Farm Trade Fix?
May 1, 2001
by Dennis T. Avery
As trade protesters gathered in April of this year in Quebec during the Summit of the Americas, the farm trade negotiators conducting the World Trade Organization (WTO)'s reform talks agreed to step up their pace. The negotiators were trying to regain the liberalization momentum lost more than a year ago when then-President Clinton showed lukewarm support for reform, and downtown Seattle, site of the WTO talks, was overrun by angry union members and eco-activists.
The farm trade reform effort remains daunting. Figures from the Organization for Economic Cooperation and Development (OECD) show that farm subsidies in the thirty affluent OECD member countries still total nearly $350 billion a year, with 90 percent of them being handed out in the European Union (EU), the United States, and Japan. Government farm handouts continue to account for 40 percent of OECD farm income just as they did in the mid-1980s. In heavily protected agricultures such as those of South Korea, Switzerland, and Norway, government payments make up two-thirds of farm income. President Bush proposes to reduce U.S. farm subsidy spending and both Democrats and Republicans agree that farm subsidies cost too much, go mostly to the largest farmers, and represent no real solution to the farm income problem. But neither side wants to risk losing a close congressional election because the farmers are unhappy.
Nevertheless, there are some bright spots in the farm trade liberalization picture.
The EU recently surprised most of the world by ending all trade barriers to imports from the world's poorest forty-eight countries, "to encourage investment and economic growth." The agreement covers "everything but arms," though the barriers to imports of sugar, rice, and bananas will be lowered only gradually over several years.
Nevertheless, the agreement represents an enormous blow to the EU's hitherto sacred sugar growers. The new poor-country import policy represents a major step away from the adamant protectionism that has existed in Western Europe for the last one hundred years, and its broad-gauge endorsement of globalization could set the stage for an even more dramatic agricultural policy change. The European Union has decided to take in at least ten new member countries over the next few years, including such big—or potentially big—agricultural producers as Poland, Hungary, and Romania. Extending the EU farm subsidies to millions more hectares and thousands more farmers would quickly break the EU's piggy bank.
In the United States, Federal Reserve Chairman Alan Greenspan offered powerful Senate testimony on the importance of freer trade in raising living standards all over the world. Greenspan "hammered home his long-held belief that free trade promotes higher standards of living by encouraging competition," according to the New York Times. The paper's decision to give Greenspan's testimony prominent play was itself a promising change. In recent years, the Times has appeared torn between its historical support for free trade and its more recent affinity for environmental protests and small-scale organic farming.
The odds are still against any quick removal of farm trade barriers between the world's most affluent nations, which means that Congress will resist Bush's proposed cuts in farm subsidy spending. But, the Bush team knows that there can be no long-range solution to the U.S. farm depression or the EU budget problem until American and European farmers can export more meat and livestock feed to meet the burgeoning demand in densely populated Asia. Feeding high-quality diets to four billion increasingly rich Asians in the twenty-first century represents the greatest farming opportunity in all history. In comparison, the "bird in the hand" of government subsidies may soon begin to look like a scrawny sparrow.
Dennis T. Avery is based in Churchville, VA, and is director of the Hudson Institute's Center for Global Food Issues.