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G. Srinivasan

NEW DELHI, June 6

WITH agricultural trade liberalisation and subsidy reduction in global farm trade by advanced countries emerging as a make-or-break issue in the run-up to the Fifth Ministerial Conference of the WTO to be held in Cancun, Mexico in the second week of September, the evolving scenario for correction of policy folly in the form of a distinct reduction in farm subsidies in rich world appears none too encouraging.

This is conclusively borne out in the report released in Paris by the Organisation for Economic Co-operation and Development (OECD), which says: "There was neither a reduction in market protection nor an improvement in market orientation by members in 2002."

Though much cannot be expected of the rich world in the reduction of its farm subsidies, the phenomenon of persistence of policy-induced distortion spilling into the world grain markets and pulling down the prices of foodgrains of developing countries needs to be reckoned with.

This was why the WTO Director-General, Dr Supachai Pantichpakdi, said during the G-8 conclave in Evian (France) that rolling back of subsidies and trade barriers in agricultural trade demands leaders to take difficult decisions, the failure of which would impact the successful outcome to the Doha Development Round.

Agricultural Policies in OECD Countries - Monitoring and Evaluation, 2003, an annual publication, bemoans that wide differences in support levels continue across countries and between commodities.

Support to farmers in rich world reached $235 billion, around the same level as in 2001.

It represents 31 per cent of the total farm receipts in the OECD area. Prices obtained by OECD farmers in 2002 were on average 31 per cent above world prices (30 per cent in 2001).

While this is a significant reduction from the mid-1980s when producer prices were 57 per cent, farmers in many rich countries still "remain shielded from world market signals".

This is what hurts countries of the developing world, as they find their export produce price reducing in the face of oversupply and under-cutting by advanced countries.

According to the OECD report, while prices received by farmers were on average the same as those at the border in Australia and New Zealand, they were 10 per cent higher in the US, 35 per cent higher in the European Union and more than 100 per cent higher in Iceland, Japan, South Korea, Norway and Switzerland.

The level of support (% PSE) increased in 2002 for all countries, varying from one per cent in New Zealand to 18 per cent in the US, 36 per cent in the European Union and over 70 per cent in Norway and Switzerland.

Among commodities, support ranged from an average of six per cent for wool to 48 per cent for sugar and milk and 80 per cent for rice.

An interesting point rammed home by the OECD is that the share of output-based support - market price support and output payments - and input subsidies remained at 76 per cent of producer support.

These measures are among the most production and trade distorting and least effective in transferring income to farmers or in targeting the provision of environmental benefits.

Even as budgetary payments to producers decreased, the overall costs to taxpayers of agricultural support policies rose due to an increase in support to general services provided to agriculture, and for increased consumption.

As the increase in support for consumers only partially offset the chasm between domestic and world prices, costs to consumers also escalated, OECD said, adding that overall, consumers in rich world were implicitly taxed at 24 per cent (% consumer support estimate).

In all, the total support estimate (TSE) amounted to $318 billion in 2002, of which around 75 per cent went to producers and 17 per cent to general services - sector-wide policies and institutional services such as research, education, inspection and control and marketing.

Hence, OECD has urged its members to "reduce the costs to domestic consumers and taxpayers, to further integrate domestic and world agricultural markets, to improve the prospects for developing countries and to reduce environmental pressure".

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