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Gopal Naik

The Fifth WTO Ministerial to meet in Cancun in Mexico will take forward the agenda set forth in the Fourth Ministerial at Doha in 2001. As of now, negotiations on the Agreement on Agriculture (AoA) have has not yielded any significant benefits to the developing countries as expected. In addition, the developed countries, such as the US and the EU, seem to be in no mood to change the magnitude of their agricultural support. India is therefore wary of further committing on issues of market access and tariff reductions given the experience it has had with the developed countries on issues of implementation.

THE little-known Cancun in Mexico has become the focus as the Fifth WTO Ministerial takes off tomorrow. The Ministerial is the highest decision-making body of the WTO which meets every two years, bringing together all member countries and Customs unions. The Fifth Ministerial will take forward the agenda set forth in the Fourth Ministerial at Doha in 2001.

As of now, negotiations on the Agreement on Agriculture (AoA) have stalled almost the entire process. Negotiations on the AoA have been long and contentious, and even in the final run up, show no signs of a resolution. The main reason for this has been that the AoA has not yielded any significant benefits to the developing countries as expected. In addition, the developed countries, such as the US and the EU, seem to be in no mood to change the magnitude of their agricultural support.

Developing countries, such as India, are, therefore, wary of further committing on issues of market access and tariff reductions given the experience they have had with the developed countries on issues of implementation. The heavily subsidised farm sector of the developed countries tends to distort world agricultural trade patterns by keeping their domestic prices high. It leads to over-production and, hence, export subsidies are used to dispose this surplus in the international market at prices much lower than those in the domestic market.

This exerts a downward pressure on world prices of these commodities, making it unviable for truly competitive producers to export. With lower returns and additional risks farmers in the developing countries are unable to invest and adopt technology in agriculture. This will further erode their competitiveness in the coming years.

In the period since the implementation of the AoA, domestic support in the OECD countries has fallen only marginally, and has remained static on important commodities, such as rice, sugar and wheat. Support to farmers in the OECD countries reached $235 billion (euro 249 million) in 2002. Prices received by the OECD farmers in 2002 were on an average 31 per cent above world prices. The support as a percentage of gross farm receipts is more than 35 per cent in the case of rice, sugar, milk, coarse grains and wheat.

In the case of rice, the support level is around 80 per cent, and has remained unchanged since the reference period used to negotiate reductions, that is, 1986-88. Two of the biggest users of domestic support, the EU and the US, account for nearly 60 per cent of the total world domestic support to agriculture. The support levels to agriculture in the EU and the US have not reduced since the implementation of UR began in 1995. On a per hectare basis the producer support estimate in the EU is more than euro 700 and in the US around $125 in 2001. On a per farm basis, the support is more than euro 15,000 and around $23000 in the US.

It is unlikely that any significant reductions in domestic support will take place in the US and the EU. Two recent policy initiatives in the EU and the US appear to perpetuate high support levels. The recent Common Agricultural Policy review in the EU saw the emergence of policies that shifted the bulk of support measures to agriculture to the "green box" of the AoA which is supposed to be minimally trade distorting and, hence, not subject to reductions. Yet, the sheer magnitude of such subsidies tends to distort world production and trade. The actual total support to agriculture in the OECD countries still remains high, and amounts to $318 billion in 2002.

Similarly, the US Farm Bill 2002 is estimated to cost more than $100 billion during the next six years and $180 billion over a 10-year period, though many budget experts believe the expenditure will be even higher. Agricultural spending is expected to swell by nearly 80 per cent over the cost of existing programmes. It raises subsidy payments to large cotton and grain farmers. The US is a major wheat exporting country. In 2001-02 the country exported more than 24 million tonnes of wheat, about a quarter of the total wheat exports worldwide. The farm subsidies proposed in the Farm Bill will, no doubt, encourage production and, hence, the exportable surplus is bound to rise. This will further depress international wheat prices, and rule out exports from countries that cannot subsidise their wheat producers.

The Economic Research Service (ERS) at the US Department of Agriculture has assessed (2001) that the full elimination of global agricultural policy distortions can raise world agricultural prices by about 12 per cent. With liberalisation of the agricultural market, the prices of rice will increase by 2.3 per cent, wheat 7.3 per cent, oilseeds 9.4 per cent and sugar by 6.1 per cent. This is a very pessimistic estimate. According to International Cotton Advisory Council estimates, withdrawal of cotton subsidies is expected to increase world price of cotton by almost 26 per cent. The high level of subsidies provided by the US ($3.9 billion in 2002) to its cotton farmers is affecting millions of farmers in the developing countries.

India started importing cotton in the recent years mainly due to such subsidies. Oxfam studies have indicated the impact of such subsidies on farmers in several African countries. Developing countries and the agricultural market in general stand to accrue major benefits of reducing and eliminating subsidies and domestic support. If the prices of agricultural commodities, such as rice, cotton, wheat, sugar and so on, were to rise, India can increase exports of these commodities as huge stocks have been built in the recent years.

The Doha Ministerial Declaration linked the Agricultural Negotiations to the negotiation agenda as a whole, and is scheduled to be completed by January 2005. The new round is also termed as Development Round as it was agreed that negotiations should aim at facilitating faster development of the world's poor countries. Agriculture being a key sector supporting livelihoods of more than half the population in most poor countries, achieving faster development requires major focus on this sector. Having experienced the effects of supports provided by the developed countries to their agriculture sector in the aftermath of Uruguay Round, the developing countries should be able to convince them of the need for a reduction in their support levels.

The only central point of negotiation now should be the time duration the developing countries are ready to give to the developed countries to achieve this. In this context the following approach will be relevant for negotiations:

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