Thursday, January 6, 2011


One of the burning issues that divide the developing and developed countries while discussing about harmonization and unhindered working of the world trade regime is the massive economic subsidies showered on the farmers in rich countries to make their food and energy cheap. Probably these policies are put in place under the mistaken impression that low cost energy and food would be able to maintain a good quality life for the citizens. Is this surmise true? Obviously not, considering the health conditions of a vast proportion of the population there who struggle to keep some of the life threatening diseases away from their door steps! Here is a critical commentary on these subsidy policies being perpetuated in countries like the US and the EU.

"The United States currently pays around $20 billion per year to farmers in direct subsidies as "farm income stabilization"[9][10][11] via U.S. farm bills. These bills date back to the economic turmoil of the Great Depression with 1922 Grain Futures Act, the 1929 Agricultural Marketing Act and the 1933 Agricultural Adjustment Actcreating a tradition of government support. A Canadian report claimed that for every dollar U.S. farmers earn, 62 cents comes from some form of government, with total aid in 2009 from all levels of government adding up to $180.8 billion.[12] The beneficiaries of the subsidies have changed as agriculture in the United States has changed. In the 1930s, about 25% of the country's population resided on the nation's 6,000,000 small farms. By 1997, 157,000 large farms accounted for 72% of farm sales, with only 2% of the U.S. population residing on farms. In 2006, the top 3 states receiving subsidies were Texas (10.4%), Iowa (9.0%), and Illinois (7.6%). The Total USDA Subsidies from farms in Iowa totaled $1,212,000,000 in 2006.[13] From 2003 to 2005 the top 1% of beneficiaries received 17% of subsidy payments.[13] In Texas, 72% of farms do not receive government subsidies. Of the close to $1.4 Billion in subsidy payments to farms in Texas, roughly 18% of the farms receive a portion of the payments.[14] "Direct payment subsidies are provided without regard to the economic need of the recipients or the financial condition of the farm economy. Established in 1996, direct payments were originally meant to wean farmers off traditional subsidies that are triggered during periods of low prices for corn, wheat, soybeans, cotton, rice, and other crops." [15] Top states for direct payments were Iowa ($501 million), Illinois ($454 million), and Texas ($397 million). Direct payments of subsidies are limited to $40,000 per person or $80,000 per couple.[16] The subsidy programs give farmers extra money for their crops and guarantee a price floor. For instance in the 2002 Farm Bill, for every bushel of wheat sold farmers were paid an extra 52 cents and guaranteed a price of 3.86 from 2002–03 and 3.92 from 2004–2007.[17] That is, if the price of wheat in 2002 was 3.80 farmers would get an extra 58 cents per bushel (52 cents plus the $0.06 price difference). Corn is the top crop for subsidy payments. The Energy Policy Act of 2005 mandates that billions of gallons of ethanol be blended into vehicle fuel each year, guaranteeing demand, but US corn ethanol subsidies are between $5.5 billion and $7.3 billion per year. Producers also benefit from a federal subsidy of 51 cents per gallon, additional state subsidies, and federal crop subsidies that can bring the total to 85 cents per gallon or more.[18] (US corn-ethanol producers are also shielded from competition from cheaper Brazilian sugarcane-ethanol by a 54-cent-per-gallon tariff[19][20]) "

"There is big money at stake here and the people truly intended to benefit from the subsidies are the ones most directly squeezed out by the subsidies themselves. Ethanol and its $0.45/gallon subsidy is a primary culprit in this phenomenon. Our nation's farmers use ten million hectares of arable land in order to grow corn for ethanol alone. When farmers forgo one crop in order to grow another the ripple effect drives up the price of all other growables. And rising corn prices drive up the price of livestock that feed on grains. In sum, 90% of all agriculture subsidies go directly towards staple crops such as corn, wheat, soybeans and rice–all grains (and we still subsidize tobacco growth!). This ensures that the subsidies are neither in our economic, nor nutritional interest. A grain intensive diet (and the proliferation of processed edibles like high fructose corn syrup) have a distinctly negative impact on the health and weight of their eaters. When farmers want to fatten up their livestock, they feed them grains instead of other feed alternatives. As our subsidies incentivize the growth of grains as opposed to other edibles (like lettuce, peppers, tomatoes, etc.) it is no coincidence that Americans have a growing (sorry for the 2nd such cheesy pun, I had no choice…) obesity problem as well."

The trade negotiations between the "haves" and "have nots" do not seem to be getting any where with the rich nations unwilling to do away with their subsidy regimes for fear of offending the powerful farm lobbies who have tremendous influence on the political class through unlimited funding of elections. The tragedy is that the subsidies not even benefit the small farmers in these countries as 80% of the hand out is cornered by big sharks, year after year creating a situation wherein small farms are systematically being gobbled up by the large players. While what is happening in a country like the US is of concern to the citizens there, it also has global implications. World economy is affected because the livelihood of millions of small and micro farmers in many poor countries is gravely threatened by depressing the global prices of exportable commodities and probably it is time collective action is taken to right the wrong that is being perpetuated for decades with least sensitivity to the sufferings of a vast majority of populations living in African, Asian and South American continents.


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