|
by Stefan Tangermann, OECD Director for Food, Agriculture and Fisheries
(note: an edited version of this text, intitled "Cutting support can help farmers to prosper" was published in the Financial Times on 22 August 2003)
Farmers and policy makers in many OECD countries view the WTO negotiations on agriculture as a threat. If significant reductions of tariffs and subsidies for agriculture are agreed at Cancun, in the interest of more liberal trade, would that not undermine the viability of agriculture, and diminish the positive role that farmers can play in rural areas and society overall? The answer must depend on whether current agricultural policies in OECD countries actually provide the intended benefits, and if there are policy alternatives that work better at home while also doing less harm to farmers in other parts of the world, specifically in developing countries.
When policies providing high levels of support and protection to farmers were introduced in the past, they may have responded to perceived problems at the time. However, the world has changed. Food production has outpaced demand and food security is no longer a problem in OECD countries. Incomes of farm households are, overall, well in line with those in the rest of society. Today, interest has shifted to the services that farmers can provide, for the environment, for biodiversity and for rural areas. However, in many cases the old policies remain in place.
Across OECD countries, governments support farmers to the tune of US$ 235 billion (€ 249 billion) a year, making up for more than 30% of farm revenue. Even more striking than this aggregate figure is the fact that two thirds of these transfers come in the form of price support. On average in the OECD area, the prices farmers get are 31% above the equivalent in international trade, 80% in the case of milk, nearly 100% for sugar and 360% for rice. Such high domestic prices can be maintained only behind the protective walls of correspondingly high tariffs. Indeed, agricultural tariffs are still about ten times higher than those for industrial products, in some cases as high as several hundred percent. In countries with surplus farm production, such high prices also rely on export subsidies, long outlawed for manufactures but still around in agriculture.
This price support, and the concomitant tariffs and export subsidies, encourage increased agricultural output. But this is not what governments want to achieve. Indeed, in many cases, supply controls have been introduced in order to suppress surplus production. There is an obvious mismatch between today`s farm policy goals and continued reliance on yesterday’s farm policy instruments.
Agricultural policies can do much better. Rather than providing price support, direct payments should be made, targeted to the specific policy objectives pursued. For example, where more hedges are considered desirable to enhance biodiversity, farmers can be paid per 100 meters of hedge planted and maintained. Training and advisory services can assist farmers to become more internationally competitive. To deal with rural poverty, means-tested social safety nets ensure that the intended beneficiary is reached. Such policies do not require tariffs and export subsidies, and they do not distort international trade. And here is the good news for farmers and policy makers concerned about farm incomes: payments that are not coupled to production are, at the same time, much more efficient in raising income of the people actually working the land.
OECD analysis has shown that of each dollar transferred to agriculture through old-fashioned price support, no more than 25 cents end up in the pocket of the farm operator. The rest goes to landlords, is capitalized in land values, pays for farm inputs, or is needed to cover extra costs of production. Direct payments decoupled from agricultural output can double the amount retained by the farm operator. Moreover, only targeted policies can avoid the inequitable distribution resulting from price support, where the largest farms, least in need of support, get the lion’s share of the benefits. Some countries have started to go in this direction, but much remains to be done. For as long as two thirds of OECD farm support is still provided on a per unit of output base, behind high tariff walls and export subsidies, there will be significant room for improvement in the domestic performance of policies.
Why is all this relevant for Cancun? The WTO negotiations on agriculture are about reducing tariffs, export subsidies and output-enhancing domestic support. Engaging in such reductions, and moving towards much more targeted policies as allowed by WTO rules, is in the best self-interest of each OECD country. In the case of agriculture, this is not simply because the overall economy benefits. It is always politically difficult to engage in trade reform that harms sectoral interests for the benefit of society overall. In agriculture, the big opportunity now is to render domestic policies more successful, for both farm incomes and the services valued by society. In the process, distortions in international trade are reduced, and export interests of developing countries are served. And, of course, all this is achieved more easily if everybody does it at the same time, in the context of multilateral negotiations as pursued in the WTO. Cancun is not a threat for OECD agriculture. It is a unique opportunity.
|
