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$US180bn Farm Aid Trade Threat

$US180bn Farm Aid Trade Threat

Author: Peter Hartcher Washington
Publication: Australian Financial Review
Date: May 10, 2002

According to WTO limits, the United States can shell out no more than $19.1 billion a year in federal aid to farmers.

Agricultural commodities account for 52 percent of Argentina's exports. That proportion stands at 39 percent in Bolivia, 33 percent in Brazil, 15 percent in Chile, 37 percent in Colombia, 67 percent in Ecuador, 24 percent in Peru and 55 percent in Uruguay.

The US Senate has ratified a farm bill that increases American farm subsidies by 80 per cent to a record total of at least $US180 billion($333 billion) over the next 10 years, a brutal blow to farmers and free trade around the world.

The torrent of subsidised new farm produce is expected to depress the price of farm produce around the world. The European Union, Canada, Brazil, Australia and New Zealand have been among the governments to protest. Poor countries that are dependent on agriculture exports will suffer most acutely but all farm-trading nations will feel the effect. In a country with fewer farmers than prisoners, the US Federal Government will now be paying farmers US60cents in subsidies for every dollar of output, according to figures from the US Department of Agriculture and the Congressional Budget Office.

The lavish spending, larger than the entire national output of 158 of the world's 180 measured economies, is designed to shore up the rural vote at November's mid-term election for the US Congress. "This is a total catastrophe for global trade," said the global economist at the Zurich Group in Chicago, David Hale. "This is totally hypocritical policy and it undermines everything the US stands for." The new round of worldwide market-opening negotiations in the World Trade Organisation launched last year at Doha were now effectively dead, he said. Officials around the world agreed that the round was, at least, in grave trouble.

The farm bill has been passed by both Houses of Congress and is set to be signed into law by the President, who has campaigned for free trade yet has declined to exercise his veto power over this legislation. The Wall Street Journal, editorialising that the bill was "a bucket of slop that has even Washington agog", observed that the price of the farm vote was too high: "We all know democracy isn't cheap, but this is ridiculous." The bill was described by two of its congressional opponents as having the effect of "turning back the clock 50 years in federal farm policy" in making American farmers increasingly dependent on cheques from the Government. "Growers will overproduce, and that will drive down world market prices, which become more volatile and lower and we are going to have to live with those prices," the deputy chief executive of the National Farmers' Federation in Canberra, Lyall Howard, said.

The spending is lavished on a minuscule fraction of the population, skewed in favour of the biggest and richest farmers. The US has only 400,000 farms that are worked full time and a farm population of 2 million people. That's 0.7 per cent of the national population. The new bill provides $US18 billion in payments to farmers next year. It averages out at $US9,000 for every farm worker in the nation but the payments are not distributed evenly.

Last year, as a guide, 73 per cent of all subsidies went to the richest 10 per cent of farms. Among needy recipients were David Rockefeller of the Rockefeller dynasty ($US134,000), media magnate Ted Turner ($US12,000) and the chief executive of the celebrity fraud case Enron Corp, Ken Lay ($US6,000). Brian Riedl, a conservative US farm policy specialist, observes that "historically every farm bill ends up costing at least double the cost estimated at the time it was passed". That's going to be a problem. Not only is the Federal Government plunging back into deficit this year's is projected to be $US100 billion but the US has undertaken in the World Trade Organisation to limit market-distorting subsidies to $US19.1 billion a year. This limit is likely to be tested within a couple of years.

And even these extraordinary sums likely to make the US an even bigger farm subsidiser than the European Union for the first time, according to Riedl don't convey the true dimensions of US agricultural protectionism. The subsidies are directed almost exclusively at five crops: wheat, corn, cotton, soybeans and rice. But this doesn't embrace two of the most heavily cossetted sectors sugar and dairy because they are protected in an entirely different way. Sugar and dairy are not supported with subsidies but protected by government quotas and tariffs and price regulations.

The cost of these, instead of being paid by taxpayers as subsidies, is paid by shoppers through high prices at the supermarket. And they will pay $US271 billion in higher prices over the next decade, Riedl estimates, for their milk and sugar. Together with the minimum cost of the new farm bill, that takes the total cost of US farm support to $US451 billion over 10 years. Will any of this help the American farm sector to grow stronger? Of course not. It is a desperately cynical replay of the same policies that have failed wherever they have been tried.

As Senator Richard Lugar, deputy chairman of the Senate Agriculture Committee, points out, the subsidies will create an increasingly dependent and inefficient farm sector. In January, George Bush said: "Free markets and open trade are the best weapons against poverty, disease and tyranny." In allowing this farm bill to weaken US agriculture, corrupt world markets and attack the income of the Third World, what is this new vision he is offering us?

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