Focus on the Global South- India - Export Subsidies: A tool to establish MNCs’ monopoly in agricultural trade*

On the eve of the revolt by the developing counties at the WTO Ministerial in Seattle, the United Nation Conference on Trade & Development (UNCTAD) issued a damning evaluation of the then nearly 5 years old world trade regime. It said, “The predicted gains to developing countries from the Uruguay Round have proved to be exaggerated … Poverty and unemployment are again on the rise in developing countries which had struggled for many years to combat them. Income and welfare gaps between and within countries have widened further… As the twentieth century comes to end, the world economy is deeply divided and unstable. The failure to achieve faster growth that could narrow the gap between the rich and poor must be regarded as a defeat for the entire international community .

This is true even 10 years after the WTO coming into existence. The situation has rather gone worse. A glimpse of this was witnessed at Cancun where once again we saw a revolt by the poor developing countries against the distorted rules of the WTO and monopolistic regime of the world trade system apparently pushed by the developed world, esp. USA and EU. But the real players of the monopolistic regime who also have drafted the original text of the Agreement of Agriculture during Uruguay Round are now sprawling their tentacles to control the maximum shares of the world agriculture trade. These players are the western multinational corporations like Cargill, ConAgra, Archer Daniels Midland (ADM), Bunge Ltd and Smithfield etc., who are out to take maximum benefit of the Agreement on Agriculture to dominate the world agricultural trade. One of the main pillars of their control over world agriculture is ‘export subsidy’, which is incidentally one of the three pillars of AoA too. The export competition pillar of the AoA addresses four basic issues, which include, besides export subsidies, food aid, state trading enterprises and export credits. But here I am mainly discussing the export subsidies and its impact on the poor developing countries and its producers.

WTO is the most visible symbol of the processes of globalization, marketization and recolonization. These processes are being pushed by the giant MNCs, constantly in search of space for expansion of their operations, seeking to transform the nations as their willing agents, totally ignoring the drastic implications on employment and survival of the poor downtrodden people, creating a new culture of commoditization.

According to original draft of the AoA/WTO, developed countries must reduce subsidies for export by 36% and developing countries by 24% in budgetary outlays. The developing countries can however continue to subsidize cost of marketing export of agricultural products including handling, upgrading and other processing costs. The costs of internal transport and freight charges on export shipments can continue to receive subsidies.

However, the Doha Ministerial decision called for a “reduction of, with a view to phasing out, all forms of export subsidies”, while the July Framework Agreement, currently guiding the development of specific negotiating modalities for the Hong Kong Ministerial in December 2005 calls for the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect by a credible end date.

The WTO member states have set a high goal for themselves to get rid of the export subsidies. They are also coming up with different formulas to reduce the export subsides since they are highly trade distorting and countries have committed to eliminate them in all forms. Out of 147, only 25 members can subsidize exports, but only for products on which they have commitments to reduce the subsidies. Those without commitments cannot subsidize agricultural exports at all.

The G-20 including India have proposed for scrapping all developed countries’ export subsidies while allowing developing countries to subsidize for specific purposes such as marketing. In the recent WTO negotiations on export subsides, different formulas and “modalities” were suggested, some of which include; total elimination of all forms of export subsidies, in some cases with deep reductions right at the start of the next period as a “down payment”; a 50% reduction as an immediate down payment, followed by eliminating subsidies completely in three years (for developed countries) or six years (for developing countries). Some even asked for export subsides down to zero in five years.

Currently, the proposal on the negotiation table on elimination of export subsidies, suggests ‘export subsidies be eliminated at two speeds: in five years for developed countries (10 years for developing countries) for one set of products; in nine years (12 years for developing countries) for the rest of the products’. First export subsidies would be eliminated on products “of particular interest to developing countries”. However which products, and how long the elimination would take, an end date for phasing out all forms of export subsidies – all this will be negotiated later.

Many developing countries have argued in the WTO that their domestic producers are handicapped if they have to face imports whose prices are depressed because of export subsidies, or if they face greater competition in their export markets for the same reason. Some of the developing countries even argued that they should be allowed to retain high tariff barriers or to adjust their current tariff limits, in order to protect their farmers - unless export subsidies in rich countries are substantially reduced. But they are also concerned that their increased tariff barriers would hurt developing countries that want to export to fellow-developing countries.

These are very valid concerns. The huge exports subsidies given by the rich developed world lead to not only depression in the international farm prices but also crush the domestic farm prices due to subsidised dumping. The European Union accounts for 92 percent of export subsidies by value, with expenditures of $29.3 billion over the 1995-2000 period. Over this same period, Switzerland and Norway spent $1.8 billion and another 23 countries cumulatively spent less than $1.5 billion over those five years .

A recently released report on dumping has shown that in five major US commodities, the level of dumping has increased since 1995 when the WTO came into force, even though the proclaimed aim of WTO is to "reduce distortions in trade". While the full cost of US wheat in 2001 was $6.23/bushel, its export price was $3.5/bushel, in 2002 this gap widened to $7.24/ bushel and $4.09/ bushel and in 2003 it went down to $5.63/bushel to $4.04/ bushel. In the case of soyabean, the full cost was $6.98/bushel in 2001, which increased to $7.42/ bushel in 2003, while export price was $4.93/bushel which increased to $6.7/bushel in 2003. For maize, in 2003 the full cost was $2.98/bushel while the export price was $2.68/bushel. For cotton in 2003 the full cost vs the export price of cotton was $1.054/pound vs $0.562/pound. Similarly full cost of production of rice in 2003 was $18.43/cwt and it was sold internationally at bushel $13.68/cwt .

Though EU and US have given their commitments during the AoA negotiations for the reduction/ elimination of export subsidies but the fact is that they hardly stand on their own commitment. One recent example of this is the export subsidy given by EU in wheat in early 2005. The EU reinstated export subsidies for wheat on 3rd February 2005 in a move it defended as compensation for the strengthening of the euro vis-à-vis the US dollar . The EU has not paid export support for wheat since 2003, and the measure is set to cover 2 million metric tonnes of wheat. Reacting to this the Australian WTO Ambassador David Spencer had said, “If we are to accomplish the ambitious objectives we've set out for this year, we must all exercise maximum restraint in introducing new protectionist measures".

Export subsidies are very harmful to the poor efficient producers including unsubsidized exporters and import-competing producers in the developing countries. In fact, export subsidies were deemed to be so antithetical to the interests of trade liberalization that they were banned for all products, except agriculture, in the early days of the GATT. Elimination of export subsidies is particularly important to developing countries local producers and local exporters who cannot afford to compete with the treasuries and corporations of the US and the EU.

As the WTO clearly allows subsidies for handling, storage, transportation, processing, upgrading and export promotion, the transnational corporations like Cargill, which control the 70% of the world grain trade, are the most important beneficiaries of such subsidies. By virtue of their presence in every aspect of the grain trade, they are the main beneficiaries of all the subsidies given by their respective countries to their ‘producers’. Cargill, as the world's largest grain trader, control the procurement, processing, transportation, storage, export and trading operations in approximately 50 countries throughout North America, Europe, Latin America and Asia.

The latest reports from research groups illustrate the disastrous impact of US agricultural policy on US farmers itself, who face prices well below their cost of production for the five major crops. While the US government has put in place support programs to make up some of the income farmers lose from low prices, it is seldom enough. Larger, corporate farms owned by giant like Cargill and ADM receive the bulk of subsidy payments. According to the US Department of Agriculture, from 1997 to 2002, the US lost over 90,000 farms of below 2,000 acres, while 3,600 farms grew to more than 2,000 acres.

Equipped with domestic support and export subsidies, the US based global food and agribusiness companies dump their cheap subsidised products in the world market crashing not only the international commodity price but domestic farm price in the developing countries which is causing disastrous effect in countries like India. The low cost of domestic farm price is one of the main reasons for suicides of thousands of small and marginal farmers in India who are ending their lives because they could not get back even their principal.

• Wheat was exported at an average price of 28 percent below cost of production.
• Soybeans were exported at an average price of 10 percent below cost of production.
• Corn was exported at an average price of 10 percent below cost of production.
• Cotton was exported at an average price of 47 percent below cost of production.
• Rice was exported at an average price of 26 percent below cost of production.

It leave little doubt in the mind that the largest commodity traders, who are now dominant in financing trades, processing and shipping, are the biggest beneficiaries of export subsidies and agricultural dumping and not the small farmers in those countries. These companies buy agricultural commodities at extremely cheap prices. They control the value-added stages of production and so are sure of a significant profit from the final sales. Nearly all of these companies have seen their profits skyrocket in recent years. These companies include Archer Daniels Midland, Bunge Ltd., Cargill and Smithfield. While global food companies have greatly benefited from the low prices for the raw materials of their products, farmers around the world, including US farmers, are going out of business.

Interestingly, these corporations not only enjoy export subsidies in the West, but they also bag whatever concession is provided to the developing countries for allowing export subsides. In 2001, India exported 20,000 tonnes of wheat to Philippines at Below Poverty Line price (BPL), through an order bagged by Cargill. While the economic cost of the wheat to the Food Corporation of India (FCI) was Rs. 8300 per tonnes, its open market price was Rs. 7000 per tonnes, but it was sold at Rs. 4300 per tonnes in the international market to Cargill. However, the “existing attractive rates” were further reduced with subsidies to Cargill, whose financial capital is greater than that of many developing countries. Over and above selling the wheat at the BPL rates, the government agreed to bear the freight charge from Rajpura to Jamnagar port in Gujarat and pay a commission to Cargill. Thus, wheat whose cost to the government included the Minimum Support Price (MSP) (Rs. 580 in the year 2000) as well as the commission, market charges, levies and cess paid by FCI, increasing the real cost by another Rs.70 a quintal, was sold at less than Rs. 420 a quintal giving the corporation a subsidy of Rs.130 a quintal .

In fact, since 2000, Cargill has emerged as the biggest buyer of subsidized wheat being pushed by India into world markets. Cargill picked up 7.5 lakh tonnes of Indian wheat between December 2000 and January 2002. Cargill buys wheat from farmers at Rs. 630/qt (and that because the farmer still has MSP support – in future they will buy cheaper) and sells it as Nature Fresh flour at Rs. 2000/qt. ConAgra, a $24 billion company which bought up ITC Agro Tech Ltd., has within a year got a profit of Rs. 8.8 crores. ConAgra has tie ups with Ruchi Soya, Sri Dychem, Liberty Oil Mills, Prestige, Madhya Pradesh State Agro Industries Development Corporation.

Even the government of India accepts that after a decade of WTO coming into existence, on January 1, 1995, the anticipated gains for India from the trade liberalization process in agriculture are practically zero. The Ministries of Agriculture as well as Ministry of Commerce have officially admitted that the hopes from an international regime that talked of establishing a fair and market oriented agricultural trading system have been belied.

The WTO, therefore, is not doing what it should be doing (i.e. regulating and preventing dumping) and it is doing what it should not be doing (i.e. interfering in the domestic policy and the domestic products). The WTO rules on agriculture need to be changed to correct both flaws - the flaw of inappropriate invasion into sovereign domestic space by imposing disciplines for domestic agricultural production which interferes in the objectives of sustainability and food security, and the flaw of failing to prevent unfair trade practices based on unfair, unjust and artificial prices leading to dumping.

The call of the G-20 for removing export subsidies demands that the rules on dumping be strengthened and in cases where WTO members states continue to subsidize exports and artificially lower prices, the other members have a right to restrict imports to protect themselves from dumping. This implies that the quantitative restrictions (QRs) have to be brought back to deal with dumping and export subsidies. This is the only viable protection available to the poor developing countries to restrict the unwanted imports from the developed world.

With the removal of Quantitative Restrictions, producers of the developing countries including India are thrown into an unequal, highly subsidized and volatile international market for agricultural products. Despite having "comparative advantage" on selected items, it is very difficult for Indian producers to compete at the international level because of decline in international commodity price and the heavy influx of cheap subsidized imports in the country. Even tariffs levied on the import of agricultural products are not high enough to protect our domestic producers.

This one-sided globalization, with rich countries forcing the poor countries to remove import restrictions and lower tariffs progressively, while increasing their own subsidies and hence increasing the levels of dumping which is annihilating the very lives and livelihoods of peasants, was the core reason for the breakdown of the WTO Ministerial at Cancun. What the Cancun collapse revealed was the need and right of developing and the least developing countries to protect their farmers, agriculture and food security. Yet this is precisely what is being ignored in the follow-up to Cancun and run up to the next Ministerial in Hong Kong in December 2005.

And if we fail in rewriting trade rules in agriculture because of dominating agribusiness interest, and if we fail to protect our farmers and our food security, it would be viable for us and for our farmers to keep agriculture out WTO. When the developing countries are not gaining any benefits from this failing institutions, while at the same time getting perished, it is the time for all the developing countries to give a call for getting WTO out of agriculture.