The Hindu Business Line : OECD makes strong case for cutting farm subsidies

It is time that this latest report from the OECD itself should be used as an effective armoury by our trade negotiators to carry the battle to the rich countries' turf in Geneva.

New Delhi , June 23

With the World Trade Organisation (WTO) in Geneva "blocking" three days towards the end of this month for a ministerial conference of its members to clinch the numbers on the reduction commitments in both farm subsidies and non-agricultural (industrial) tariffs, hopes run high that at long last the much-delayed deadline for the launch of the Doha Development Round would somehow be met.

Even as developed countries are being asked to bring down their bloated farm subsidies and open their markets to exports from other countries, particularly the developing countries, important issues pertaining to trade-distorting forms of domestic support and to improving market access, in particular rates of tariff cuts, are still outstanding.

Support in OECD

Disturbingly, a report released on June 21 in Paris by the Organisation for Economic Cooperation and Development (OECD), an inter-governmental think tank of 30 rich industrial countries, has drawn attention to the humongous government support to farmers in OECD countries estimated at $280 billion or 225 billion in 2005.

TOTAL SUPPORT

Total support to the farm sector, which combines supports to producers, budgetary transfers to consumers and general services to agriculture, was equivalent to 1.1 per cent of GDP in 2005 compared to 2.3 per cent in 1986-88.

OECD reckons the overall Producer Support Estimate (PSE) varies across OECD countries.

The PSE in the European Union (EU) was 32 per cent of farm receipts in 2005 (compared with 33 per cent in 2004). In Australia it was 5 per cent (unchanged from 2004) and in the US 16 per cent (unchanged from 2004).

The largest proportions of government support are found in Japan (56 per cent in 2005), South Korea (63 per cent), Norway (64 per cent) and Switzerland (68 per cent).

While the OECD states that the share of the most production and trade distorting forms of support - those linked to production or input use - declined from 91 per cent of producer support in 1986-88 to 72 per cent in 2003-05, measures linked to production or input use still dominate producer support in most countries.

TRADE DISTORTION

This, says OECD, encourages output, puts stress on natural resources and distorts trade.

Besides, there has been only "very modest progress" towards policies targeted to clearly defined objectives and beneficiaries.

Hence, rightly it urges its rich members to make further efforts to ensure that `polices are more transparent in operation, tailored to specific outcomes and flexible in responding to changing priorities".

Interestingly, the OECD report makes a refreshingly strong case against the commonly held view that high levels of support are indispensable to ensure the quality of environment and prosperity in rural areas.

It outspokenly admits that most support goes to those who have the largest farms while government aid often "leaks" out those who are not the intended beneficiaries such as suppliers or people who own, but do not farm, land.

No wonder, the OECD's Deputy Director of Food, Agriculture and Fisheries, justifiably contended thus: "If governments break the link between support and production and establish better links between support and what they are trying to accomplish - for instance, environmental sustainability or rural community well being, they will improve the performance of domestics policies and avoid negative impacts on world markets".

Eliminating subsidies

The Indian envoys and trade minister to the WTO talks are seldom tired of repeating since the Doha Ministerial Conference in November 2001 that they would secure a final outcome on agriculture that is consistent with the agreed negotiating mandate for early elimination of all forms of export subsidies.

But with almost five years past, the talks on agriculture which holds the key to progress on other areas, remain just talks with no tangible proof of change of attitude if not posture from the rich world about its commitment to slash trade- distorting domestic support and export subsidies.

It is time that this latest report from the OECD itself should be used as an effective armoury by our trade negotiators to carry the battle to the rich countries' turf in Geneva so that the livelihood concerns of millions of farmers in the developing countries are at least safeguarded from cheap imports, trade analysts argue.