The agricultural economists at Agri-Food Economic Systems say it’s time to negotiate a new world trade deal that puts teeth into commitments to cut farm subsidies.
Cutting subsidies was a driving force behind the Uruguay Round of world trade negotiations that for the first time came up with major reforms for agriculture.
The concern then was that farm subsidies in rich nations, such as Canada, the United States, Europe and Japan, encouraged surplus production which went into world markets at fire-sale prices.
That drove down prices and hurt all farmers, but particularly those in poor nations that could not afford to match the rich-country subsidies.
The one big change that came from the Uruguay Round was to convert all trade-distorting import restrictions into tariffs that are easy to see and understand and also easier to negotiate further reductions.
But no new deals have emerged because the Doha Round of negotiations is at stand-still after more than a decade of talks.
In the meantime, the authors of the Agri-Food Economic Systems study say many nations have found new ways to subsidize farmers without breaking the Uruguay-Round rules.
The upshot is little change from overall subsidies before the Uruguary Round, they say. While the letter of the agreement’s rules are obeyed, the spirit is undermined.
The richer nations have, by and large, managed to hold subsidies at pre-Uruguary-Round totals. Not so with some of the emerging economies.
“The increase was particularly rapid in Indonesia, the Russian Federation, Brazil, Kazakhstan, and China,” says the report.
They increased farm supports from the 1995-97 period to 2012-14 period by 43 per cent in the Russian Federation, by 33 per cent in Brazil, by 26 per cent in Kazakhstan and by 22 per cent in China.
One subsidy that’s important, but not counted, is irrigation water in the United States. It’s provided at well below cost and the resulting food production lowers prices not only in the United States, but also in many other countries.
Another example of ongoing, or new trade-distorting subsidies is offering “only small levels of market price support, making it easy to stay below their WTO limits even if the support activity impacts the national market as a whole,” says the report.
They cite a list of other trade-distorting policies, such as provinces, states or municipalities offering tax breaks or subsidies to set up new food-processing plants, subsidies that depress global food prices and subsidies on inputs, such as water, fertilizer and even environmental protection.
“There are issues in other pillars as well, such as national standards for environmental goods and associated product claims (and the problem of “greenwashing”), labour standards, and animal welfare. These have increasingly become market access issues, not contemplated under the existing pillars,” they say.
All of this generates frustrations and leads to disputes.
“One could foresee two or more decades of trade litigation on a case by case basis to tackle these issues one-by-one within the WTO framework,” they write.
“The frustration will come from the way in which the WTO rules were designed to protect or minimize some of the issues; a case in point may well be the underpricing of water for agriculture in the USA, and not including such underpricing in the domestic (or export) subsidy levels.
“No nation has challenged the way the U.S. has excluded this support to agriculture. Importers of U.S. product enjoy the lower price and hence have no reason to challenge. Other exporters face the problem of the immense costs to raise a successful challenge.”
All of these issues underline the need for a new deal, they say. But to inform the negotiations, “what we do not have today is a comprehensive, detailed study of and proposals for the various issues noted above, building on what took place over 20 years ago.
“It is time to design a framework to deal with these issues on a multilateral basis, rather than the tackling the myriad of issues through trade litigation,” they say.
“Such an approach would address many of the most politically toxic regional issues in several countries. Necessarily, this will be a long-term endeavor, but hopefully less costly and more inclusive than setting precedents one-by-one through WTO litigation, not all of which would have successful outcomes across the range of issues,” they write.
“Canada needs to take this issue more seriously. Canadian agri-food was revolutionized by trade liberalization in the early 1990’s, and this requires renewal.
“If aspects of proposed changes in supply management are challenged internationally, part of the defense of program changes and accommodation of supply-managed groups will need to be more effectively listening to their concerns about the structure of international trade disciplines and the actions of other countries under these disciplines,” they write.
An example of proposed supply management changes is the Dairy Farmers of Ontario plan to cut milk prices for processing protein isolates, thereby displacing imports and perhaps even generating exports. That could trigger complaints to the WTO.
Another dairy example is Quebec farmers calling for reform of cheese-standard regulations with the intent of reducing imports.
The research might also dampen rising criticisms of all international free-trade deals, they say.
There is urgency to these issues because the long run of relatively high farm commodity prices is ending, and the income-support programs many countries, including Canada, have put in place are likely to trigger massive payouts.
“It is an opportune time now to consider how countries are supporting agriculture and how this aligns with agreed upon commitments- both in strict magnitudes of support and in broader concept given the intent of the WTO agreement,” they write
“This should lead to reconsideration and modernization of our framework for disciplines on agricultural support.”
The lead author is Karal Karunagoda and among the co-authors is Douglas Hedley, former chief economist and a long-serving member of the trade negotiating team for the federal agriculture department.