. Co-responsibility levies to make producers pay for disposing ofsurpluses. There is a lot of support for this approach in theComm ission but it tends to result in higher prices for consum ers,and it assumes that a market for the surpluses (eg. in sugar) existsand is desirable. See Box 5.A (page 59) for details of the sugar co-responsibility levy. Expansion of protection leading to the exclusion of dairy products(especially those from New Zealand), sugar (whose cost would betransferred to the aid budget) and beef and to taxes on animal

feeds and vegetable oils. But any moves of this kind would lead toserious confrontations with suppliers. Taking land out of production either leaving it fallow forenvironm ental or leisure purposes, or turn ing it over to forestry. Onesuggestion is that up to 1.3 million acres could be taken out ofproduction in Britain by the year 20 00 an area twice the size of EastAnglia*. But the co st of adm inistering this po licy would be high and itcould increase the rate at which agricultural jobs are being lost. Alternative crops th e Commission is desperate not to increase therate at which agricultural employment is already falling, so it hasinvestigated several crops as alternatives to those producing thecurrent surpluses. It l ists major disadvantages for all of them,however they are either too small-scale (e.g. nuts, medicinalplants, bee-keeping and fish-farming), too long-term (e.g. wood,

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Box 3.C cont.tree-fruits), too expensive (e.g. vegetable protein like lupins),uneconomic for the foreseeable future (e.g. new industrial uses forexisting crops such as ethanol for fuel from sugar beet, cereals,potatoes, chicory or artichokes), or require too much infrastructure(e.g. cotton).

Source: European C ommunity Commission, Perspectives for the Common Agricultural Policy the Green Paper of the Commission, Brussels, July/85* Simon Gourlay, President of the National Farmers' Union, The role of agriculture in thecountryside a farmer's view, paper to the Oxford Farmers' Conference, Jan/86

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4 FOOD AIDThe EvidenceThe modern system of international food aid began, and to a some extentcontinues , as an aspect of ag ricultural policy. Right from its start in 19 54 , USPublic Law 480 (PL480) treated food aid as a way of managing exportablesurpluses; to this day PL480 is part of the US Department of Agriculture (USDA).Internationally the Food Aid Convention (the agreement which controls food aid)was negotiated as part of the International Grains Agreement (an agriculturaltrad ing arrangement). In the EC too, the Development Directorate (DG VIII)shares control of food a id with the Agricultural Directorate (DGVI).But although agricultural policy continues to play a part in food aid, theprogrammes now (and perhaps increasingly), are organised in humanitarianand development term s. The EC's food aid policy has these objectives: to raise the standard of nutrition to contribute towards balanced economic and social growth to help in emergencies.The availability of surplus food has influenced both the scale and theingredients of the EC's food aid programme; it is seen as a convenient way ofreducing the em barrassing surpluses. Nobody starting from the needs of ThirdWorld development would have invented food aid on its present sca le.The scale is considerab le. Box 4. A shows the world, US and EC totals of thevarious types of food. Box 4.B shows the main countries which get it. Box 4.Cdescribes some of the internationa l food aid institutions.The EC's food aid programme did not begin until the late '60s, and it firstbecame a significan t resource in the Sahel famine of 1 9 7 2 -4 . In recent yearsit has accounted for between a quarter and a third of all food aid. The USAprovides over half; the rest mostly comes from Canada, Australia, Japan andScandinavia.Food aid makes the headlines when it is used for emergencies the sacksthrown out of the plane or the convoys crossing the dese rt. In fact emergencyfood aid is generally less than a fifth of the total (the recent past is untypicalbecause of the NE African fam ine). Box 4.D describes the various types of foodaid. Case-box 4 describes four rather different real-life recipients of food aid inBangladesh.

The 'need'The 'need' for food aid is generally calculated by assessing the nutritionalrequirements of a country's population, and subtracting an estimate of itssupply (production and stocks) of staple foods (maize, sorghum , rice, potatoes ,cassava e tc). This produces the 'import requ irement'. Any imports that cannot4 2


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be financed comm ercially are then deemed to require food aid . How much eachcountry can 'afford ' to spend on comm ercial food imports is , of course, open todiscuss ion; countries which decide to spend a high proportion of their foreignexchange on food, have less for fuel , agricultural inputs, spare parts, tools,arms or luxuries. So from the point of view of food aid donors, food aid releasesforeign exchange which can then be spent on other products of the richcountries. It is basically a means of budgetary support; the Third Worldgovernment can spend the money it saves how it wishes on the tools fordevelopment, on cheap food for townsp eople, or on arm s. The purchases mayor may not benefit poor people.Most forecasts agree that a number of countries, particularly in Africa, arelikely to need to import food for at least the rest of the century. This is partlybecause of their lack of resources (either domestic or aid) with which to raiseagricultural p roduc tion, partly because of their rapidly rising po pulations, partlybecause of inadequate agricultural policies, and partly because, as incomesrise, so does the demand for food. If serious and repeated food shortages areto be avoided, therefore, if development is to be possible, these countries willneed some help.Food aid however, may not be the most appropriate form of help. For, asidefrom its use in emergencies, a number of important criticisms are laid aga instfood aid: the key to most Third World countries' progress lies in the developm ent of

their own agriculture. Food aid may release foreign exchange for use inimproving agr iculture ; but it is a two-edged tool; unless used very ca refully,it may reduce the incentive to farmers to grow more, and to governm ents togive a high priority to agriculture. food aid can lead to the establishment of a taste for imported food whichcanno t be grown locally (most obviously whea t). This means tha t there is acontinuing pressure to use scarce foreign exchange on buying itcommercially. This tendency is well established; US Department ofAgriculture states quite

common ground: how changes in the common agricultural policy affect the third world poor

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