Unprecedented farm subsidies in the U.S. have the whole world crying foul
On May 13, President George W. Bush signed a farm bill that will put $190 billion in the pockets of American farmers over the next 10 years. Thats an increase in subsidies of approximately 75 per cent.
"Farming is the first industry of America the industry that feeds us. The industry that clothes us and the industry that increasingly provides more of our energy," he told America. "The success of Americas farmers and ranchers is essential to the success of the American economy."
Because the same can be said of every single functional economy on the planet and because subsidies go against everything free global trade stands for the bill has been blasted by the European Union, African nations, Asian nations, Australia and Canada. Not only do the subsidies make it impossible to compete with American products on the world market, they also continue to undervalue the goods that are traded, which keeps prices low.
The subsidies are also hypocritical. In the past year the U.S. has slapped tariffs on European steel imports and Canadian softwood lumber on the grounds that both commodities are subsidized.
On one hand, the United States has touted the global free trade as the answer to hunger, poverty and terrorism, urging countries to reform their governments and open up their markets to the rest of the world.
On the other hand, they penalize countries who have an advantage in the U.S. market by slapping tariffs on goods that compete with American-made goods.
Is it a case of one hand not knowing what the other is doing unlikely, given that the hands belong to President Bush or an attempt to capture the world market on absolutely everything by getting rid of the competition at home and abroad?
More likely its the result of a new government eager to please its constituents, coupled with some genuine good intentions to help American farmers, steel and softwood lumber producers by every means possible, whether those means are conflicting or not.
Some Capitol Hill watchers have also suggested that the Bush government is intent in attaining majority in the Senate, which is currently split 50-50 between Democrats and Republicans. Rural votes from happy, well-paid farmers could help make that happen this November.
And besides, its the U.S. were talking about what are we going to do about it?
Both Australia and the European Union are taking the matter up with the World Trade Organization, which is essentially powerless to make the U.S. co-operate with any discussions or enforce any ruling.
The strongest words on the topic so far have come from African nations and Canada.
At the recent United Nations Food Summit in Rome, Ugandan President Yoweri Museveni said, "Let us stop beating around the bush. The most fundamental problems are not the weather, are not lack of improved seeds. The main causes of food shortages in the world are really three: wars, protections in agricultural production in Europe, the USA, China, India and Japan, and protectionism in value-added products on the part of the same countries."
UN Secretary-General Kofi Annan told Reuters that rich states should drop protection of their agriculture to enable poor countries to compete in world food markets.
While he was addressing all developed countries that subsidize agriculture, the new American subsidies attracted the most attention during the conference.
Canadian Agriculture Ministers Lyle Vanclief commented that the American subsidies "depress prices and effectively shuts out producers from developing nations We are concerned that recent decisions in the United States are moving in the wrong direction."
In fact, of all the countries to criticize the U.S. subsidies, Canada has been by far the most vocal.
Most recently, on June 14, Finance Minister John Manley told reporters at the G7 assembly of finance ministers in Halifax that agricultural subsidies for farmers will do more than hurt farmers in Canada around the world. He suggested that they could undermine the U.S. war on terrorism as Afghan farmers would have little choice but to continue to grow the poppies to fuel the drug trade that helped to support al Qaeda.
When he spoke to the press the following day at a news conference, Manley spelled out what the subsidy would mean for Canada. "Clearly theres a Canadian concern. It relates to the impact on our farmers, and an impact on our finances, because we want to put a package together that supports our agriculture."
On June 19, the federal government revealed just how much the subsidies would affect our finances when it announced $5.2 billion in farm aid over a five-year plan. Approximately 40 per cent would be paid by the provinces, although Saskatchewan Premier Lorne Calvert has said it should be up to the federal government, with a $5 to $7 billion budget surplus from last year, to pay the full cost of the program. In total, the Western premiers and farm groups have asked for a further $1.3 billion to ease the effects of the new U.S. subsidies.
Calvert said the money will help in the short-term, but the long-term solution should be to end "this insane subsidy war."
Long before the U.S. announced a 75 per cent increase in subsidies, Canada and the European Union had applied subsidies of their own to farmers that are in direct competition with goods from Africa and Asia e.g. the Prairie wheat farmers who couldnt compete with low wheat prices from western Africa and Russia.
In 2001, Canadian farmers seemingly enjoyed record profits, but only because of government subsidies. Farm income did increase 29.8 per cent over 2000, which prompted Vanclief to suggest that "2001 will be a year for the record books."
Farmers earned approximately $36 billion in gross revenue from sales of crops, livestock and government subsidies. When you subtract their expenses from that total, farmers were left with $3.75 billion.
Not bad, but when you consider that 2001 farms subsidies amounted to $3.752 billion, the record profits dont look quite as impressive.
While agriculture is important in that it feeds us, it doesnt really help the economy. And that pretty much sums up the financial situation in the U.S., Europe, Asia, and every other country that sells agricultural products on the global market.
Everybody needs to eat, drink and wear clothing to survive, so why is it that farmers cant make a decent living providing us with these essential commodities?
The first reason has to do with overproduction when there is too much of a product on the market, and subsidies only encourage farmers to grow more out of their own self-interest, the price of that goes down. Factory farms, super seeds and next generation chemical fertilizers and pesticides make it possible for farmers to increase yields even more under the impression that more goods will result in more money. However, the competition is increasing as fast as the yields are, at home and in the global market, which keeps food prices artificially cheap.
The second reason has to do with the disparity of wages and standard of living between the developed world and the Third World they can produce the same products for a fraction of the price, and given the choice most distributors, processors and consumers generally opt for the cheaper product.
The third reason is the way that agriculture is structured, whereby the family farm is endangered as farmers form corporate alliances out of their own self-interest. As a result, farmers are told what to grow and have less flexibility to experiment with new crops.
The distribution system is also bulkier than in the past, with more layers of middle men between the farmer and the consumer than ever before. As a result, the farmers share of each food dollar has dropped steadily, from 41 cents in 1950 to just 20 cents in 1999, according to Farm Aid.
Because the new U.S. farm subsidies vary for different products, farmers may switch to crops with higher subsidies that dont necessarily reflect what the market wants or needs. According to political columnist Mark Shields, two-thirds of the subsidies will go to only three per cent of American farmers under the current formula.
Ranchers in Texas, for example President Bushs home state will do better than tomato farmers in California. In fact, some columnists have noted that the bulk of the subsidies will go to products produced in the states where the Republican candidate needs a boost in the 2002 Senate race.
The fourth reason farms require subsidies has to do with consumers and the choices we make. If we bought locally produced products wherever possible, even though they might cost a little more than foreign products, we can buck the global trend that has kept prices low and profits low for Canadian farmers.
In many cases organic farmers are doing better than conventional farmers because people are willing to pay more. Also, there arent as many layers of middle men to go through to get the food to the consumer sometimes all it takes is a short truck ride to the local farmers market.
The way things work now, you can either pay the farmer fair price up front, or the government will use your tax dollars to basically accomplish the same thing. Who is the middle man there?