Abolish these subsidies

Abolish these subsidies

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Many African leaders and pressure groups in and outside Africa have, for many years, been calling for the abolition of agricultural subsidies in Europe and America. The case for the abolition of such subsidies is that they are unjust and hugely damaging to developing countries. This fact is well documented.

Free trade in agricultural products first and foremost benefits western countries themselves. It is not a concession to developing countries or the World Trade Organization. The current costs of subsidies and protectionism are extensive and include higher taxes and much higher food prices. In the long run, Western farmers are also damaged. Barriers to imports disrupt the price signals guiding investment decisions and as a result may discourage the diversification of production into higher-value-added items. Higher prices of particular agricultural products also discourage domestic consumption and may encourage the use of lower-priced substitutes, undermining the protected sectors’ own domestic market share.

It is perhaps the impact on the developing world that is of most concern, however. The dumping of subsidy-funded crop surpluses, sold at prices below production costs, inhibits the growth of agriculture in poor countries. Protectionist measures such as import quotas and tariffs also mean that countries are prevented from exploiting their comparative advantage. At the same time, Western governments are spending huge sums on foreign aid intended to produce the economic development that their own trade policies are undermining. Without these damaging policies, expenditure on aid could be slashed. Moreover, increased growth in the developing world would produce positive trade opportunities for Western economies. It has been estimated that freeing all agricultural merchandise trade and eliminating agricultural subsidies would increase global income by nearly $300bn a year by 2015.

The UK alone spends £6bn a year on agriculture, forestry and fisheries. The EU allocates 31 percent of its budget to agricultural support under the Common Agricultural Policy (CAP), set to total around about 44bn euros in 2010. On top of the direct taxpayer-funded subsidy, the CAP costs UK consumers over £10bn per year as a result of higher food prices. The abolition of agricultural subsidies and trade barriers would therefore lead to huge savings, both immediate – in terms of reduced agricultural subsidy expenditures and lower prices – and long term, due to decreased aid to developing countries. The continued commitment of Western governments to protectionist policies that are nationally and globally damaging is indefensible.

Cotton has become a symbol of the inequities of global agricultural trade. The case of cotton clearly demonstrates how rich-country agriculture subsidies cause harmful impacts on developing country farmers. Subsidies skew production levels and value, undermining the income of cotton farmers in developing countries. Some of the poorest countries in the world are cotton producers, and they stand to gain significantly from reforming trade and agriculture policies. Yet these countries face a depressed cotton market caused, in part, by rich-country subsidies.
Reform of US cotton subsidies is urgently needed to address the distortions in cotton trade that undermine the value of cotton to developing countries. Every season, poor cotton farmers face reduced incomes. Each year, developing countries which export cotton suffer declining balance of payments due to loss of export revenues. The central issue is US cotton subsidies, and the reforms needed are quite clear. There is no doubt about the unfairness of US trade cotton practices, as the WTO has proved. The issue now is how these conclusions are going to be implemented. The US must agree to eliminate trade-distorting subsidies at the WTO and implement the necessary reforms to its farm programmes.

In crop year 2002, the US government provided $3.4 billion in total subsidies to the cotton sector. To put this figure into perspective, it was nearly twice the total US foreign aid given to sub-Saharan Africa. It was also more than the GDP of Benin, Burkina Faso, or Chad, the main cotton-producing countries in the region.
US subsidies have led to depressed world cotton prices, which in turn have cost countries in Africa millions of dollars in lost export earnings. This means less revenue, which these countries badly need to fund basic services such as education and healthcare, and to finance debt. It is estimated that sub-Saharan African countries lost $305 million due to US subsidies in crop year 2001. These are some of the poorest countries in the world, and these losses are not a one-time event. For the 2002 crop year, Oxfam estimates sub-Saharan African countries lost $94.6 million.
US agriculture and trade policies also undermine the benefits of US foreign aid. The losses associated with cotton subsidies exceed the value of US aid programmes in some of the major cotton-producing countries in Africa. For example, in 2002:

• Burkina Faso: received $10 million in US aid, yet lost $13.7 million in export earnings;

• Chad: received $5.7 million in US aid, but lost nearly the same amount in export earnings;

• Togo: received $4 million in US aid, but lost $7.4 million in export earnings.

Moreover, US cotton subsidies undermine the ability of developing countries to pull themselves out of debt.

I am therefore struggling to understand why the World Bank and the IMF, who are supposed to help developing countries achieve sustainable economic growth, have opposed agricultural subsidies for poor African farmers because of the high costs associated with the initiative. Africa should stand up and fight for subsidies for poor farmers and the new partnership with the donor community should be based on strengthening the subsidies for African smallholder farmers, especially women. There is no way an African farmer can survive without subsidies. Such subsidies would be directed towards the purchase of fertilisers, seeds, pesticides, tractors, and irrigation equipment, extension services and marketing.

Africa currently spends almost $22bn annually on importing food and exports food worth $14bn. Invariably, Africa is a net importer of food, and the impact of all this is felt most by the 400 million people who live on less than $1 a day and who cannot afford to buy food to eat.

1 COMMENT

  1. I am so glad somebody has written about this subject. The subject of food subsidies in Africa by the western world is really enraging to say the least. For instance, I never understood the logic behind US government subsidising millet to a particular African country when that country produces millet in abundance. I felt that was supremely unfair to the already impoverished African farmers.

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