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Why the rich won’t budge on farm subsidies

World trade talks have collapsed in Geneva over America's and Europe's refusal to cut the billions of dollars they provide in support to their agricultural sector.

They employ less than two per cent of the workforce in their industrialised countries and their contribution to the national economies is rapidly declining. Yet, they receive a level of government support which verges on the bizarre and is causing no end of annoyance to the governments and people of the poorest countries of the world.

Indeed, some say, it is a protection racket that was chiefly responsible for the recent collapse of the world trade talks.

Welcome to the world of Northern 'farming', a phrase used loosely to describe the whole of the agricultural sector – from small farmers to the largest agricultural multinationals – in the world's richest countries.

Government support to farmers in the so-called 'rich countries club' – the 30 who belong to the Paris-based Organisation for Economic Co-operation and Development (OECD) – totalled an astounding Eur 225 billion (US$283 billion) in 2005, some 29 per cent of farm income.

A study in distortion

An OECD study on the agricultural policies of member-states shows that the most heavily protected farmers in 2005 were in Switzerland, where 68 per cent of farmers' income came in government support, Norway (64 per cent), Korea (63 per cent), Japan (56 per cent) and European Union (EU) countries (32 per cent).

Most of the support – more than half – was in the form of measures to boost the prices of farm products. These include import tariffs, export subsidies and domestic output subsidies, which "badly distort production, markets and trade", says the study.

And it's not the small Northern farmer who is the main beneficiary – the support goes mostly to those who have the largest farms. In the European Union, 80 per cent of the money goes to 20 per cent of enterprises, often large agri-businesses. The day the Doha talks broke down the US agriculture secretary admitted 60 per cent of US farmers receive "virtually nothing" from the US Farm Bill.

The gainers

In Europe much of the money is channelled through the EU's Common Agricultural Policy (CAP). The single biggest gainer is the British dairy trading company, Fayrefield Foods, which received support totalling more than £22 million ($40.7m) over 2004 and 2005, according to data obtained by the campaign group farmsubsidy.org.

The £10 million claimed by Fayrefield Foods in 2004 was worth almost 10 per cent of its turnover – and dwarfed its profits, which were less than £1 million.

The export arm of Dairy Crest, another well-known British brand, received a similar amount from CAP.

Nestle, the Swiss food giant whose practices over marketing baby milk substitutes in the developing world have long been controversial, received more than £7 million.

Some farm supports even find their way to those who are not the intended beneficiaries – such as large banks that service the agricultural sector.

And some of the support to farmers and agribusiness in the North encourages overproduction and dumping – selling below the cost of production – on the world market. This can ruin the livelihoods of countless small-scale farmers in developing counties.

The reasons

Why do governments of Northern countries protect agriculture so heavily? And why are they so reluctant to change? Why does the sector, which accounts for a tiny percentage of their national earnings, have such hold over governments?

"Agricultural policy reform is difficult to achieve, perhaps in part because those who fear they would lose are able to block or water down reform initiatives," says the OECD study.

In Britain groups such as the Countryside Alliance and the National Farmers Union –

which consists mostly of large-scale farmers – have often had considerable influence in government circles.

Farmers score well with the public and this in turn influences policy. Popular radio programmes portray British farmers as guardians of the environment.

"The strong European farming lobby has successfully tapped into an emotional strain among the public," says Christopher Stevens of the Overseas Development Institute, a London-based thinktank.

Many people in Europe therefore go along with the view that a high level of government support for farming is necessary.

Opposing CAP reform

The gainers naturally oppose any changes to the hand that feeds them. When EU governments announced reforms in CAP in June 2003, large-scale farmers strongly opposed a proposal for a ceiling on payments.

The reforms de-linked a certain percentage of farm subsides from production. So EU farmers receive direct payments – de-linked from how much they produce, or whether they produce at all. The reforms were about the way farmers are paid, not lowering levels of overall support.

They are most unlikely to stop over-production and dumping, say international aid and development agencies who have examined the reform proposals. And three years on, some EU governments at least seem to recognise that the reforms they hailed as sweeping are nothing of the kind. The UK government has spoken of the need "to urgently tackle the scandal and waste of the CAP". Yet real reduction in levels of EU support has failed to materialise.

EU ministers did agree in December 2005 to start a review of CAP in 2008, five years earlier than previously agreed, but France made it clear that it did favour any change before 2013.

Farmers in countries with large rural areas such as France and Ireland are especially vocal in their defence of CAP, and have forced their governments not to yield to calls for reforms. Yet even in France, agriculture employs only 4 per cent of the workforce and contributes just 3 per cent to national income.

Some say culture, history and tradition are powerful obstacles to change: "fundamental to our identity" is how the French trade minister Christine Lagarde describes farming.

Riding on the back of agriculture

Michael Hart of the Britain-based Small and Family Farms Alliance points out that while agriculture in Britain contributes only about 1 per cent to national income, farms cover almost 80 per cent of Britain's land.

"The tourist industry rides on the back of the agricultural landscape," says Hart. "If land is not farmed it will return to wilderness."

But the OECD study argues that high levels of support are not necessary to ensure the quality of the environment and prosperity in rural areas.

CAP, and other Northern government support programmes like the US Farm Act, have thwarted progress in WTO talks on ending subsidies.

The failure of the US and EU to make significant concessions on farm supports was largely responsible for the suspension of the WTO's Doha round in July. Along with continued international pressure, it will take a radical shift in domestic public opinion in the North to get them to change their position.

John Madeley is a UK-based author, journalist and broadcaster specialising in international trade, food and agriculture.

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07/28/2006

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