Subsidies hurting world’s poor farmers

Published on November 03, 2005

The trade ministers of the 148 members of the WTO are a diverse group. Their December meeting in Hong Kong will place America’s Congressional veteran Rob Portman next to Princess Lubna of the United Arab Emirates. The erudite Mari Pangestu, an Indonesian development economist turned cabinet minister, is side by side with Ireland’s ex-mayor of Cork Michael Martin; Cambodia is next to Canada and the EU next to Fiji. But as diverse as they may be, the ministers have a common mission. Their predecessors in the 1990s eliminated tariffs on semiconductor chips, furniture and aeroplanes; this group is charged with concluding an agricultural trade reform plan, designed to open markets overall for farmers and in particular to cut the subsidies, tariffs and quotas of the WTO’s wealthy members.

Such meetings often bring more heat than light to trade policy. From outside the halls we get video footage of colourful demonstrations. From inside comes a steady buzz of impenetrable jargon, as the ministers debate mode of transmission, Swiss tariff formulae and the like. Onlookers have trouble understanding any of it. But as negotiators drone, keep two products in mind to illustrate what the world could be, and what it is.

The first is an obscure product called noug. Grown in the Ethiopian highlands as a staple crop for centuries, noug has only recently been traded on world markets. It is a small black seed, used by Ethiopian farm families to yield the oil that fries their traditional spongy injera bread. Noug is also, however, the world’s most expensive and glamorous birdseed. Its high oil content makes it irresistible to the small, energetic songbirds American birdwatchers love, as well as indispensable to Ethiopian frying pans. Five years ago Ethiopians – amazed to find foreigners willing to buy the stuff simply to throw it away to birds – began selling. As noug grows nowhere outside Ethiopia and South Asia, it faces no tariff or subsidy. A hundred tonnes a day now flows easily from the dock at Djibouti to the ports of Baltimore and New York, and thence to American pet stores and backyard bird feeders. The product now accounts for a third of Ethiopian exports to the United States and brings in some unexpected cash to the upland farmers.

Olive oil is more typical. There is much to like about the beloved product of Greek islands and Italian country towns: the mild taste, the translucent green and gold colours, the hope that it may cut the risk of heart attack. Even the growers seem a likeable bunch, judging by their amusing quality-grade system. (Oil from olives pressed once is “extra virgin”, or top quality. If the olives have been pressed two or three times it is still “virgin”; even if they have been pressed repeatedly, the oil is still gently labelled “pure”.) The olive tree grows all around the Mediterranean, and should bring income and rural employment to Morocco, Tunisia and Lebanon – but it doesn’t. Each year the European Union spends US$2.5 billion (B102 billion) or so to supplement the incomes of growers in Spain, Italy and Greece. The subsidy, at more than $2 for every $1 of global olive oil trade, keeps Moroccan and Lebanese oil out of US supermarkets, even as tariffs and quotas limit oil sales to Europe.

This is the usual story. Dairy farmers and sugar-beet growers in both Europe and the US get subsidies far larger than olive growers. Even cucumber-growers get more than $500 million a year. Altogether, the world conducts a bit less than $600 billion in agricultural trade, which the rich countries warp to their advantage through $300 billion in subsidies, quotas and tariffs.

The Hong Kong meeting is not a normal one. It is close to the last chance for success in a negotiating round that has already missed its deadline, and failure would mean deferring real hopes of reform far into the future. First, by 2007, the American farm programmes will come up for renewal. In the absence of a WTO agreement before then, they will probably be extended for five years. Meanwhile, the administration of US President George W Bush’s trade negotiating authority will run out in mid-2007. If the US Congress is to vote on it before time runs out, the entire Doha Round – including complex talks on services and manufacturing trade – needs to be completed in 2006. With farm trade at Doha’s political heart, other issues will not advance until the agricultural talks yield a result all can accept.

That makes the Hong Kong meeting the critical point. It is a great challenge to the WTO governments and their ministers. Rural life carries a powerful emotional charge almost everywhere, and traditions of protecting agriculture are strong. In the US, Senator Henry Clay was already blasting away at low-cost competition for Louisiana’s sugar plantations from Cuba, Haiti and Jamaica in 1832 just 20 years after Louisiana became a state. European governments face opposition from even more protected lobbies.

But experience seems to show that the cost of reform is not unbearably high. Farmers in Australia and New Zealand, where subsidies vanished in the 1980s and 1990s, manage quite well without subsidies. New Zealand, for example, managed to export 360,000 tonnes of butter in 2003 without subsidies, while subsidised American dairy farms managed only 6,000 tonnes. In the US, 70 per cent of American farm production, from fruit and wine to beef, poultry, vegetables and nuts, succeeds without subsidies.

And the obvious interest of the world as a whole is in a more open system. Small dairy farmers in Uganda and olive orchard workers in Morocco and Lebanon are surely as deserving as the semiconductor businesses, furniture assemblers and aeroplane designers who have benefited so much from the work of the Hong Kong Ministers’ predecessors. A simple decision to treat more products like noug, and fewer like olive oil, would cost little and do a lot of good.

Edward Gresser

WASHINGTON

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