Financial Daily from THE HINDU group of publications
Thursday, May 23, 2002
Agri-Biz & Commodities
US farm subsidy: A wake-up call
MUMBAI, May 22
AT a time when the global agri-commodity markets are struggling to recover from a combination of poor demand growth, over-supply and low prices, the new US farm legislation that will further boost the federal Government support for agriculture is sure to complicate the already highly distorted international agri-business scenario.
The US legislation provides $180 billion in farm spending over the next ten years, of which 70 per cent will go for direct support payments to commodity producers. Loans and direct payments to US growers of corn (maize), wheat, cotton, rice and soyabean will be boosted. Payments will rise if commodity prices continue to fall.
Interestingly, the US is world's second largest producer of agricultural products with an annual output of over 600 million tonnes. A significant part of some major crops such as corn (maize), wheat, soyabean, cotton etc is meant for export.
Specifically, the large production base includes soyabean (75-78 million tonnes), corn (240-250 m.t.), wheat (55-60 m.t.) and cotton (3.5-4.5 m.t.) commercially cultivated on vast stretches of highly mechanised farmlands. The US has also the world's largest area under transgenic crops, especially of soyabean, corn and cotton.
A significant portion of production is exported. For instance, wheat exports (24-26 m.t.) constitute 40 per cent of the output; soyabean exports (26-27 m.t.) 33 per cent; and cotton (1.5-2.4 m.t.) 40-50 per cent.
These volumes represent a significant share in global agri-commodity trade. Of the world trade of 55-57 m.t. in soyabean, share of the US is 50 per cent. In wheat, it is close to 25 per cent of world trade of 105 m.t., while in cotton it is 40 per cent of world trade of 6.3 m.t.
These numbers show that the US is a force to reckon with in the global agri-business. Strong marketing and promotional schemes further help consolidate the country's position as an influential supplier in many markets around the world. It is this dominant position in global agri-business, which the country now seeks to entrench further.
On the flip side, large size puts a great deal of responsibility on the origin to ensure a level playing field for all and to stand by what it had committed to the international community in the world trade negotiations.
There is justified apprehension that the latest US move, far from helping to reduce trade distorting subsidies, would unleash a fresh wave of more subsidies by competing countries, even while further impoverishing many developing nations that are already on the verge of collapse in the wake of several trade barriers and unhealthy competition faced by their labour-intensive products.
Worse, the US volte face on farm subsidy reduction will undermine the credibility of its efforts to bring down agricultural subsidies in the European Union (EU) and elsewhere, according to observers. Fresh tension with EU, Australia, Canada etc is a clear possibility.
Where would all this leave poor and developing countries? They would surely be worse off than before. Low global commodity prices over the last three years have affected the export earnings of a large number of developing nations. Inability to cope with highly subsidised agricultural exports from developed countries is sure to further aggravate the fragile economic condition of many.
The demand of the Union Agriculture Minister, Mr Ajit Singh, to enhance farm subsidies should be seen in the context of this emerging situation. The Government has been emphasising on promoting agricultural exports and ``freedom to farmer''. However, until recently, too many regulations and restrictions stymied exports.
High cost of inputs, high interest rates, low productivity, lack of quality consciousness and inadequate marketing network render most Indian produce uncompetitive in the international market. With developed countries such as the US further expanding their subsidy regime (instead of reducing), developing countries will have to design their own responses to meet the challenges of the world trade.
As far as India is concerned, there is no alternative to making agriculture more efficient. For this, all stakeholders will have to pull together. The Government must, meanwhile, ensure that unfair competition from highly subsidised imports from developed countries are not allowed to hurt domestic interests.
It would be unreasonable to expect developed countries to do anything that would compromise their interests. The same principle must guide every country.
It is an irony that while about 150,000 American farmers will receive approximately 80 per cent of the subsidy money running to several billion dollars, several million farmers in Africa, Asia and elsewhere will find their economic condition further downgraded because some mighty countries do not practise what they preach.
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