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Agriculture Subsidies a Contentious Issue for World Markets

On Wednesday, a diplomatic attempt to narrow the gap between rich and poor nations failed, mainly over agriculture. Talks this week in London and Geneva did not produce a plan to take to next month's World Trade Organization meeting in Hong Kong. Poor countries say agriculture subsidies, as well as import restrictions by the industrialized nations, hurt not only their farmers, but also consumers.

Wealthy farmers -- Poor farmers
Food surpluses -- Food deficits
Free trade -- Trade barriers

These are some of the issues that have sparked a protracted tug-of-war between diplomats representing the world's industrialized and developing countries.

During years of international negotiations, the central issue of global food production has been linked to trade in general.

Dennis Avery is the director of the Center for Global Food Issues at the Hudson Institute, a Washington, D.C. think tank. He says, "Europe now wants free trade not in farm products. But in order to get freer trade in non-farm products, the Third World countries are saying, 'You've got to get rid of those damned farm subsidies'."

Mr. Avery says subsidies, as well as import tariffs, distort global commerce by encouraging overproduction of food and closing markets to outsiders. In addition, surplus food is often dumped on world markets at the expense of farmers in poor countries. Such measures benefit farming interests in the world's wealthier nations.

However, Danny Leipziger, Vice-President for Economic Policy at the World Bank, notes that most subsidies go to agribusiness corporations, not individual farmers.

"More than half of the subsidies in the European Union, for example, go to one percent of the agricultural producers. And similarly in the United States, 70 percent of the subsidies go to 10 percent of the producers."

One trade barrier can beget another. Developing nations respond to the farm subsidies with import tariffs on non-farm products from industrialized countries. The European Union and the United States have been pressuring the developing countries to open their markets to various goods and services, such as computer chips and banking.

The U.S. also favors reduction of farm subsidies and trade liberalization because American farmers want to meet growing demands for food in Asia. Dennis Avery says liberalization would serve the interests of European farmers, as well as consumers in Asian countries, which have a large percentage of the world's population, but a small share of arable land and fresh water.

"The game is to get the farm subsidies out of the way quickly enough,” says Mr. Avery, “so that the farmers in Europe, North America and Argentina can help to supply some of the food demand emerging in Asia before Asia clears all of the tropical forests and destroys all of its wildlife."

Many developing countries are in the tropics, which most efficiently grow such crops as sugar and cotton. Multibillion dollar subsidies allow cultivation of these plants elsewhere, which requires more land and hurts farmers in poor countries.

Mr. Leipziger provides this example: "Now if the subsidy on cotton were eliminated, these poor countries would gain perhaps 150 million dollars annually in additional exports. For Burkina Faso, or for Mali or for Benin that's a huge amount of money."

Dennis Avery of the Hudson Institute says that modern transportation enables swift delivery of food from areas where it is grown abundantly and efficiently, to highly populated countries where farmland is at a premium.

Mr. Avery notes that rich countries would actually benefit from the elimination of farm subsidies. "Their government costs will go down, their taxes can be reduced [and] that will stimulate economic growth and more jobs for the urban poor in places like France."

While experts make the case for eliminating subsidies, those receiving them -- and who are often politically powerful -- continue to demand that they stay in place.