Agri-Trade Subsidies: Recommendations to WTO Maxwell WTO Team: Maithreyi Seetharaman & Han Sic Cho.
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Transcript of Agri-Trade Subsidies: Recommendations to WTO Maxwell WTO Team: Maithreyi Seetharaman & Han Sic Cho.
Agri-Trade Subsidies: Agri-Trade Subsidies: Recommendations to WTORecommendations to WTO
Maxwell WTO Team:Maxwell WTO Team:Maithreyi Seetharaman &Maithreyi Seetharaman &Han Sic ChoHan Sic Cho
What Are Agricultural Subsidies?What Are Agricultural Subsidies?
Financial assistance Financial assistance through direct through direct payments or through payments or through indirect means such indirect means such as price cuts and as price cuts and favorable contractsfavorable contracts
SSupplement the upplement the income of recipient income of recipient farmersfarmers
Agri-Subsidies: A Distortion?Agri-Subsidies: A Distortion?
Trade is distorted if:Trade is distorted if: Prices are higher or Prices are higher or
lower than normallower than normal Quantities Quantities
produced/bought/soproduced/bought/sold are also higher or ld are also higher or lower than levels lower than levels that would usually that would usually exist in a exist in a competitive market.competitive market.
Agri-Subsidies: The ArgumentAgri-Subsidies: The Argument
To make sure that To make sure that enough food is enough food is produced to meet the produced to meet the country’s needscountry’s needs
To shield farmers from To shield farmers from the effects of the the effects of the weather and swings in weather and swings in world pricesworld prices
To preserve rural To preserve rural societysociety
Agri-Subsidies: The WinnersAgri-Subsidies: The Winners
Developed countries determine eligibility Developed countries determine eligibility based on crop production and not incomebased on crop production and not income
US: Corn, wheat, cotton, soybean, rice US: Corn, wheat, cotton, soybean, rice growers receive over 90% of total growers receive over 90% of total subsidies ($ 40bn) subsidies ($ 40bn)
EU: Sugar, dairy products, wheat growers EU: Sugar, dairy products, wheat growers receive over 60% of total subsidies receive over 60% of total subsidies ((€ 100bn approx. $ 121bn) 100bn approx. $ 121bn)
The Questionable Winners: United The Questionable Winners: United StatesStates
0
10
20
30
40
50
60
70
Top 10%
11-20%
Bottom80%
10% large farms 10% large farms get 65% of get 65% of subsidiessubsidies
80% small family 80% small family farms get 19% farms get 19%
13% farms 13% farms received over $ received over $ 1mn in subsidies1mn in subsidies
The Questionable Winners: United The Questionable Winners: United StatesStates
102
103
104
105
106
107
108
109
110
Riceland
12 Statescombined
Riceland Foods : $ Riceland Foods : $ 110mn in subsidies110mn in subsidies
All farmers in 12 All farmers in 12 US States: $ US States: $ 105mn in subsidies105mn in subsidies
The Questionable Winners: EUThe Questionable Winners: EU
EU total subsidies EU total subsidies € 100bn 100bn 78% farmers get less than 78% farmers get less than € 5,0005,000 Less than 2,000 large scale farmers Less than 2,000 large scale farmers
receive more than receive more than € 1bn 1bn Food processors are major Food processors are major
beneficiaries beneficiaries
6 major sugar processors receive € 6 major sugar processors receive € 819mn out of € 833mn sugar export 819mn out of € 833mn sugar export subsidiessubsidies
EU: A Case of Dumping?EU: A Case of Dumping?
90%Of Global
Agri Subsidies
18% of world
sugar exports
28% of world
dairy exports
8% of world
wheat exports
At 34% of Production
Cost
At 50% ofProduction
Cost
At 75% ofProduction
Cost
Comparative Costs of Sugar Comparative Costs of Sugar ProductionProduction
0
5
10
15
20
25
30
World EU Zambia Thailand Brazil India
cent / lb
Comparative World Sugar ExportsComparative World Sugar Exports
0 2 4 6 8 10 12
Brazil
EU
Thailand
Australia
Cuba
Guatemala
South Africa
mn ton
US: Extinction of Small FarmersUS: Extinction of Small Farmers
Big FarmsConsolidate Via Buy-Outs
Size of FarmsIncrease by
350%
No. of FarmsDecrease by
70%
Small Farms Sell
& BecomeTenants
The Losers: Developing WorldThe Losers: Developing World
Can’t provide the same levels of Can’t provide the same levels of Subsidies as Developed WorldSubsidies as Developed World
Subsidy related Global Price Subsidy related Global Price Distortion impacts exports, domestic Distortion impacts exports, domestic market & national economymarket & national economy
The LosersThe Losers
India:India: 10mn people in 80,000 10mn people in 80,000
villages produce 84mn villages produce 84mn ton of milk per annumton of milk per annum
EU subsidizes:EU subsidizes:60% of int’l price of 60% of int’l price of milk powder milk powder 136% of int’l price of 136% of int’l price of butterbutter
Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute
Against United States Cotton subsidies Against United States Cotton subsidies US breached subsidy capUS breached subsidy cap Brazil states subsidies distort trade by Brazil states subsidies distort trade by
depressing world cotton pricesdepressing world cotton prices Brazilian cotton producers claimed they lost Brazilian cotton producers claimed they lost
out on sales worth $600m in the 2001-2 out on sales worth $600m in the 2001-2 season aloneseason alone
US share of world cotton exports had risen US share of world cotton exports had risen from under 20% in 1999 to more than 40% from under 20% in 1999 to more than 40% in 2004in 2004
Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute
If Not For Subsidies, If Not For Subsidies, Brazil claims:Brazil claims:
US output would US output would have fallen by 29%have fallen by 29%
World prices would World prices would have risen by have risen by 12.6%12.6%
Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute
Other CountriesOther Countries
Supporting Brazil:Supporting Brazil:
West African West African countries, including countries, including Burkina Faso, Burkina Faso, Benin and Mali Benin and Mali
IndiaIndia IndonesiaIndonesia
Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute
US Argues:US Argues: ““None of the WTO’s business” None of the WTO’s business” Farmers do not get extra for more cottonFarmers do not get extra for more cotton Farmers paid according to the number of Farmers paid according to the number of
acres they planted/cotton produced in the acres they planted/cotton produced in the pastpast
Do not tempt cotton farmers to Do not tempt cotton farmers to overproduce therefore subsidies do not overproduce therefore subsidies do not artificially inflate supply or depress pricesartificially inflate supply or depress prices
Case In Point: Brazil Cotton Case In Point: Brazil Cotton DisputeDispute
Panel Findings:Panel Findings: Some US farm Some US farm
payments cause payments cause adverse effects to adverse effects to Brazil Brazil
US measures such US measures such as export credit as export credit guarantees are guarantees are prohibited for some prohibited for some agricultural agricultural commodities. commodities.
Case In Point: SugarCase In Point: Sugar
Accusation Against EU:Accusation Against EU: Unfair subsidization Unfair subsidization Over-production & dumpingOver-production & dumping
Example of Impact: MozambiqueExample of Impact: Mozambique
The single largest source of formal employmentThe single largest source of formal employment Produces refined sugar at far less than EU Produces refined sugar at far less than EU
average COP average COP Unable to expand production due to: Limited Unable to expand production due to: Limited
access to the EU market & Unfair competition access to the EU market & Unfair competition from dumped EU sugar in Africa from dumped EU sugar in Africa
Case In Point: SugarCase In Point: Sugar
WTO panel found:WTO panel found: EU is violated WTO EU is violated WTO
commitments commitments Exported up to four Exported up to four
times as much times as much subsidized sugar subsidized sugar onto world markets onto world markets than it is allowedthan it is allowed
Recommendations to the PanelRecommendations to the Panel
Subsidies to be retained for small farmersSubsidies to be retained for small farmers Subsidies to be based on income levelsSubsidies to be based on income levels To replace majority of agri-subsidies with a To replace majority of agri-subsidies with a
‘subsidized crop insurance program’‘subsidized crop insurance program’ Phase out export subsidies Phase out export subsidies Support the introduction of a Development Support the introduction of a Development
Box in the WTO agreement on AgricultureBox in the WTO agreement on Agriculture