The Politics of Subsidy


The case of subsidy in food and agriculture sector is built around the need to protect the poor. The GATT agreement says that, the subsidy support to agricultural inputs such as fertilizers, irrigation, seeds, etc could continue for poor farmers but should be stopped for the rich farmers. While theoretically this view is justified, yet practically it is virtually impossible to differentiate between a rich and a poor farmer. Even if it is done, there is always a possibility of the loophole being exploited by the rich and influential farmers. With the agro giants entering the food production field, the possibility is raised further. The agro giants may now also usurp the subsidised seeds and fertilizers from the marginal peasants.


Subsidy given to the US and European farmers are beyond imagination.


In the US, a farmer producing exportable wheat enjoys a massive subsidy of US$ 29000 annually. This is 25 times more than the average income of the middle class in the less developed country and three times more than the average income of South East Asian and Latin American countries. In India, sixty crore farmers are given a subsidy of only 100 crore dollars. The total number of big farmers in the US and Europe is even less than one crore. According to a conservative estimate in 1989, a US farmer was given a subsidy of 32 hundred crore (billion) dollar, while his European or Japanese counterparts received a subsidy of 53 and 33 billion dollars respectively.


The other countries of OECD annually give a subsidy of 250 billion dollars. This implies that, an average farmer in the developed world receivers 14,400 times more subsidies than his Indian counterpart. These massive subsidies keep the developed world’s agro industry roaring. It is because of these subsidies that keep the international price of agricultural products low and give the produce of developed world a competitive edge.


The US has used these subsidised foodgrains for diplomatic and political leverage in the past. The PL 480 episode is still afresh in the memories of several Indians.


A report sent from the US embassy in Manila to the US department of agriculture said : Wheat is not the staple diet of the local people not it has any commercial value. Still it is playing an  important role in the market. The urban population has started shifting from rice to wheat. The report expressed happiness over this development as it has opened a new market for the US wheat exporters.


In the above report prognosis that was made on control and monopolisation of Philippine market was a result of massive subsidy given to the US farmers. Subsidy received by the US farmers is almost 120 times more than that received by the corn growers of Philippines.


In 1991, Philippines imported a total of 12 lakh tonnes of wheat at the rate of 96 dollar per tonne. On every dollar paid by Manila to Washington, the US government paid a subsidy of 1.40 dollar to its farmers and the exporters to keep the price of wheat down in the markets of Philippines. Its direct bearing was felt on the Philippines’ agro sector. Within a period of five years, a steep fall of eight lakh tonnes in the production of rice was noted.


As we observed, the edifice of the US agricultural sector was founded on the pillars of subsidy and export promotion. The massive subsidy along with mechanization and inflow of unlimited capital took the country to the height of zenith. Today, the USA is the world’s largest exporter of food grains. This agro subsidy has virtually created an army of agricultural bureaucrats. It is an astonishing truth that on every five US farmer there is one bureaucrat. Even the total expenses of Department of Agriculture is more than the total income of all the farmers. This huge army of bureaucrats funded liberally by the government and take care by agro giant TNCs have been instrumental in forcing the WTO to change and amend the provisions of the organisation to suit the US interests.


Monopoly is the other name of business strategy. So is the case with agriculture. Majority of the agricultural land and ranches are under the control of a few farmers and a couple of agro TNCs. It is they who together call the shots. The big farmers whose gain from produce runs in hundreds and thousands of dollars from the influential agricultural lobby with the TNCs. Most of these farmers are white settlers. The blacks and the Indians as usual remain on the periphery with no major stake.


By 1970s, the war-torn Western Europe became self-sufficient in terms of food production. The farmers enjoyed world’s greatest subsidies. The respective governments pumped thousands of dollars



into agricultural sector to develop farming. Subsidy along with economic protection like import substitution and export subsidy

has the desired effect. By 1976 Europe became the largest exporter of meat, food-grains, sugar, milk and milk products leaving US behind.


The European product thus started giving a tough competition to the US product. Europeans are giving all kinds of protection and subsidy to their farmers thus making their product cheaper. The US produce started taking backseat while the Europeans set on their march of domination. In 1993, the US department of agriculture warned of decline in the consumption of agricultural produce in the domestic market. It further said that US would have to increase its share in the world market or will have to slash production down.


Here came the Cargill suggestion. Cargill, the world’s largest agro TNC advised the government of the USA to ask for opening up the markets of Latin America and Asia via provisions of the WTO. The US government agreed and propounded a new thesis. The US trade representative for the inconclusive Seattle meet Ms Charlene Barsheksky said ‘‘.... We plan to advance aggressively an agenda for a new round of agricultural trade negotiations that will not only seek further reduction in tariffs, non-tariff barriers and subsidies, but also address emerging issues such as biotechnology.’’


Even though Europeans have outsmarted the US on several agricultural segments, the EU still lacks the courage to exposing its farmers to the harshness of international markets. It still thinks that without protections and subsidies its farmers would not be able to survive. Hence it vehemently opposes any US design to cut inside and related issues. The EU, it is not surprising is the largest donor of subsidy among the OECD countries.


This contradiction between the US and other OECD countries (excepting the Cairns group members) became evident in Seattle. For the first time to the much delight of Third World countries, the rich and powerful quarreled among themselves virtually blocking the way for further liberalisation. Such contradictions that are bound to grow give an opportunity for the lesser developed countries to strike bargain for their own benefit.


In the agricultural sector, it is the US interest that the WTO is serving. The WTO rule does not allow for any kind of export subsidy for any industry. Its use is considered as a source of trade distortion and degradation to the environment. The US has been the most vocal critic of the provision. Yet its motive is not so pious.


Today, the agricultural sector of United States is most advanced and is having capacity to feed majority of the people of the Third World alone. The demand behind the globalisation and for liberalisation stems from this fact. The US needs to secure markets of other countries to sell its produce. If this is not done immediately the entire agro sector of the US would crumble. Some of the giants in international capital, derive their strength from this sector. Hence at no cost agriculture can be let to decline. To substantiate the above line, we quote the statement of Dean Kleckner, President, American Farm Bureau Federation : ‘‘US agriculture is reeling from low commodity prices. Given an abundant domestic supply and a stable US population rate, expanding existing market access and opening new export markets for agriculture is more important than ever. If we do not do this, American agriculture’s long standing history of yearly trade surplus will not continue.’’


Why the US government, agricultural corporations and powerful agriculture lobby are clamouring for the markets of the LDCs is quite evident.


‘‘America’s farmers don’t believe that reduction in export subsidies goes for enough. Anything less than complete elimination is unacceptable,’’ according to Dean Kleckner.


WTO Provision : Detrimental to Indian Agriculture


Indian economy, particularly the agricultural sector is in for major reforms. With a period of one year it would have to come in terms with the removal of quantitative restriction on imports. The option of replacing QRs with prohibitive tariff rate will become less effective if the WTO insists on the existing tariff rates reduced and bound. The removal of QR might lead to a spurt in cheaper imported product, directly affecting the farmers. It would also have a negative impact on the foreign reserve and virtually negating what the country has achieved in the past five decades or so on this vital front. The government is still to formulate any law to cope with the situation that could arise in wake of cheap foreign produce. Anyhow such law cannot exist after 2004 when all QRs would have to be lifted.