AgriTrade Subsidies: Recommendations to WTO

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Agri-Trade Subsidies Recommendations to WTO
Maxwell WTO Team Maithreyi Seetharaman Han Sic
Cho
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What Are Agricultural Subsidies?

• Financial assistance through direct payments or
  through indirect means such as price cuts and
  favorable contracts
• Supplement the income of recipient farmers

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Agri-Subsidies A Distortion?

• Trade is distorted if
• Prices are higher or lower than normal
• Quantities produced/bought/sold are also higher
  or lower than levels that would usually exist in
  a competitive market.

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Agri-Subsidies The Argument

• To make sure that enough food is produced to meet
  the countrys needs
• To shield farmers from the effects of the weather
  and swings in world prices
• To preserve rural society

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Agri-Subsidies The Winners

• Developed countries determine eligibility based
  on crop production and not income
• US Corn, wheat, cotton, soybean, rice growers
  receive over 90 of total subsidies ( 40bn)
• EU Sugar, dairy products, wheat growers receive
  over 60 of total subsidies ( 100bn
  approx. 121bn)

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The Questionable Winners United States

• 10 large farms get 65 of subsidies
• 80 small family farms get 19
• 13 farms received over 1mn in subsidies

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The Questionable Winners United States

• Riceland Foods 110mn in subsidies
• All farmers in 12 US States 105mn in subsidies

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The Questionable Winners EU

• EU total subsidies 100bn
• 78 farmers get less than 5,000
• Less than 2,000 large scale farmers receive more
  than 1bn
• Food processors are major beneficiaries
• ? 6 major sugar processors receive 819mn out
  of 833mn sugar export subsidies

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EU A Case of Dumping?
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Comparative Costs of Sugar Production
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Comparative World Sugar Exports
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US Extinction of Small Farmers
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The Losers Developing World

• Cant provide the same levels of Subsidies as
  Developed World
• Subsidy related Global Price Distortion impacts
  exports, domestic market national economy

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The Losers

• India
• 10mn people in 80,000 villages produce 84mn ton
  of milk per annum
• EU subsidizes
• 60 of intl price of milk powder
• 136 of intl price of butter

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Case In Point Brazil Cotton Dispute

• Against United States Cotton subsidies
• US breached subsidy cap
• Brazil states subsidies distort trade by
  depressing world cotton prices
• Brazilian cotton producers claimed they lost out
  on sales worth 600m in the 2001-2 season alone
• US share of world cotton exports had risen from
  under 20 in 1999 to more than 40 in 2004

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Case In Point Brazil Cotton Dispute

• If Not For Subsidies, Brazil claims
• US output would have fallen by 29
• World prices would have risen by 12.6

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Case In Point Brazil Cotton Dispute

• Other Countries
• Supporting Brazil
• West African countries, including Burkina Faso,
  Benin and Mali
• India
• Indonesia

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Case In Point Brazil Cotton Dispute

• US Argues
• None of the WTOs business
• Farmers do not get extra for more cotton
• Farmers paid according to the number of acres
  they planted/cotton produced in the past
• Do not tempt cotton farmers to overproduce
  therefore subsidies do not artificially inflate
  supply or depress prices

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Case In Point Brazil Cotton Dispute

• Panel Findings
• Some US farm payments cause adverse effects to
  Brazil
• US measures such as export credit guarantees are
  prohibited for some agricultural commodities.

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Case In Point Sugar

• Accusation Against EU
• Unfair subsidization
• Over-production dumping
• Example of Impact Mozambique
• The single largest source of formal employment
• Produces refined sugar at far less than EU
  average COP
• Unable to expand production due to Limited
  access to the EU market Unfair competition from
  dumped EU sugar in Africa

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Case In Point Sugar

• WTO panel found
• EU is violated WTO commitments
• Exported up to four times as much subsidized
  sugar onto world markets than it is allowed

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Recommendations to the Panel

• Subsidies to be retained for small farmers
• Subsidies to be based on income levels
• To replace majority of agri-subsidies with a
  subsidized crop insurance program
• Phase out export subsidies
• Support the introduction of a Development Box in
  the WTO agreement on Agriculture