WT… Oh, forget it

There was little commotion in the blogosphere as the WTO's Doha Round, which had been struggling to bail out its liberalization life raft for years, finally slipped below the surface last week. I, for one, was on vacation, watching shrimpers in much sturdier boats cast their nets off of North Carolina's Outer Banks. But now I'm back, and so as to avoid making an already behind-the-curve post even more so, I thought I'd share some thoughts on the topic.

In an earlier post on the Farm Bill, I summarized some of the main critiques of Doha, which was supposed to be the round of trade talks that brought real economic gains to developing countries. By getting government out of agriculture -- prohibiting subsidies, tariffs on imports, barriers to foreign ownership of companies in the food supply chain, and other policies that could potentially give farmers of one country an advantage over farmers elsewhere -- the Doha Round was supposed to level the playing field and let the free market do its thing. And its thing, claimed WTO talking heads, would magically bring about development for poor countries.

The only problem is that if the free market put Cargill, with its army of grain elevators, cargo containers, and 20-ton combines, and a small developing-country farmer together on the same patch of ground -- even a level patch -- it's pretty easy to guess who'd end up flattened.

Developing countries, led by China and India, gave Cargill and co. the symbolic finger last week by refusing to join the WTO's merry ag-liberalization band. And they were right to do so. Many developing countries are now net food importers (though they didn't used to be), and the rise in world food prices has hit them hard. At the same time, much of their domestic food production goes to export crops they can't survive on -- coffee, soybeans, cotton, bananas. Since food prices shot up, some developing countries have responded by restricting food exports, trying to keep more domestically-grown food at home. Others are considering new policies to help their farmers grow food real food: Offering credit, extension services to increase productivity, subsidies to build local food production infrastructure. But under proposed WTO rules, these policies could be all-out prohibited.

Instead, under WTO rules, developing countries are supposed to put their faith in a global market that, when you think about it, is anything but free. Three companies control about half of the world market for agrichemicals; three companies [PDF] crush 70% of U.S. soybeans and 85% of Brazilian beans. Yet somehow, it's OK for Cargill -- whose annual profits are four times larger than Ethiopia's GDP and fifteen times larger than Nicaragua's -- to exercise a market monopoly. But when a government tries to get involved, it had better watch out.

And so last week, with the talks in their final death throes, developing countries defended their right to use policy tools to build stronger local and regional food systems. In wonk-speak, it's called "preserving policy space" -- keeping the wiggle room they need to address food crises and build food security. "These [policy tools]," they announced, "are at the core of the development [goals] of the round, as they involve the concerns of food security, livelihood security, and rural development."

They're not saying that the market in and of itself is a bad thing, or that trade is (and for the record, neither am I). What they're saying is that farmers, in their role as providers of food, jobs, open space, and environmental stewardship, are a public good worthy of public support, and that a world market dominated by a small number of huge mega-corporations isn't food-secure.

Of course, governments will now have to use that policy space in the right way, which isn't at all a guarantee; that's the case in the U.S. just as much as it is in poor countries abroad. There's also a risk that the U.S. could push through what it lost in the WTO in bilateral trade agreements with developing countries -- depending on who gets elected in November. In other words, there's still a lot of work to do. But at least the global liberalization party train has slowed for the moment. So let's give a little cheer in the 'sphere.

Photo of Korean farmers protesting the WTO courtesy of Jessica Walker Beaumont of the American Friends Service Committee, via Creative Commons license.

7 Responsesto “WT… Oh, forget it”

  1.  
    I'm completely and totally against subsidies, both within agriculture as well as oil and other areas. Subsidies distort the playing field. The subsidies primarily go to a small number of very big producers giving them an unfair advantage. 96% of farmers don't get any subsidies at all. However, I do question the statement that Cargill and their like actually have an advantage. They don't. 
    The big producers are busy losing $30 to $50 a pig while I'm netting more than that per pig. The big guys with all their expensive iron and high petroleum inputs are suffering. They have suffered cyclically for years, sometimes making a little but often losing a lot. As the old joke goes, the big guys lose money on every sale but they make up for it in volume. The reality is, that doesn't actually work without the subsidies.
    Meanwhile, back on the small farms, we consistently make a living without subsidies because we have lower inputs, lower expenses and we produce a better product that gets a higher price in the market.
    Little farmers can and do operate better than the subsidized Big Ag. What we need now is to stop subsidizing the big wasteful industries, save those tax payer dollars and make them earn a living on the level playing field. Yes, it does mean the end of subsidized cheap food, and other under priced products. In the end we'll all benefit by not having our tax dollars wasted on subsidizes and being able to choose how to spend them ourselves.
     

  2. There are times where it makes sense for the government to step in with direct or indirect support of farmers and our ag infrastructure.  However, the first time I personally encountered ag subsidies was in 1986.  I was asked to write a backgrounder / talking points on the "Dairy Herd Buyout Program" for then-Vice President George Bush, who was visiting a state with a lot of beef ranchers. 

    Now, the memory is a bit rusty but the main take away for me was to be very skeptical, like Walter, of government ag subsidy programs.  At minimum, there is a ripple effect / distortion of the playing field.  My recollection is that the Federal government had introduced a program that provided an incentive for folks to invest in dairy cattle.  This later led to glut of milk on the market leading the government to create the Dairy Herd Buyout program in 1985, aimed at reducing the number of dairy operations / herd sizes to reduce milk production and stabalize prices.  Well, with more dairy cattle being culled there was a resultant increase in the amount of hamburger / ground meat in the market, depressing beef prices thus hurting cattle ranchers / or processors... 

  3. Charles says:

    Elanor,

    I am very puzzled by this article and by your article on the farm bill. Can you state succinctly why it is that you demonize agri-business? It appears to me that they are operating efficiently in an environment distorted by extensive and egregious government subsidies. It is the subsidies that are the problem as Walter points out. I would be surprised if these businesses could exist in their current form without subsidies - the minimum efficient scale is simply too small.

    To interpret the collapse of these talks as a triumph for the developing world is a misnomer. There are substantial gains available to both developed and emerging markets at stake. Furthermore a number of countries who are most accurately described as being on the periphery lose out massively. Chad a country whose sole exportable commodity is cotton loses out hugely through the lack of progress. With bad governance, few natural resources, no coastline and 80% of its population living below the poverty, Chad has few other options. For countries like this there is little to cheer for in the latest trade collapse.

  4. John Bunting says:

    Actually Carrie, the politics of dairy in the 80's had nothing to do with milk production.  It was all about giving complete power to the buyers of farm milk.  Granted, the government bought a lot of dairy products in the 80's, however, the government purchases fell off when the milk price to processors was sufficiently low for their needs.  Production never, dropped as a result of lower prices.
    The "all-milk" (farm milk price) was $13.76 (per hundredweight - 11.6 gallons) in 1981.  From 1981 through 2004 the average farm milk price was $13.59.  Milk production increased 29% in the time period.
    If price drove milk production the increase would be distributed evenly throughout the country.  Milk production has been driven by Los Angles real estate value and IRS tax code, which provided external capital for expansion.  That is why California is the number one dairy state and all increases in milk production have been in 5 western states.
    Dairy politics is confusing because it is dirty.
     
     

  5. Elanor says:

    Carrie and Walter, I think my use of the word "subsidy" was distracting. As you've noted, it's most often associated with policies we don't like-- e.g. government subsidies to CAFOs. But I'd hoped to point out that government support (to use a more neutral word) can come in many forms, and some of those forms are worth preserving.

    In a piece on Gristmill last year, Tom Philpott covered a proposal to create a funding stream in the farm bill for regional and local food-infrastructure projects. Is this technically a subsidy? Sure. But as Tom notes, "Small farmers don't have the cash flow to finance the rebuilding of local slaughterhouses, canneries, milk processing plants, and the like. To redress the loss of such things, we need public investment, and that leads to a... policy proposal." Under the WTO, those kinds of policies could be challenged as being protectionist; in fact, even a policy that allowed public schools to choose local food over cheaper imports could be challenged. I suspect we'd all agree that there are benefits we get from a healthy local food system that the market doesn't value: more local jobs, community cohesion, better nutrition, a cleaner environment. Those are all public goods, in econ-speak-- things that the government should support because the market gets it wrong. But I reiterate that even if governments have the policy space, it's up to us to ensure that they do the right thing with it. And you're right to note that the U.S. has done the wrong thing, generally speaking, thus far.

    Charles: thanks for your comments. You've raised quite a lot of issues, but I'll start with the final one. The World Bank revised its estimates of gains to developing countries through full liberalization under the WTO and found that developing countries would receive only 16% of total world gains; developed countries would get the other 84%. The Bank projects that rich countries will see income gains 25 times larger than poor countries if the "development round" of trade talks is successful. In addition, the revenue loss to developing countries from tariff cuts under WTO rules are an estimated four times larger than these benefits. (More info here [PDF].)

    I'm not a dark ages anti-trader. But in developing countries, it's the largest farms-- which are often, at least in the case of Latin America, under foreign ownership-- that take advantage of fully liberalized export markets. WTO rules force developing country governments to choose between free trade, which will benefit the largest farms, and the right to support farms that aren't big enough to export. As the food crisis has shown (and as this new report, which I hope to do a longer post on at some point, does as well), agricultural liberalization has made rural communities more food insecure, not less. I think we need balance. 

  6. Elanor says:

    PS- Charles, I am not demonizing agribusiness, but oligopolies and monopolies. Even conservative economists would agree, I believe, that many agri-food markets are so concentrated that they cannot function properly. The fact that the WTO takes no position on corporate concentration but challenges even minor levels of government intervention is, IMO, extremely problematic.

  7. Charles says:

    Elanor,

    That emerging markets reap smaller rewards than developed markets seems irrelevant except from a bargaining standpoint. The point is that the current reforms would be net beneficial to both parties. Rationally both should accept. Moreover, comparing the rewards in absolute terms is possibly misleading - in terms of their relative GDP's the difference would be narrowed considerably.

    Oligopolies and monopolies are socially harmful to the extent that they produce well below the socially optimal quantity (or equivalently extract rents well above those dictated by social demand and supply). To the extent that the efficient scale for agriculture is large, agribusiness could extract rents, charge prices below those of small-scale farmers, and produce greater quantities of food. In this scenario agribusiness is the hero not villain of the story. I think to a significant extent the world works like this.
    The missing part of the calculation are the externalities. The opinion of the Ethicurean seems to be that these are very large. If this is true then the argument above may be refuted on the basis that agribusiness is producing too much of (industrial) food and small-scale farmers producing too little of (real) food relative to what is socially optimal. Empirically, I think we can both agree that this is true at least in the US. However, I disagree with the types of externalities you list and would instead propose different ones.

    You list the market distortions as essentially not valuing "more local jobs, community cohesion, better nutrition, a cleaner environment" that come with small-scale farming. For me local jobs is a no-brainer since I cannot morally conscience the idea that it is morally superior to employ a local Californian farmer over a developing farmer. The disparities in wealth between the two groups makes this choice straightforward. Community cohesion I have seen little evidence of but I have seen the dangers of a lack of community cohesion in my native South Africa. I would be interested in any success stories of this. Better nutrition I would say is more a matter of organic versus non-organic food and is invariant to the scale of the farm.

    A cleaner environment is very hard to square in a number of products. Local small-scale farms do not offer benefits in relation to global warming in fact they are worse than agribusiness in relation to carbon emissions. the caveat is that the science is not yet conclusive. However, I think this framing of the environmental impact is flawed. For me also important is the impact on biodiversity, risk to our food system and removal of dependence on artificial fertilizers/seed/etc. So on balance, the overall environmental benefit of small farmers is probably marginally beneficial depending on how much you weight biodiversity versus global-warming.

    In considering the WTO proposals I think it is important not to get over-excited. The gains would have been small to both groups.
    Trying to protect developing markets from agribusiness is a lost cause as the attractive economics of the industry means that it will likely take root in any event. Tariffs would in effect determine whether the shareholders will be local or foreign - a distinction which I find to be largely inconsequential. For a number of small and very poor countries with few alternatives such as Chad the gains could potentially have been enormous. So while the round may not have mattered much for a few it would have mattered a great deal to some without other options. For me that is enough.