Unfair Trade Increases Problems of Small Farmers and Hunger in Many Countries

Bharat Dogra

In most discussions on food and farming systems in India a concern that comes up time and again is that pressures and particular interpretations of the rules of the World Trade Organization (WTO) can increase problems of India’s farmers and the public distribution system (PDS) for food. A large number of India’s mostly small farmers face a number of serious problems due to a complex of factors. Now if particular interpretation of rules of WTO or its Agreement on Agriculture are used to increase the support the government provides to the farmers in the form of Minimum Support Price and in other ways then this will greatly accentuate the problems of farmers. Similarly if the PDS or the implementation of the food security legislation are disturbed due to the pressures created by certain countries from the WTO platform, then this will worsen the problem of hunger in India.

This kind of concerns exist not just for India but for several other developing countries as well. The overwhelming majority of farmers are small farmers. Small farmers have a very low resource base and their risk bearing capacity is very limited. If they face a situation of sudden price crash due to cheap imports it can be very difficult to recover from these losses. If this is repeated for some time, their precarious but proud existence as small farmers may be threatened  as they are forced to sell their land to recover from debts, or feel that they cannot no longer bear further high risk of a possible cash in prices.

The Human Development Report (HDR) prepared a special issue on international trade which focused attention to some aspects of the threat posed by unfair trade to small peasants in developing countries . The HDR questions the globalisation hype by drawing attention to those who have suffered. This report says, “Participation in trade can exacerbate inequality as poor people absorb the adjustment costs of increased competition from imports, while people with assets and market power take advantage of opportunities provided by exports.”

For example, increased exports of high value added fruit and vegetables from countries like Kenya and Zambia have been concentrated in large capital – intensive farms with weak links to the rest of the economy. Similarly, in Brazil, just four or fewer firms account for more than 40% of exports of soy, orange juice, poultry and beef while ten million small and landless peasants live below the poverty line in villages.

In 1997 almost three-quarters (about 75%) of Kenya’s high value-added horticulture exports were supplied by small farmers. By year 2000 this share had fallen to 18%. According to HDR, “The biggest change to the industry has been the increased importance of farms owned or leased by major export companies.”

What the HDR report does not say is that even if small landholders are integrated into this export trade, this can still lead to longer-term loss if the concentration on export crops is damaging for soil, water and other aspects of environment. When the export demand is curtailed and the cash dries up, these small farmers may not be able to go back to their staple food crops.

HDR indicts particularly those unfair trade practices which undermine the livelihoods of small and landless peasants (who constitute two thirds of all people living in extreme poverty). These practices are linked particularly to the subsidies given by developed country governments. The HDR says, “The problem at the heart of the Doha Round negotiations can be summarised in three words – rich country subsidies. …. Rich countries spend just over $ 1 billion a year as aid to developing country agriculture and just under $ 1 billion a day supporting their own agricultural systems.”

These heavy subsidies hurt rural communities in developing countries.” Subsidized exports undercut them in global and local markets, driving down the proceeds received by farmers and the wages received by agricultural labourers. Meanwhile producers seeking access to industrial country markets have  to scale some of the highest tariff peaks in world trade.”

Within the rich countries most benefits of farm subsidies go to those who deserve these the least, “The winners in the annual cycle of  billion dollar subsidies are large-scale farmers, corporate agribusiness  interests and landowners.” An example of extremely unequal income-distribution generally given is that of Brazil. Research carried out for HDR revealed that subsidies distribution in rich countries is more unequal than income distribution in Brazil.

So HDR concludes, “It would be hard to design a  more regressive – or less efficient – system of financial transfers than currently provided through agricultural subsidies ….. Industrial countries are locked into a system that wastes money at home and destroys livelihoods.”

This has contributed significantly to highly unfair trade. HDR says, “When it comes to world agricultural trade, market success is determined not by comparative advantage but by comparative access to subsidies – an area in which producers in poor countries are unable to compete.”

In the European Union farmers and processors are paid four times the world market price for sugar, generating a 4 million tonnes surplus, which is marketed with the help of more than $ 1 billion in export subsidies (paid to a small group of sugar processors). Subsidised EU sugar exports lower world prices by about one-third, inflicting heavy losses on sugar exporters among developing countries as well as on sugar crop farmers based in developing countries.

At the time the HDR report on the special theme of trade was prepared 20,000 cotton farmers in the USA were likely to receive government payments of $4.7 billion in a year – an amount equivalent to the market value of the crop. These subsidies lowered world prices by 9% to 13% and enabled US producers to dominate world markets. In Benin the fall in cotton prices in one year was linked to an increase in poverty from 37% to 59%. Around the same time rice grown in the USA at a cost of $415 a tonne was exported at $274 a tonne. This was made possible by US government payments of $1.3 billion, almost three quarters of the value of output. In countries like Ghana and Haiti rice farmers were pushed out of national markets by US imports.

According to a widely quoted study by Oxfam International. “The practice of exporting agricultural surpluses on the world market at less than the cost of production – or ‘dumping’ – is one of the most pernicious aspects of industrialised country trade policies, which the WTO has failed adequately to address. Unfair competition from dumped agricultural produce creates problems for developing countries by depriving them of foreign-exchange earnings and market share, and undermining local production, rural livelihoods, and food security.”

This study titled ‘Rigged Rules and Double Standards – Trade, Globalisation and the Fight Against Poverty’ adds, “Oxfam has developed a new measure of the scale of export dumping by the EU and the United States. It suggests that both these agricultural superpowers are exporting at prices more than one-third lower than the costs of production. These subsidized exports from rich countries are driving down prices for exports from developing countries, and devastating the prospects for smallholder agriculture. In countries such as Haiti, Mexico, and Jamaica, heavily subsidised imports of cheap food are destroying local markets. Some of the world’s poorest farmers are competing against its richest treasures.”

Concerns of poor countries and poor people have been ignored to an alarming extent at the WTO. According to HDR, “The agreement on agriculture left most EU and US farm subsidy programmes intact for the simple reason that it was in all but name a bilateral agreement between the two parties that was forced onto the multilateral rules system. In effect, the world’s economic superpowers were able to tailor the rules to suit their national policies.”

Perhaps the most disturbing aspect of the emerging international trade regime is that the USA and some other developed countries have arranged the classification of subsidies in such a way that very massive subsidies given to their biggest agribusiness companies—which include some of the most powerful and resourceful multinational companies—can be defended as being acceptable under WTO rules while the much more modest subsidies given by  developing countries to their small farmers are criticized as being violation  of WTO rules. This allows these rich countries to strengthen big agribusiness companies domestically by allowing them to gobble the business and sometimes even  the land of smaller farmers, on the other hand their big companies get even more space and power to unleash havoc in developing countries through their highly subsidized products and in other ways. In addition several free trade agreements, multilateral and bilateral agreements have also increased greatly the problems of small farmers in several developing countries. These trends are so blatantly unjust that international efforts as well as growing unity of developing countries are urgently needed to check them and create an alternative system of fair and just international trade.