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The Impact of Farm Subsidies
Bringing Some Balance to
the North-South Debate
Eliseo Ponce and Ben Bradshaw
Farm subsidies were the target of much criticism at the World Summit on Sustainable Development in Johannesburg in 2002. In his address to the Summit, Canadian Prime Minister Jean Chrétien echoed the position of the World Bank-and to some degree, non-governmental organizations like Oxfam-in calling for the elimination of agricultural support programmes in rich nations. In its simplest form, the logic of the argument goes something like this. Subsidies in the North, and especially in Europe, Japan and the United States, stunt growth in the South by flooding international markets with underpriced goods, thereby undercutting efforts by southern farmers to sell their own produce. These subsidies, which regularly exceed $300 billion a year, not only stymie export opportunities but often result in the importation of foodstuffs into countries whose economies are largely based on agriculture.
Undoubtedly, there is merit to this claim. In particular, export subsidies, which Governments provide to offload surplus output at below market costs, have a particularly devastating impact on farmers in the developing world who often find themselves unable to compete even within their home markets. Given this, as well as the significant attention granted to the issue by the influential 1987 World Commission on Environment and Development, it is highly appropriate that export subsidies have been the first to go in agricultural policy reforms undertaken by signatories to the World Trade Organization's 1994 Agreement on Agriculture (AOA). That being said, would the elimination of remaining subsidies, such as the price supports long used by the Europeans and recently extended under the $190-billion American Farm Bill, necessarily enable increased agricultural exports to the North and thereby solve the problems of development among the world's poorest countries?
We suggest that this expectation, while appropriately hopeful, is clearly misplaced. We arrive at this conclusion based on both general arguments from international trade and development literature, and specific circumstances in the case of the Philippines. Starting with some general arguments, it should first be recognized that market access is often a separate issue from the provision of subsidies. Subsidies may be cut, but access to markets may still be limited by existing marketing channels, cultural norms or, most blatantly, import restrictions, be they formal tariffs or non-tariff barriers such as food safety standards. With respect to tariffs, the AOA has successfully achieved the "tariffication" of import bans, but the resulting rates appear to be sufficiently high as to maintain the status quo. Indeed, this view was recently confirmed by an Organization for Economic Cooperation and Development study that identified no change in market access among its member countries since the signing of the AOA. Rather, it appears that to date northern farmers have gained the upper hand in accessing new markets under trade liberalization; the Food and Agriculture Organization of the United Nations reports that the growth of agricultural imports in the developing world has outpaced that of exports since 1994.
If unqualified access to northern markets can indeed be achieved, opportunities for enrichment may be realized for certain competitive producers in the developing world; however, access alone cannot be expected to pull countries out of poverty. Pursuing economic development based on the export of a limited number of unprocessed cash crops is never a safe bet, as exemplified by the current crisis afflicting the world's coffee-producing regions. Not only are such commodities prone to wild price fluctuations, but over time they tend to deflate in value relative to manufactured goods. It is now widely accepted in development circles that these declining terms of trade can severely limit long-term growth potential.
Alleviating poverty for many in the developing world via agricultural exports is a complex exercise, given a number of persistent and often historically determined problems. Specific circumstances in the Philippines serve to illustrate this point. Farmers there, like those in many other countries of the South, face a number of problems that severely limit their ability to produce for, gain access to, and ultimately compete within international markets. The odds are stacked against Filipino farmers, especially those with small holdings. Limited access to land, appropriate technology, credit and value-added opportunities, poor agricultural infrastructure and telecommunication facilities, poor market linkages, and tariff and non-tariff barriers imposed by some Northern countries on Philippine exports represent just some of the many impediments to agricultural-led economic development.
Many of these problems are systemic and not easily addressed by Filipinos themselves. In terms of what can be accomplished domestically, two tasks are critical. The Philippines should, as a matter of urgency, substantially increase public and private investment in productivity, enhancing policy instruments, such as research and development, extension, rural infrastructure (particularly farm to market roads and irrigation) and agriculture credit. For example, over the last two decades, the country's investment in agricultural research has hovered between 0.2 to 0.4 per cent of the sector's gross value, which is far below the recommended minimum level of 1 per cent that countries in the North regularly exceed. Increased investment in agricultural development, however, is meaningless if it is not accompanied by structural reforms to improve the quality of public sector governance. In particular, there is a need to improve public accountability, in order to maximize the impact of public investments, strengthen public-private sector collaboration, and develop a stable and transparent regulatory system in agriculture.
Given these two critical domestic measures, Filipino farmers may improve their capacity to deliver a sufficient quantity of competitively priced goods to serve their own and even other markets. Of course, to sell to foreign consumers requires matching efforts by Northern countries to open up their markets. While improved market access does not guarantee long-term growth, it certainly offers the potential for southern farmers to add to their incomes, especially if they are allowed to compete on a level playing field. It is only at this point that the North's subsidy programmes may, indeed, impact upon southern producers.
The attention afforded to northern farm subsidies appears to divert attention from the serious structural constraints faced by farmers from the South. Undoubtedly, these subsidies exacerbate the already highly uneven playing field in international agricultural production and trade, but their elimination alone does not constitute a sufficient condition to lift many Filipinos and other southern farmers out of their complex webs of poverty.
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Ben Bradshaw is assistant professor of environmental-economic geography at Simon Fraser University in British Columbia, Canada. He earned a Ph.D. at Guelph University in 1999, based on research that examined the environmental implications of agricultural subsidy removal.
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Eliseo R. Ponce is professor of agriculture research at the Leyte State University and visiting senior research fellow at the Philippine Institute of Development Studies. He has also served as Director of the Bureau of Agriculture Research of the Department of Agriculture of the Philippines.
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