Development Co-operation Directorate (DCD-DAC)

WTO farm reform - Let's welcome it, not fear it! (DACNews Nov-Dec 2005)


Stefan Tangermann, OECD Director for Food, Agriculture and Fisheries.

As WTO negotiators rush from meeting to meeting, farmers and their political allies in OECD countries are fretting about the implications of a possible deal in Hong Kong. Should we heed them? Will a WTO deal on agriculture force governments to give up on policies for the environment and rural well-being? At the OECD, our analysis suggests quite the opposite. And what is more, reforming OECD area farm policies in the WTO context would be good news for farmers in developing countries.

The WTO negotiations on agriculture are about cutting tariffs, price support and trade distorting subsidies, mainly in the OECD countries. Such policies are designed to raise the prices that farmers receive for their products, thereby supporting farm incomes. But they have major negative side-effects, and they don’t in reality do much to assist the people most in need of help.

Under existing policies in many OECD countries, it is the largest farms that get the most support – and they are not the ones where income problems are most severe. Meanwhile, artificially high prices for farm products end up raising land prices. Dynamic young farmers wanting to set up or expand a farm find it too costly to do so. Around half of all agricultural land in OECD countries is rented, so the beneficiaries are primarily landlords. As OECD work has shown, those actually working the land receive little benefit from price support and production subsidies. Barely 25 cents of each dollar spent on price support end up in the pockets of the farmer.

What about rural and environmental benefits and the need to a secure supply of sufficient food? On these counts, too, high farm prices don’t serve the purpose intended. Paying farmers high prices for wheat or milk does not make them care for the environment. On the contrary, farmers are more likely to respond to price support by intensifying their production in order to sell more, with negative effects for the environment. Securing food supplies, meanwhile, can be done in many different ways. Price support mechanisms would typically play only a marginal role in a strategic plan for food security.

In sum, there is much scope for cutting these ineffective policies, as two thirds of all current farm support in OECD countries comes through such policies. That is why negotiators have good reasons to aim at what WTO Ministers at Doha agreed this round of farm talks should achieve - “fundamental reform”. Reductions in support mechanisms would be spread over several years, leaving everyone time to adjust. There are many cases documented in OECD research that show how policy reforms have triggered adjustment processes resulting eventually in a healthy and more competitive farming community.

In any case, agreement in the WTO talks would not eliminate support for agriculture in the OECD countries altogether. Actual elimination is considered only for measures that distort export competition – and nobody argues that governments should be permanently allowed to support exports of products their farmers cannot produce competitively. Tariffs, price support and production subsidies would only be reduced.

Moreover, in the WTO framework for agriculture, what is called the ‘green box’ will continue to provide unlimited scope for support that does not distort production. As OECD work demonstrates, it is this form of farm policy that can be targeted directly to well specified objectives and beneficiaries, typically doing a much better job of ensuring food security, contributing to sustainable resource use and improving rural well-being.

The WTO negotiations are not about eliminating agricultural policies, and they will not spell disaster for farmers in the OECD countries. They are about reducing those types of policies that distort international trade while performing poorly at home. Such reform is in everybody’s interest, both in developed nations and in poor countries where farmers currently find it difficult to sell into foreign markets because the farm policies of the rich countries get in their way. Development is about fairness, and fairer farm policies would be a major step towards that objective. Hence, the WTO negotiations should be seen as an opportunity to creat a win-win situation: the OECD countries can improve the performance of their own policies, while at the same time allowing farmers in developing countries to make use of their productive potential.