Agri-Trade Subsidies: Recommendations to WTO Maxwell WTO Team: Maithreyi Seetharaman & Han Sic Cho

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

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.

Agri-Subsidies: The Argument To make sure that enough food is produced to meet the country’s needs To shield farmers from the effects of the weather and swings in world prices To preserve rural society

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) 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) EU: Sugar, dairy products, wheat growers receive over 60% of total subsidies (€ 100bn approx. $ 121bn)

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

The Questionable Winners: United States Riceland Foods : $ 110mn in subsidies All farmers in 12 US States: $ 105mn in subsidies

The Questionable Winners: EU EU total subsidies 100bn EU total subsidies € 100bn 78% farmers get less than 5,000 78% farmers get less than € 5,000 Less than 2,000 large scale farmers receive more than 1bn Less than 2,000 large scale farmers receive more than € 1bn Food processors are major beneficiaries Food processors are major beneficiaries  6 major sugar processors receive € 819mn out of € 833mn sugar export subsidies

EU: A Case of Dumping? 90% Of Global Agri Subsidies 18% of world sugar exports At 34% of Production Cost 28% of world dairy exports At 50% of Production Cost 8% of world wheat exports At 75% of Production Cost

Comparative Costs of Sugar Production

Comparative World Sugar Exports

US: Extinction of Small Farmers Big Farms Consolidate Via Buy-Outs Size of Farms Increase by 350% No. of Farms Decrease by 70% Small Farms Sell & Become Tenants

The Losers: Developing World Can’t provide the same levels of Subsidies as Developed World Can’t provide the same levels of Subsidies as Developed World Subsidy related Global Price Distortion impacts exports, domestic market & national economy Subsidy related Global Price Distortion impacts exports, domestic market & national economy

The Losers India: 10mn people in 80,000 villages produce 84mn ton of milk per annum EU subsidizes: 60% of int’l price of milk powder 136% of int’l price of butter

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

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%

Case In Point: Brazil Cotton Dispute Other Countries Supporting Brazil: West African countries, including Burkina Faso, Benin and Mali India Indonesia

Case In Point: Brazil Cotton Dispute US Argues: “None of the WTO’s business” “None of the WTO’s business” Farmers do not get extra for more cotton Farmers do not get extra for more cotton Farmers paid according to the number of acres they planted/cotton produced in the past 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 Do not tempt cotton farmers to overproduce therefore subsidies do not artificially inflate supply or depress prices

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.

Case In Point: Sugar Accusation Against EU: Unfair subsidization Unfair subsidization Over-production & dumping Over-production & dumping Example of Impact: Mozambique 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

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

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