Discussions on reducing agricultural support in the Uruguay Round and, especially, the WTO Doha Round have been framed increasingly in North-South terms. Developing countries have sought reductions in OECD country agricultural support while developed countries have sought increased access to their manufacturing and services markets in exchange.

However, the landscape of agricultural support is changing. While levels of agricultural support and protection have been falling in OECD countries (helped by high world market prices), agricultural support in a number of (but not all) emerging economies has been increasing (despite the increase in world market prices).

These changes in the global distribution of agricultural support have two main consequences. First, the pattern of global agricultural trade is increasingly influenced by agricultural policy interventions in non-OECD countries, even if OECD countries still have a predominant weight in global agricultural production and trade.

For example, world cotton prices which are a concern for the West African C-4 countries in the WTO are now more distorted by subsidies in China and Turkey than by subsidies in the US and the EU.

Second, rising agricultural support in emerging economies may lead to these countries breaching their WTO commitments. While the purpose of WTO disciplines is to limit the extent to which countries can make use of trade-distorting support, the trend will raise difficult questions about the reasonableness and fairness of these commitments. These concerns have yet to surface in multilateral discussions, but could lead to further alienation of some of the countries from the WTO system.

Producer Support Estimates

The OECD started to monitor trends in agricultural support in a number of emerging economies some years ago (in addition, some more advanced developing countries, such as Mexico, Turkey, Chile and South Korea, are already OECD members).

Two indicators are particularly relevant. The Producer Support Estimate measures the contribution of government policies to farm revenues, whether through market price support or budgetary transfers. It expresses the monetary value of policy transfers from consumers and taxpayers to producers as a percentage of gross farm receipts.

The average %PSE was 20% in 2008-10 for the OECD area, indicating that about a fifth of gross farm receipts was due to support in these countries. The development of support to agriculture in the longer term indicates a continuous decline of the %PSE from 37% in 1986-88 to 30% in 1995-97 and to 20% in 2008-10 (Figure 1).

Source: OECD Agricultural Policies Monitoring and Evaluation 2011

However, during the period from 1995-97 to 2008-10 farm support has increased in all emerging economies except in South Africa and (over a longer period) Mexico. Indeed, in Turkey agricultural support now exceeds the EU level as it does in South Korea (not shown) with a %PSE of 47% in 2008-10, while support in Russia has reached the EU level.

On the other hand, agricultural support levels in Brazil (5% in 2008-10) and South Africa (3% in 2008-10) (as well as Chile) remain extremely modest. China’s level of support, at 11% in 2008-10, is comparable to the United States. OECD indicators of agricultural support are not calculated for India due to a lack of participation in the agricultural policy review process by the government of India.

Nominal Protection Coefficients

While the level of support in the emerging economies is lower than the OECD average, most of the support takes the form of market price support and input subsidies, which are generally seen as the most distorting forms of support. The Producer Nominal Protection Coefficient (NPC) focuses more specifically on price distortions: it is the ratio between the producer price (including payments per unit of output) and the border price and shows the extent to which prices are higher due to border measures.

The producer NPC for the OECD area was 1.10 in 2010, indicating that OECD farmers received prices that were on average 10% above international levels (Figure 2).

Source: OECD Agricultural Policies Monitoring and Evaluation 2011

In the emerging economies the average NPC in 2008-10 was close to 1.0, signalling a relatively close alignment to world market prices for the commodity basket as a whole. This was particularly the case for Brazil, Ukraine and South Africa, although in some countries (Russia, Ukraine and to some extent China) there are big variations across commodities such that some commodity producers are taxed while others are supported.

In China and Russia the increased NPC indicates that prices received by domestic producers are on average respectively 6% and 16% above world market prices (the EU figure is 7%). Again, what is striking is that, with the exceptions of South Africa and Mexico (over the longer period), NPCs have been rising in a number of important developing countries even though so have world prices.

US commodity groups point the finger

Representatives from the U.S. wheat, feed grains, rice and pork sectors have been highlighting the results of a study, Domestic Support & WTO Obligations in Key Developing Countries which purports to show that this rising government support to grains and other commodities in four emerging economies Brazil, India, Thailand and Turkey, means that they now exceed their WTO domestic support commitments.

The domestic support notifications of these countries to the WTO do not support this conclusion, but the report’s authors argue that this is because (a) the notifications are much delayed and the support increases have occurred relatively recently and (b) that the countries use an incorrect methodology to measure their support.

While these criticisms would no doubt be rejected by the countries concerned, there are also good reasons for believing that, even if these countries have not yet breached their ceilings, they could do so in the very near future.

Calculating WTO Amber Box support

The first reason is that these countries have either a zero or very low limit for their allowed trade-distorting support (known as Amber Box support in popular jargon). These ceilings were based on the amount of trade-distorting support in the Uruguay Round base period, so the bigger the sinner then, the more a country can continue to sin. Most developing countries, because they had little trade-distorting support to begin with, now find they have limited leeway to increase their Amber Box support.

WTO rules do permit developing countries even with a zero Amber Box ceiling (such as India and Turkey) to grant trade-distorting support up to de minimis limits (10% of the value of production for product-specific support, and 10% of the total value of agricultural production for non-product-specific support). Developing countries can also exempt generally available investment subsidies (e.g. subsidised credit) and input subsidies that are generally available to low-income or resource-poor producers from counting towards their Amber Box ceiling.

The difficulty is that most Amber Box support in developing countries takes the form of market price support. WTO rules require this to be calculated in a very specific way. Unlike the OECD PSE measure which compares domestic market prices to current world market prices to calculate the level of support, the WTO rules require countries to use a fixed external reference price based on (the very low) world market prices in 1986-88.

This has crucial implications for the calculation of the market price support component of a country’s Amber Box support. World market prices are now much higher. Let us suppose that a developing country offers a minimum guaranteed price to its farmers for a particular crop which is lower than the current world market price but higher than the 1986-88 reference price.

Because of the higher world market prices, the government has no need to intervene to support the domestic market price and the minimum guaranteed price does not kick in. There are no government purchases at the minimum price, and most developing countries have reported zero Amber Box support in their WTO notifications in this situation.

However, WTO rules (confirmed in the US-Korea Beef dispute) require that the level of Amber Box support should be measured as the difference between the support price and the 1986-88 reference price, multiplied by the quantity eligible for support, not the quantity actually purchased at the minimum price. In most cases, the quantity eligible for support is total national production.

When the calculation is done in this way (as in the US report) the calculated amounts of Amber Box support can become very large, even if no government purchases have taken place at the support price.

Can WTO rules be justified?

This analysis underlines two potentially explosive features of the WTO Amber Box disciplines. First, developing countries that use market price support are particularly disadvantaged by the use of the fixed 1986-88 external reference price as compared to countries that use budget payments to provide farmers with an equivalent level of support.

And second, in spite of the more generous exemptions that developing countries can use in calculating their Amber Box support, the underlying distribution of ‘rights’ to use trade-distorting support is inherently unfair and without a legitimate justification.

That WTO rules allow a country a greater right to use trade-distorting support if it was a bigger sinner in the past understandably contributes to the sense of grievance among developing countries that the rules are skewed against them.

This post is written by Alan Matthews

The G20 Cannes Summit, despite being side-tracked by the continuing eurozone crisis, did address other issues of importance to the global economy. In the section of its final communiqué on trade, the heads of state reaffirmed their ritualistic commitment to the Doha Round mandate. However, they went on to note that “It is clear that we will not complete the [Doha Development Agenda] if we continue to conduct negotiations as we have in the past.” Instead, they called for “fresh, credible approaches to furthering negotiations, including the issues of concern for Least Developed Countries and, where they can bear fruit, the remaining elements of the DDA mandate” to be pursued in 2012.

However, as the preparations for the forthcoming WTO Ministerial Council on 15-17 December rachet up in Geneva, there is little evidence that the same countries are ready to reach agreement on a common approach to the next steps to rescue the Doha Round.

The EU has proposed a three-prong strategy, including a more ambitious negotiating agenda to expand the range of issues being discussed at Geneva to include climate change, investment, competition, and food security; not walking away from the gains made to date on the Doha negotiating agenda; and focusing on early deliverables for the least developed countries, including progress on duty-free access and trade facilitation. These proposals have met with a frosty reception so far particularly from the emerging economies.

New Commission study on Doha impacts

The EU’s DG Trade has now released a new study of the likely gains from a Doha Round agreement undertaken by the French research institute CEPII (Centre d’Etudes Prospectives et d’Informations Internationales). While the report is intended to underline the potential gains to the global economy from concluding an agreement on the basis of the draft modalities proposed by the respective Chairs in April 2011, it also highlights some of the reasons why agreement is difficult.

The study examines three sets of scenarios. The first is a conventional liberalisation of agricultural and non-agricultural tariffs (goods trade), complemented by some modest liberalisation of services. The second scenario, called the central scenario in the report, models the impact of additionally including trade facilitation in the agreement. Indeed, the main message of the report is the importance of reducing the transactions costs of trade, particularly to developing countries. In a third set of scenarios, the additional effects of including sectoral agreements on chemicals, electronic products and machinery as well as environmental goods are added to the central scenario.

The study represents the state-of-the-art modelling of trade liberalisation in a computable general equilibrium framework. It is based on a dynamic version of the MIRAGE model which takes into account imperfect competition in manufacturing sectors as well as elastic land supply functions. The study pays particular attention to modelling tariff liberalisation at a very disaggregated level (the HS6 tariff line) in order to properly capture the complexity of the draft modalities as well as to correctly identify differences in tariff regimes (e.g., MFN vs preferential) that apply to individual exporter-importer trade flows.

Winners and losers

The high-powered modelling does not fundamentally change the conclusions of a series of recent studies of trade liberalisation that the global gains from further conventional trade liberalisation appear to be relatively modest. The report estimates a $US70bn world Gross Domestic Product (GDP) long run gain when agriculture and industry are liberalised, and a further $US85bn gain when a 3% reduction in protection for services is added to certain services sectors. Calculation of the gains associated with trade facilitation suggests roughly a doubling of the expected gains ($US152bn); while improving port efficiency adds another $US35bn (all figures are reported in 2004 prices relative to 2025 economic values).

Some commentators explain the low estimated gains from further conventional trade liberalisation by arguing that the modelling misses out on important channels whereby trade can positively impact on economic growth and welfare (for example, by encouraging faster rates of productivity growth). It is also evident the losses to the global economy would be substantially higher if a failure to agree on further liberalisation actually led to backsliding on previous commitments and to the growth of trade protectionism (the bicycle theory of trade liberalisation).

Nonetheless, the relatively modest gains to be achieved from further conventional trade liberalisation (due to the previous success of the GATT and WTO in reducing particularly non-agricultural tariffs) may help to explain the reluctance of governments to make the final political push for an agreement. This reluctance is reinforced by the fact that governments are able to reap a significant part of the gains from multilateral liberalisation through bilateral deals (as in the recent EU-South Korea free trade agreement) even if these are not fully optimal and carry risks for the governance of the multilateral trade regime.

These difficulties are compounded by the asymmetric distribution of the gains, with some regions actually losing out from further conventional trade liberalisation. Outcomes for some important players in the negotiations are shown in the table below.

In dollar terms, the main beneficiaries of liberalisation are China and the EU. The EU and China reap each 22% of world GDP long-term gains from a goods-and-services scenario. US gains are less spectacular (7% of world gains) compared to its relative size in the world economy. Three regions suffer small losses: the Caribbean, Mexico (not shown) and the Sub-Saharan countries. However, in two of these regions (Caribbean and Sub-Saharan Africa) trade facilitation makes it possible to reap gains from this Round.

In welfare terms (which in addition to GDP changes also takes account of terms of trade effects), a number of developing country regions (Caribbean, North Africa and sub-Saharan Africa) lose from a goods-and-services scenario. This reflects partly the effects of preference erosion (all three regions benefit at present from significant preferential access to the markets of the United States and the EU) and, in the case of Sub-Saharan Africa, the fact that the various flexibilities and exemptions in the draft modalities mean that they undertake little liberalisation themselves and thus cannot benefit from the allocative efficiency gains which would result.

In two of these regions gains from trade facilitation would be sufficient to reverse these losses. But arguably these trade facilitation gains do not depend on concluding a Doha Round agreement and could be achieved through the enhanced ‘Aid for Trade’ programmes to which donor countries have already agreed.

Impacts on EU agriculture

Readers of this blog will be interested in what the study has to say about the impacts of a multilateral deal for EU agriculture. A word of warning: global models of the kind used in this study are useful in giving broad-brush impressions of the overall scale of changes and welfare gains from further liberalisation, but become less reliable if attention is focused on the results for particular sectors or particular countries, simply because much relevant institutional detail in terms of policies must be left out.

In agriculture, the study projects that two main beneficiaries of the DDA in terms of exports are the EU (+$US9.8 bn) and Australia and New Zealand (+$US8.3bn), with Brazil also gaining from agriculture in this Round (+$US 6.7 bn).

However, in terms of overall agricultural value added, Australia and New Zealand benefit the most from increased exports (+6.9%), followed by Argentina, Canada and Brazil (3.4%, 3.3% and 4.2% increases, respectively). Japan experiences a significant decrease in agricultural value added of -3.8% while, due to their very strong initial protection, the EFTA countries face the strongest reduction for agriculture value added (-18.7%) and reorient their resources toward the other sectors. China and India are hardly affected.

EU value added reduces by -0.7%, with some differences across sectors. The largest drop in value added is projected in the sugar sector (-12.9%). For vegetable and fruits, fibres and crops, cereals, dairy, and even meat, changes are below 2% for the EU, but oils and fats show a drop of -4.2% over the long run. These changes reflect the use by the EU of sensitive product status for a number of the more vulnerable import-competing commodities, in which tariff cuts are only one-third of those otherwise mandated but compensated by increases in tariff rate quotas.

Despite this, the relatively small changes projected in EU agricultural value added are striking and will give rise to some controversy. They reflect in part the continuing reform of the EU’s agricultural policy which has removed some of the worst excesses of past protectionism, including reforms undertaken since the Doha Round was launched. But they will be interpreted by developing countries as justifying their criticisms that the current modalities do not offer much in the way of agricultural benefits in return for the concessions they are being asked to make in NAMA and services.

This post has been authored by Alan Matthews.

An announcement last week by Karel de Gucht, the EU Trade Commissioner, that the EU and Russia had struck a deal on remaining outstanding bilateral issues in negotiating Russia’s accession to WTO membership raises the prospect that this economic giant could become a WTO member by the end of this year.

Russia and the WTO

Russia first made its application in 1993 so has been negotiating its accession now for 18 years, by far the longest of any accession process by a WTO applicant. This reflects in part the country’s economic size (it is the sixth largest economy in the world on a PPP basis). Whereas normally 6-10 countries might seek to open bilateral negotiations with an acceding country because they had special trade interests at stake, in Russia’s case more than 60 countries made such requests.

But also China was a large economy whose WTO accession affected many countries, but despite the greater legacy of a command-and-control economy than in Russia’s case, China has now been a WTO member for a decade.

In Russia’s case, wavering within the political elite about the priority to be given to WTO membership played an important role in delaying progress. The twists and turns of the process are described in a brilliant essay by Anders Aaslund entitled Why Doesn’t Russia Join the WTO? in the April 2010 edition of the Washington Quarterly. The sudden and unexpected announcement in July 2010 that Russian intended to form a customs union with Belarus and Kazakhstan further complicated matters because it required the renegotiation of much of the report of the WTO Working Party on Russian accession.

EU’s agrifood sector and Russian WTO accession

Russia is the EU’s second largest export market for agri-food products after the US, and the EU is Russia’s largest supplier, accounting for 38% of its imports in 2010. 80% of the EU’s exports to Russia are final goods, mainly fresh fruits and vegetables, cheese, frozen pigmeat and drinks. Russia has seen its agricultural imports explode in recent years, apart from the downturn in 2009. However, Russia is also a major exporter of grain, particularly wheat, and its policies towards grain exports helped to destabilise world grain markets in recent years.

Russia’s agricultural policy has become steadily more protectionist over time. Its percentage PSE increased from 18% in 1995-97 to 22% in 2008-10, thus exceeding the OECD average of 20%. Around two-thirds of this support derives from market price support, largely due to border protection. In addition, producers benefit from budget transfers in the form of subsidies on variable inputs and investments, while livestock producers have benefited given that domestic grain prices have been held below world prices.

WTO membership for Russia will bring important benefits for the EU’s agri-food industry through creating greater security of market access and possibly opening some additional markets. Market access issues include Russia’s somewhat arbitrary use of SPS measures, the future of Russia’s TRQs especially for meat imports, and the overall level of its trade-distorting support for its agriculture in future.

Russia’s use of SPS measures to restrict imports was seen most recently this summer when it restricted all imports of fresh vegetables from the EU27 countries because of the e.coli outbreak in Germany. The EU protested that the measures were excessive and disproportionate and not based on the SPS procedures that would apply under WTO rules.

The WTO Working Party wants to make sure that Russia’s SPS regime is transparent and non-protectionist. A difficulty is that the customs union (RU, BY and KZ) now has formal control of the SPS conditions regarding imports and in many cases the SPS regime is not yet defined as the authorities of the three countries must agree on this.

In two other key areas of import tariffs and domestic support, Liefert and colleagues report that Russia in its accession negotiations has been asking for bound commitments above the existing levels (a bound tariff or support amount is a maximum allowable level in the future). Russia’s current average agricultural import tariff is about 18%, up from 10% in 2000. However, Russia is negotiating for bound agricultural tariffs above actual applied tariffs. On domestic support, Russia has been asking for annual bound support of $9.5 billion, which compares to its 2007 actual support level of $5.7 billion,

The OECD reports that in late 2010, Russia’s position is to accede with a commitment on Total Aggregate Measurement of Support corresponding to $9 billion and maintain this level until 2012 (the end year of the current State Programme for Development of Agriculture). The commitment level would then decline to $4.4 billion between 2013 and 2017. Some negotiating parties want to see lower commitment levels from the beginning of Russia’s membership, based on the average level of trade-distorting support in recent years. Russia no longer proposes to schedule entitlements to export subsidies in agriculture.

Prospects

While accession terms such as those indicated might not do much to liberalise Russian trade and support policies immediately, EU suppliers would still benefit because bound levels would provide a cap on any future rises in tariffs and support. Also, there would be a forum where potentially troublesome SPS restrictions might be challenged if they were imposed.

However, even if bilateral negotiations have been successfully concluded with its major partners, there still remain a number of potential stumbling blocks in the way of Russia’s WTO accession. One is the continuing border dispute with Georgia which is already a WTO member. The other is the future of the Jackson-Vanik amendment in the US which denies MFN status to a country with a non-market economy deemed to restrict emigration. If these hurdles can be overcome and Russia does become a WTO member this year, it would be a major boost for a body sorely needing some good news given the Doha Round deadlock. .

This post has been authored by Alan Matthews

According to the EU’s recent notification of farm subsidies to the WTO for the marketing year 2007/08, the EU’s trade distorting farm subsidies fell to a record low of 12.3 billion euros.

As the ICTSD reports,

“For the first time ever, the recent figures would put the EU’s overall trade-distorting support below the proposed new ceiling of 22 billion euros that would be established by a Doha Round accord under the terms currently being considered at the WTO. The Doha deal would create a new subsidy cap that limits the total amount of amber, blue and de minimis support that countries are allowed to provide.”

In other words, on the basis of the notification for 2007/08 (the most up to date that the EU has made), a Doha deal would not require the EU to change any of its farm subsidy policies. This comes as little surprise since the EU wave the magic wand of decoupling and ensured that most of the money it pays farmers is theoretically ‘non trade distorting’ and therefore unaffected by WTO disciplines.*

The EU’s notification data indicates that non production-linked support hit a record high of 62.6 billion euros in 2007/08. Add that to the 12.3 billion euros of production-linked (amber box) support, 5.17 billion euros of production-limiting (blue box) support and 2.39 billion euros of ‘de minimis’ support, the grand total is 82.5 billion euros of aid in a single year – quite a sum to have spent supporting agriculture, particularly in a year that saw commodity prices hit record highs. The graph below, compiled by ICTSD, shows the trend over the past decades.

* It’s worth remembering that a Doha deal would have implications for some of the EU’s tariffs on food imports and this would likely to have an impact on the more heavily tariff-protected sectors such as beef, sugar beet and dairy, though a great deal of that depends on the extent of the exemptions granted for ’sensitive products’.

“Waste at home and damage abroad”. That is how one Member of the European Parliament described the common agricultural policy. Gabrielle Zimmer, a German MEP who sits on the parliament’s development committee, was speaking at a conference convened last month by the United Nations Millenium Campaign to look at the impact of Europe’s farm tariffs and subsidies on developing countries.

According to Eckhard Deutscher, Chair of the OECD Development Assistance Committee (DAC) and another participant in the same meeting,

“The biggest challenge the EU’s development aspirations are facing is the lack of policy coherence. The trade, development, agriculture and environmental policies are simply out of sync with regard to developing countries.”

Eveline Herfkens, Founder of the UN Millennium Campaign, pulled no punches,

“An unreformed European agriculture policy will continue to hamper the EU’s and other donors’ efforts to eradicate poverty and will perpetuate human suffering.”

European countries lead the world as donors of development aid, but for decades the EU has pursued agriculture policies which have had the reverse effect – whether it’s trade barriers that make it harder for developing countries to export farm produce to Europe or subsidies that encourage European farmers to overproduce, driving prices down and undercutting unsubsidised farmers in poorer countries.

In the first few years of the last decade, the Make Trade Fair campaign made the weather in the debate over reform of the CAP, perhaps supplanting the environmental critique as the most politically salient attack on the policy. The decoupling of support in the Fischler reforms theoretically broke the link between farm subsidies and over-production although there are those who say that any farm subsidy has an impact on production. At the Hong Kong WTO ministerial in December 2005 the EU offered to end all export subsidies by 2013 if other countries reduced their supports to exporters.

It’s possible that United Nations Development Programme’s annual report for 2005  represents the high-water mark of the influence of the development advocates on thinking about agriculture policy:

“When it comes to world agricultural trade, market success is determined not by comparative advantage, but by comparative access to subsidies—an area in which producers in poor countries are unable to compete. High levels of agricultural support translate into higher output, fewer imports and more exports than would otherwise be the case. That support helps to explain why industrial countries continue to dominate world agricultural trade.”

The global food price spike of 2007-08 presented a problem for the development critique of farm subsidies. Suddenly, the problem for developing countries was not low commodity prices but high commodity prices. Backers of a production-boosting farm policies in rich countries were quick to jump on this turnaround, arguing that European and American farmers had a moral duty to ‘feed the world’ and that the CAP should underpin this aim.

A more subtle analysis would argue that developing country farmers have suffered as a consequence of the CAP for decades, and that it is precisely because of the chronically retarded state of agricultural development in many developing countries that food prices spiked and the effects were so damaging. A rapid supply response was just not possible because developing countries lack capital for agricultural investment, skills, market structures and so on. These are not things that can be built overnight. It could be added that biofuel subsidies and mandates contributed to the food price spikes by increasing demand for food crops like corn and oilseeds that are used to make biofuels.

The extent to which the CAP continues to cause harm to developing countries is the subject of an ongoing research by Alan Matthews, a contributor to this blog, and I’m told his findings will be published in a book in September 2010. As for the future of the CAP, there seems to be no guarantee that we are safe from a return to the production-boosting paradigm of the past. Momagri, a shadowy French farm lobbying organisation, is just one influential voice pushing for just such a change of direction. The United Nations Millenium Campaign has stepped into the debate on the future of the CAP at a critical time. It remains to be seen whether other development advocates and influential NGOs like Oxfam will rejoin the fray.

Photo credit: Quarsan – Flickr Creative Commons

Farm interests routinely threaten that any reduction in support will provoke a slump in production, endangering EU food security, and threatening massive land abandonment to the detriment of rural life and biodiversity. The findings of the Scenar 2020-II – Update of scenario study on agriculture and the rural world, commissioned by DG Agri, strongly contradict such panicmongering about the looming end of EU agriculture.

The study looks at three scenarios. The reference case assumes a 20% (nominal) CAP budget reduction, reduced intervention stocks, full decoupling, a 30% direct payment reduction, a 105% increase for the second pillar, and a moderate Doha agreement (based on the Falconer paper, including the elimination of export subsidies). The conservative scenario presumes that the Health Check results are largely maintained, direct payments reduced by only 15% and second pillar payments raised by 45%. The liberal scenario is very liberal indeed, with a 55% CAP budget reduction, no intervention stocks, no direct payments, a 100% increase for the second pillar and no tariffs.

Among the most interesting results is that the volume of crop production will grow slowly in all scenarios (around 0.25% per year). Even the vulnerable livestock sector loses only 4% in the liberal scenario over the entire 2007-2020 period. Agricultural land use remains roughly unchanged in the reference and conservative scenarios, and declines by a mere 6% in the liberal scenario (due to the decline in the EU-15, driven mostly by the abolition of the Single Farm Payment).

More significant differences arise when it comes to land prices. These remain largely unchanged in the reference and conservative cases, but decrease by 30% in the liberal scenario. This is nothing the public need worry about – but it explains the heavy lobbying of landowners for the preservation of a ‘strong’ CAP.

The study also analyzes the situation of rural regions. It concludes that strong rurality is not synonymous with negative economic or demographic trends. 422 regions have a negative and 435 regions a positive demographic trend (with negative developments in the eastern Member States and at the southern and northern borders of the EU). The study also finds that ‘There is no evidence that the EU-27 regions with an above average agricultural employment are generally showing negative reactions. Hence, it shall be emphasised that rurality and agricultural vocation are not a sign of weak development perspectives.’ This further undermines the rural development approach of the CAP that spreads money to all rural regions, often in positive correlation with their agricultural production.

A last point to consider: surveys of life satisfaction and happiness give very similar results for urban and rural areas. Since ‘happiness’ is in vogue (and heads of states from Bhutan to France argue for happiness accounting to complement GDP figures), why worry if rural regions have a lower GDP per capita, so long as people there are equally satisfied?

CAP subsidies as reported to the WTO reached a ten-year high of over €90 billion in the 2006/07 marketing year, but conveniently most of them have been parked in the allegedly non trade distorting green box, something that has provoked disquiet in Geneva. The EU notified €90.7 billion of support to the global trade body for 2006/2007 – up from €75.6 billion in 2002, when support was at its lowest in the last fifteen years.

More from ICTSD.

Hot on the heels of the joint declaration by Birdlife International and the European Landowners Association and the declaration of 23 European agricultural economists comes the European Food Declaration (PDF).

The European Food Declaration diagnoses the problems of Europe’s food and farming system in the following way:

- dependence on under-priced fossil fuels
- failure to recognise the limitations of water and land resources
- promotion of unhealthy diets high in calories, fat and salt, and low in fruit, vegetables and
grains
- domination by transnational corporations and the World Trade Organisation (WTO)

The declaration argues that:

“All people should have access to healthy, safe, and nutritious food. The ways in which we grow, distribute, prepare and eat food should celebrate Europe’s cultural diversity, providing sustenance equitably and sustainably.”

The declaration sets out 12 principles, among them Principle 3 makes the curiously contradictory case for healthier eating and less consumption of meat and dairy products “while
respecting the regional cultural dietary habits and traditions”. So cassoulet, bratwurst and zampone are all safe. Principle 4 calls for an agriculture “that involves numerous farmers”, presumably a call for more support to keep smaller farms in business, or to cut support for larger farms. Principle 4 also calls for “fair and secure farm prices”, i.e. a return to production controls and price-setting of the CAP of the 1970s and 1980s. Principle 7 argues that Europe should be GMO-free and Principle 8 says biofuels should be discouraged and transport minimised. Most of the other principles are of the ‘motherhood and apple pie’ variety – very sound but lacking real substance on how they’ll be achieved.

The declaration is the work of a platform of NGOs includingVia Campesina (International Peasant Movement), whose colourful José Bové is a former French presidential candidate and currently vice-chairman of the European Parliament’s agriculture committee, Friends of the Earth and Attac Austria. The organisers will open the declaration to public signatories later this month.

You can read the declaration in full below:

When the negotiators in the Uruguay Round of the GATT introduced the concept of the ‘green box’ – farm support measures that are minimally or non-trade distorting and therefore exempt from any limits – few would have foreseen that within 15 years, the bulk of farm support in the developed world would be in the green box. A new book “Agricultural Subsidies in the WTO Green Box: Ensuring Coherence with Sustainable Development Goals”, published by Cambridge University Press, shows the extent to which farm support has been shifted out of more traditional, trade distorting measures and into the green box. It addresses the vexed question of whether green box supports are really as trade-neutral and environmentally beneficial as they are claimed to be. [...]

Pascal Lamy, the WTO Director-General, provided an end-of-term report on the status of the Doha Round trade negotiations at the July meeting of the Trade Negotiations Committee before delegates left for their August break. This is what he had to say about the agricultural negotiations.

As you know, work in agriculture is continuing, particularly in light of the renewed political mandate from the G20 and G8. The Revision 4 bracketed and annotated areas needing further work have been identified. These include SSM [Special Safeguard Mechanism] (especially the architecture), cotton, issues related to sensitive products, preference erosion and tropical products, TRQ [Tariff Rate Quota] expansion as well as tariff simplification. The Chair has indicated that consultations are underway to determine how best to broach these issues, with a view to a steady programme of technical work in late-summer through to the autumn. The aim is to complete as much as possible of the outstanding technical work so as to set the stage for decisions on more political issues.

Discussions are on-going on the templates for scheduling and on the required format of support tables and data needs — both for completion of the templates and for the establishment of modalities and of the time-lines and process for scheduling and verification. It will be important for members to take ownership of this matter so that you can be fully ready, with agreed time lines and formats, to complete the scheduling process in agriculture once modalities are established. This is a very necessary, non-political work that should continue with greater focus through the autumn.

Full details at the WTO’s website. WTO Director General Pascal Lamy said:

“These revised texts set the stage for a decisive moment in the Doha round. Ministers and other senior officials will soon arrive for intensive negotiations the week of 21 July. They need negotiating documents which are clear and precise as they consider the complex issues of agriculture and industrial goods trade. These texts go a very long way in that direction. These negotiations have been long and tough but the prize awaiting us should we reach agreement is worth the effort. A deal to open trade in agriculture and goods means more growth, better prospects for development and a more stable and predictable trading system. We must not let this opportunity slip through our fingers.”

The main issues currently under negotiation that impact the CAP are in the market access pillar and relate to tariff issues, particularly the scale and handling of ’sensitive products’ that get partial exemption from the across-the-board tariff cuts. In relation to domestic support, the text appears to be close to being finalised. The main decision still to be taken by Ministers is the size of the cut in Overall Trade Distorting Support (OTDS). The options are a cut of between 75% and 85% for the EU, a cut of 66-73% for the US and Japan, and a cut of 50-60% for other countries. Even an 85% cut for the EU would not have any impact on current domestic support payments, which are notified as ‘non- or minimally trade distorting’ and therefore exempt from constraints.

One of the advances made when Franz Fischler was farm commissioner was to recognise farm animals as sentient beings rather than agricultural products. This provided a basis for treating animal welfare as one of the planks of multifunctionality. However, a vet who is an animal welfare expert suggested in a talk (under Chatham House rules) that I attended that this could face a challenge under WTO rules at some point in the future. [...]

Having previously run a highly visible campaign threatening to derail the imminent referendum on the EU’s Lisbon Treaty on account of the EU’s negotiating position in the WTO, the Irish Farmers Association has fallen back into line with it’s longstanding position of support for Irish membership of the EU. As previously noted, Ireland does spectacularly well out of the CAP, and it looks as though the IFA has extracted a promise from the new Irish prime minister Brian Cowen that he was prepared to veto any WTO deal that was bad for Ireland. [...]

The Republic of Ireland will hold a referendum on ratification of the EU’s Lisbon Treaty on 12 June 2008. The Irish Farmers Association is urging a No vote, on the grounds that the EU’s push towards more open world markets in agriculture could expose them to competition from overseas, notably from Latin America.

Ireland gets way more than it’s fair share of EU farm handouts. And this fact will not be lost to other member states if Ireland votes to derail the Lisbon Treaty. The EU is currently engaged in a fundamental, ‘once in generation’ review of its budget. The main target for cuts appears to be the agriculture budget, which accounts for around 45% of all EU spending.

Here are some facts that might be of interest: [...]

The timing, if not the chicken, is delicious. On the same day (and in the same newspaper!) that German farms minister Horst Seehofer called for the EU to export its standards of environmental, animal welfare and food production regulations to China and India, it has been revealed that member state governments have been covering up the flouting of EU’s rules on cleaning chicken meat with chlorine solution. These rules have kept out all poultry imports from the US for the past eleven years. [...]

The WTO negotiations have become a live issue in Irish politics because Ireland is the only EU country which will hold a referendum to ratify the Lisbon Treaty, and the campaign provides an opportunity for interest groups to maximise their bargaining strength. For example, farm groups who are traditionally pro-EU in referendum votes have threatened to campaign against the Lisbon Treaty not because of the content of the Treaty but because of their dissatisfaction with the way they see Peter Mandelson as EU Trade Commissioner handling the WTO negotiations.

Padraig Walshe, President of the Irish Farmers’ Association, the largest of the Irish farm groups, gave a not-so-veiled warning recently when he noted that “it would be unrealistic to expect the farming community and rural people to vote for the Lisbon Treaty while Mandelson is planning the destruction of the Irish and European family farm structure.” [...]

Roger Waite is a long-standing member of the Brussels agricultural press pack and he will be giving a podcast round-up of the monthly Agriculture Council meetings, when farm ministers from all 27 EU member states met to decide the future of EU agriculture and rural development policy. In this month’s meeting, EU farm ministers debated the Commission’s ideas for the health check, the latest position of the WTO Doha Round negotiations and the impact of rising feed prices on European pig farmers.

As well as being the founding editor of the AgraFacts news subscription service, Roger is a Journalism Fellow of the German Marshall Fund of the United States.

The Chair of the agricultural negotiations at the WTO, Crawford Falconer, released his latest version of the draft modalities for an agricultural agreement on Friday last 8 February. This is the culmination of a series of intensive meetings since early January among a representative group of some 37 WTO members. Although there are still many square brackets in the text, representing areas where final political agreement will only be reached in the context of an overall trade-off against concessions in the non-agricultural market access (NAMA) negotiations, the text provides greater clarity on many of the more contentious issues that were outstanding in the previous incarnation of these draft modalities last July. These contentious issues include some of particular interest to developing countries, such as issues like the designation of Special Products and the operation of the Special Safeguard Mechanism. In this post, we look at some implications of the draft text for the EU.

[...]

International trade negotiations have been the most effective driver of CAP reform for over fiften years. I haven’t commented on progress in the Doha Round for some time because prospects have looked so bleak since the collapse of the G-4 talks at Potsdam. But there does seem to be a glimmer of hope. [...]

After Nicholas Sarkozy appeared to indicate that it was ‘business as usual’ in French agricultural policy, the appointment of Christine Lagarde as farm minister gives a ray of hope. Named as the 30th most powerful woman in the world by Forbes in 2006, she was formerly trade minister. [...]

Bilateral discussions have continued between the key participants in the Doha Round farm trade talks, most recently in London, but although clarification of the issues and what might be possible continues, there has been little real progress. Key participants in Geneva have described the overall mood as one of ’suspended pessimism’. [...]

Talks on the resumption of the stalled Doha Round took place in the margins of the World Economic Forum at Davos, Switzerland during the past week, but many hurdles remain to be overcome before an acceptable farm trade deal can be sketched out. [...]

An attempt by President Bush and Commission President Barosso to re-start the stalled Doha Round trade talks may not succeed in the face of rising protectionist sentiment in the new Congress and intransigence over subsidies in the EU. Meeting in Washington last week the two leaders instructed their chief trade negotiators to come forward with a deal ‘as soon as possible’. Talks involving the EU, US, Brazil and India are likely to take place in the margins of the World Economic Forum in Davos, Switzerland at the end of January. [...]

A report commissioned by the Indian Department of Commerce and carried out by UNCTAD’s Indian team challenges the EU’s argument that decoupled aid payments have only a minimal trade distorting effect. According to the researchers’ model, EU farm exports would fall by a massive 45 per cent if Green Box subsidies were removed and production would fall by close to 6 per cent. [...]