EU Farm Subsidies

At 04:52 PM 15/09/2004 +0500, Tahir Hasnain wrote:

European subsidies
Farming in a dream world

By Devinder Sharma

It certainly is a dream world for farmers. At a time when the developing world is being forced to withdraw state-support to agriculture and farming, European farmers continue to receive huge subsidies. There is not only subsidy to attract young people to the farms, compensatory payments are provided at the time of quitting or suspending production. For those who are growing old there are retirement benefits.

A farmer couldn’t have asked for anything more. After all, these subsidies have not to be pruned or phased out under the framework agreement of the World Trade Organisation (WTO) arrived at on July 31. These are part of the structural adjustment assistance that the farmers will continue to receive through resource retirement, investment aids and producer retirement programmes, and therefore fall under the infamous (and legally justified non-trade distorting) ‘green box’ payments.
In 1999-2000, European farmers seeking retirement at the age of 55 received huge compensatory payments. Such retirement benefits totalled a whopping 793 million euros. In terms of Indian rupees, it comes to a staggering Rs 4,362-crore. In simple words, the retirement subsidy that EU provided to its farmers quitting agriculture equalled almost the total subsidy that India shells out for its 600 million farmers. India provides annually Rs 5,000-crore subsidy for agriculture, all of it indirectly in the form of cheap inputs.

It doesnÂ’t end here. Farm subsidies that Europe doles out to its estimated seven million farmers (in the 15 countries of the European Union before its recent enlargement) will put the Indian farm lobby to shame. All these years, Indian farmers have remained content with sops like free electricity and cheaper credit besides the availability of fertilizer and seeds at affordable prices, while their European counterparts have enjoyed set-aside provisions that provide subsidies for keeping a part of the cultivable lands fallow, and also get direct subsidy cheques (read bonus) in the name of environment protection.

No wonder, environmental subsidies in Europe are multiplying. Suddenly for reasons that are obvious Europe has begun to have too much of concern for deteriorating environment and has decided to seek farmers help in restoring the ecological balance. In reality, direct payments to farmers are now being canalised through the environment protection. These subsidies are therefore continuously on an upswing, from 4,965 million euros in 1998-99 to 5458 million euros in 1999-2000. Environment subsidies alone are more than seven times what the Indian farm sector gets as state support.

At a time when the WTO is forcing India to do away with its grain procurement system, European farmer receive guaranteed prices for cereals, maize, peas and rapeseed through the mechanism of state intervention prices. Although the price support is part of the ‘amber box’ that has been constituted under the Agreement on Agriculture, there is no proposal to do away with the intervention prices. While the WTO treats the guaranteed prices in EU under the admissible subsidies that can be provided, the procurement prices in the developing world are considered trade-distorting and therefore have to be phased out.

India has therefore been trying to withdraw from market interventions by freezing the procurement prices and reducing the governmentÂ’s role in food procurement. The Food Corporation of India (FCI) is being made to pull out from its primary role of food procurement and is being gradually turned into a food exporting organisation. Farmers are being left at the mercy of the markets, and the tragedy is that a majority of the Indian economists have vociferously backed the taking out of the FCI from food procurement and distribution.

In addition to the set-aside payments, European farmers receive area payments for
cereal, peas, rape seed, special area payment for maize, animal payments for dairy cows and sucker cows, and premiums for cattle slaughtering. All these subsidies form part of the ‘blue box’ subsidies that Europe has been providing without any reduction commitments. These subsidies totalling around 19 billion euros will now be shifted gradually under the ‘green box’ subsidies that have not to be reduced at all. In fact, Europe has been allowed an adequate time limit to shift these subsidies from one box to another under the July framework. These subsidies will than need to be capped at 5 per cent, which Europe will easily manage.

The entire subsidy structure is so complex that any discerning researcher can easily get lost in the maze of confusing analysis. It is therefore amazing to see the developing country negotiators accepting the subsidy reduction commitments being made by the EU and for that matter other rich and industrialised countries of the Organisation for Economic Cooperation and Development (OECD) without first understanding the nitty-gritty of the prevailing subsidy regime. It has already been accepted that Europe will not have to make any reduction in its annual farm subsidy bill. United States too has officially accepted that it too will not make any reduction in its farm subsidies. All it needs to do is some window dressing exercise that shifts the monumental farm payments under the notorious Farm Bill 2002 to ‘blue box’.

The blame however does not rest solely on the trade negotiators. Equally guilty are the mainline economists who produced a plethora of faulty analysis to establish that agriculture would gain under a free and liberalised economy that relied on the wisdom of the markets. It is now obvious that the economic analysis that was being used to promote global trade in agriculture was in fact done at the behest of the agribusiness companies who are the sole beneficiaries from the opening of the developing country markets. What happens to an estimated three billion farmers, a majority of them farming at subsistence levels, is nobodyÂ’s concern. #

(Devinder Sharma is a New Delhi-based food and trade policy analyst)




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