US, EU farmers no longer royal game

With the Doha round of global trade talks still floundering a decade after its launch, the scourge of developed world agricultural subsidies is starting to seem unavoidable

Published: 2011/05/11 06:53:15 AM

WITH the Doha round of global trade talks still floundering a decade after its launch, the scourge of developed world agricultural subsidies is starting to seem as unavoidable as death and taxes.

The Doha round is a World Trade Organisation (WTO) initiative intended to reduce barriers to international commerce for the benefit of all. There were high hopes that agreement would be reached some years ago but the global financial crisis and "Great Recession" put a gigantic spoke in the wheel. The talks hit a protectionist wall as the developed world focused inward in an attempt to avoid banking and sovereign debt crises, and the round was suspended in 2008.

Attempts by the WTO to breathe new life into the talks this year have been largely unsuccessful, with agricultural subsidies, the liberalisation of the services industry, industrial tariffs and nontariff barriers remaining sticking points.

On the face of it, agricultural subsidies seem a trivial reason to stymie a trade agreement that holds out the prospect of significant benefits for the world as a whole, especially the poorest countries. Indeed, the biggest elephant in the room whenever negotiators can be persuaded to sit down together is China’s trade relationship with the First World, especially its huge exchange rate- supported trade surplus.

In the greater scheme of things, developed world agricultural subsidies are small beer, especially compared with the size of the deficits and debt burdens many First World countries are grappling with. In the US, for instance, agricultural subsidies of various types will total about $20bn this fiscal year, compared with a projected US federal deficit of about $1,3-trillion and total debt of $15-trillion. EU subsidies are considerably bigger — about $70bn a year, by some estimates — but still small compared with the sums needed to bail out debt-mired member s such as Greece, Ireland and Portugal.

By the same token, agriculture contributes relatively little to the gross domestic product of most developing economies — less than 2% in the case of SA, for instance — so conceding ground on this issue by removing unfair barriers to trade would hardly cripple the economies of Europe or the US even if it did make imports more competitive.

Yet producers of cotton, sugar, maize and other primary agricultural products have been trying in vain for years to persuade the US and EU to stop distorting world agricultural markets through subsidies to already wealthy farmers.

The problem up to now has been the domestic political power of First World agricultural lobbies, which have been able to use the emotional issue of food security and the political support of rural communities as bargaining chips to ensure continued protection from international competition. The pre-crash energy price shock also gave farmers an excuse to demand subsidies to encourage the production of crops that could be turned into biofuels and make the West less dependent on crude oil imports.

However, the pendulum is now starting to swing the other way, with pressure building on US and EU legislators to scrap agricultural subsidies despite the failure of the Doha round. Ironically, it is the need to deal decisively with the fallout from the financial crisis — especially soaring budget deficits and food inflation — that is driving the change.

A number of factors are now lined up against continued subsidisation, not least the fact that First World farmers are benefiting from rising food prices even as many other economic sectors continue to struggle. As policy makers in both the US and Europe seek ways to trim national budgets, farmers are no longer considered royal game.

At last conservative and left-wing parties on both sides of the North Atlantic appear to be in agreement that agricultural subsidies are doing their constituencies more harm than good — the former because they are an affront to free markets and the latter because they favour the rich and encourage environmentally harmful overfarming.