Published on Monday, May 27, 2002 in the Los Angeles Times
U.S. Exports Misery to Africa With Farm Bill
by Warren Vieth
WASHINGTON -- The White House and Congress are trumpeting their determination to bring economic opportunity to the people of Africa. But first, a few million sub-Saharan farmers will have to suffer.
The Bush administration has been busy extending special trade status to African exporters, designing a $10-billion aid package for poor countries and dispatching Treasury Secretary Paul H. O'Neill and other top officials to confer with African leaders. There has even been talk of a "Marshall Plan" for Africa.
But all of those initiatives added together may not be enough to offset the damage inflicted on Africa's small farmers by the $190-billion agriculture bill that President Bush just signed into law. "This farm bill, I think it's fair to say, will put millions of small farmers out of business in Africa," said Mark Ritchie, president of the Institute for Agriculture and Trade Policy in Minneapolis. "They will have to move to cities and become part of unemployed labor pools."
Government officials and independent economists say the big subsidies doled out to U.S. farmers will contribute to global overproduction of wheat, corn, cotton and other basic crops. That, in turn, will drive down world commodity prices, making it more difficult for small, unsubsidized Third World farmers to compete.
African nations will be particularly hard hit because agriculture plays such a big role in their economies--accounting for more than 50% of the gross domestic products in some.
"Commodity prices will probably sink lower on a global basis. For countries that do not subsidize their farmers as well as we do, that will mean economic and financial trauma," said Neil Harl, director of the Center for International Agricultural Finance at Iowa State University. "We're making decisions here in the U.S. that affect the entire world, yet the rest of the world doesn't have much say in what our policy is."
Indeed, O'Neill has been pummeled with complaints about the farm bill since his arrival in Africa on a 10-day fact-finding tour with Bono, the Irish rock star and global debt relief advocate. A government official in Ghana told O'Neill the U.S. subsidies will undermine the economies of many African nations. In South Africa, Finance Minister Trevor Manuel said the bill will jeopardize the continent's efforts to overcome poverty.
Even Bono chimed in. "We can't have people in Congress who agree with debt cancellation and want to do something on AIDS, and then sponsor the farm bill," he said, according to a report in Friday's Financial Times.
Some analysts fear the farm bill will sabotage the sweeping world trade negotiations launched in November in Doha, Qatar. The U.S. persuaded many poor countries to support the trade talks by promising that wealthy nations would reduce their agricultural subsidies.
Indeed, lavish farm subsidies employed by other industrialized nations, notably France and Japan, long have been a target of criticism by U.S. trade negotiators as inimical to the cause of free trade.
Bill Undermines U.S. Message on Values
Nancy Birdsall, president of the Center for Global Development, a Washington think tank, said the farm bill belies the "Horatio Alger" ethic that the U.S. encourages poor countries to embrace.
"We're undermining our message about what our values are and what has worked in our country to bring about healthy development," Birdsall said. "We're creating another round of frustration."
The agriculture bill Bush signed recently authorizes about $190billion in farm spending over 10 years--$83 billion more than lawmakers anticipated when they passed 1996's big farm bill.
The money will finance a variety of farm programs, from agricultural research to conservation programs. But much of it, an estimated $57 billion, will be paid directly to farmers to make up for low commodity prices. The biggest subsidies are earmarked for producers of wheat, corn, sorghum, barley, oats, rice and cotton.
According to the Paris-based Organization for Economic Cooperation and Development, which monitors fiscal policies in industrialized countries, farm subsidies already are distorting the economics of agriculture in the United States. Of every $1 in U.S. farm revenue, about 25 cents comes from the government, according to OECD analysts. In 2000, government support averaged $20,800 per farmer.
In most cases, the subsidies are pegged to commodity prices. The less money a farmer gets for his crop in the market, the bigger the subsidy he gets from the government. No matter how far the market price falls, the farmer has no incentive to reduce production. Saturated markets become even more glutted with surplus production, and prices fall even further.
"It's a Catch-22," said Stuart E. Eizenstat, a former top government official who now co-chairs the European-American Business Council. "Because the bill is counter-cyclical, as prices decline you get more subsidies to try to make up for it, and you just keep the vicious circle going."
Effect Is Greatest in High-Production Areas
The effect is greatest in the markets for grains, soybeans and cotton, where world production tends to exceed demand year after year. Some of those crops are among the major agricultural products of sub-Saharan Africa--where farm production accounts for an average of 17% of the total economic activity in 48 nations--and the effect of low prices on the continent's small farmers can be devastating.
Eizenstat said he expects the farm bill's negative impact on the developing world will eclipse the potential benefits of Bush's proposed Millennium Challenge Account, which would provide poor countries with $10 billion in additional development aid over three years.
Oxfam, the London-based relief organization, noted in a recent analysis that the United States has been selling surplus wheat on world markets at prices 46% below the cost of production, and corn at 20% below costs. In most other export products, selling below cost is a violation of anti-dumping rules. But farm products never have been subject to those restrictions. "For practical purposes, the world agricultural market is a dumping market in which prices are unrelated to costs of production," Oxfam said in its report.
According to World Bank economists, cotton exporters in West and Central Africa would take in an additional $250 million a year if the U.S. stopped subsidizing domestic production. Overproduction has caused cotton prices to fall to about a third of their peak levels in the mid-1990s. The $2 billion in subsidies received by U.S. cotton farmers every year is partly to blame, the World Bank says. Americans are hardly alone in this practice, however: Other rich countries pay their cotton farmers more than $3 billion a year.
Analysts at the International Monetary Fund reached a similar conclusion, noting that this year's U.S. cotton crop is expected to be the biggest since 1927. Farmers keep increasing production even though market prices have fallen sharply in recent years.
"This has contributed significantly to downward pressure on prices, hurting some of the world's poorest countries," IMF economists said in a recent analysis.
The resulting loss of cotton exports amounts to 3% of the total economic output of Mali and Benin, the IMF said, and 1% to 2% for Burkina Faso and Chad. The damage exceeds the total value of the relief provided to those countries under a global debt relief initiative financed by wealthy nations and administered by the World Bank.
Analyst Fears for Talks on Trade Reforms
John Weekes, who heads the Global Trade Practice of APCO Worldwide, a Geneva-based consulting firm, said he fears the farm bill may convince other countries that the United States is not serious about trade reform, dooming the recently launched round of trade talks.
"It's a dangerous game," said Weekes, a former Canadian government trade official. "It will have a severe impact on other countries' trading prospects, and also on the temperament and mood of [trade] negotiations."
Even if the United States ultimately agrees to scale back its agricultural support as part of a new global trade accord, U.S. farmers will have become "hooked on subsidies," Weekes said. "It may be harder to wean them off at the end of the negotiating process."
Birdsall, the Washington think tank official, said the psychological blow dealt by the farm bill may be even bigger than the actual economic effect.
"It's as though you have crippled economies, and you're trying to get them back on their feet so they can enter the race," she said. "And then, just before the race begins, you whack them back from the starting line."
Copyright 2002 Los Angeles Times