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Farm Subsidies and the Developing World - 2003-01-09

The Bush Administration recently proposed a worldwide reduction in the amount of money governments spend supporting their farm sectors. The proposal, made to an international trade organization, has been likened to the calls for mutual nuclear arms reductions during the coldest days of the Cold War. Today, American farmers receive one-fifth of their income from government payments. In Europe and Japan, government farm subsidies account for 31 to 59 percent of farmers' income. Farm payments worldwide add up to hundreds of billions of dollars annually. But calls to curb this spending continue to meet stiff resistance, and farm subsidy critics are doubtful there will be significant progress anytime soon.

Since the 1930's, the United States and Europe have used taxpayers' money to provide government aid to their farmers. The policies were set up against a backdrop of food shortages, weather-related disasters and market volatility. Their aim: to increase productivity and guarantee a fair standard of living for farmers, as well as stable markets, regular food supplies, and reasonable prices for consumers.

Today, U.S. farm support is at record highs, while the European Union spends almost half its budget on a farm support program called the Common Agricultural Policy.

Farm subsidies in the United States and Europe take many forms. The government may make sure there is a price floor in the market to ensure a fair price for farmers or they may pay farmers directly based on the amount of a certain crop they produce.

Governments may also provide export credits, which allow farmers in wealthy nations, with strong currencies and relatively high-priced commodities, to sell their goods in global markets at lower, more competitive prices.

David Frederickson, President of the National Farmers' Union, says the strong U.S. dollar is a disadvantage for American farmers. "If you're buying a product, and you can buy the same product for half as much because of the differences in the price of money, and that's basically what we're talking about with the strong dollar, then it's pretty safe to say that country has an advantage."

Supporters of U.S. and European farm subsidies say they are necessary to preserve a rural way of life. They argue that the free market doesn't always provide a fair price for agricultural goods and they say that farmers in the United States and Europe risk going broke.

However, critics contend that in addition to being a burden on taxpayers in wealthy countries, farm subsidies allow American and European farmers to sell on global markets at below the cost of production, a practice known as dumping. These "dumped" commodities often displace local farm production and can deprive developing countries of a crucial means of economic development.

Agriculture is an important economic building block for the developing world. In countries that have ample natural resources farmers can grow crops for export at prices that are competitive in free markets. That, in turn, generates economic development. However, critics say other countries' dumping undercuts the developing countries and retards their economic growth.

Carmel Cahill of the Organization for Economic Cooperation and Development, or OECD, says the blame for poverty in the developing world cannot be placed on wealthy nations' farm subsidies alone. A lack of infrastructure, war, disease, drought, and political turmoil are all major factors behind the emerging economies' troubles.

However, she says dumping farm goods on the global market does hurt developing countries, even those not trying to sell their goods abroad. By linking subsidies to production, American and European farmers can ignore market forces. They are assured a price for their crops and can flood the global market with cheap food, driving prices even lower.

Farmers then have to produce more to keep up. In countries lacking strong environmental standards, farmers often clear land unsuited to cultivation, leading to forest loss, soil erosion and other environmental damage.

Lower prices mean small farmers in developing countries will be less able to earn a living from their land, much less be able to pay their field hands' salaries. In turn, these laborers may migrate to richer countries, where agricultural jobs are more plentiful.

If poor countries are able to import subsidized food at very low prices and sometimes even at no cost in the form of food aid that too, depresses prices for local farmers.

Ms. Cahill of the OECD says as much as 70 percent of the population in developing countries is engaged in subsistence agriculture. Wealthy nations' subsidies, by discouraging investment in the emerging economies' farm sectors, perpetuate inefficient and unsustainable farming practices, and rural poverty. "For all developing countries, you generally have a very large proportion of the population that is engaged in agriculture. Very, very many of them on very small farms. A lot of them in subsistence agriculture. And it's clear that if you're going to get growth going, you have to get people out of that because it's a recipe for poverty. So to get agricultural productivity going, to get bigger farms and to actually release the labor from agriculture into other sectors can be a very, very important aspect of economic development."

While acknowledging the anger U.S. farm subsidies have caused in other countries, Don Lipton, a spokesman for the American Farm Bureau Federation, says government support is key to the survival of America's small farmers. "We believe farm subsidies overall benefit rural America. They even out the wide variations in income flow that is inherent in farming. They get money to the community. They enable farmers to continue to buy supplies and products and spend money in their local communities. Without subsidies we believe that rural America would be in worse shape than it now is," he says.

Although supporters claim U.S. farm subsidies benefit small farmers in the United States, Ms. Cahill of the OECD argues that in fact, the small farmers do not benefit. In the United States, 88 percent of the support goes to the largest 25 percent of farmers. In the European Union, 70 percent reaches the top quarter.

"If your idea is to help small family run farms, the way to do it has to be to target the assistance to them. You move away from subsidies that are related to production. I mean that's mainly the problem that we've got: virtually all of the subsidies are related to production or they're related to the amount of land that you've got. So almost by definition the biggest guys get the most," she says.

Critics say a powerful American farm lobby dominated by larger, commercial interests makes directing federal aid toward the small family farms more difficult, a problem clearly evident in the 2002 Farm Bill.

The measure was approved during an election year in the United States. Even the Farm Bureau's Mr. Lipton acknowledges that the farm lobby exerted more power than usual. As a result, the farm bill increases subsidies over the next decade.

Critics say the U.S. government is now paying higher subsidies for more crops that aren't needed instead of helping family farmers focus on land and water conservation, protect their farmland from developers' pressures and restore wetlands.

Despite disagreements between small farmers and larger commercial operations on the direction of government farm support, American and European farmers do agree that until they are able to get a fair price for their crops, the subsidies will continue to be a necessary evil. Critics of wealthy nations' farm support maintain that any genuine attempt to foster sustainable development in the emerging economies requires an effort by wealthy nations to roll back their crop subsidies.