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Agri-Trade Subsidies: Recommendations to WTO

Explore the impact of agricultural subsidies on trade distortions, winners and losers, and provide recommendations to the WTO for fairer trade practices.

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Agri-Trade Subsidies: Recommendations to WTO

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  1. Agri-Trade Subsidies: Recommendations to WTO Maxwell WTO Team: Maithreyi Seetharaman & Han Sic Cho

  2. What Are Agricultural Subsidies? • Financial assistance through direct payments or through indirect means such as price cuts and favorable contracts • Supplement the income of recipient farmers

  3. Agri-Subsidies: A Distortion? Trade is distorted if: • Prices are higher or lower than normal • Quantities produced/bought/sold are also higher or lower than levels that would usually exist in a competitive market.

  4. Agri-Subsidies: The Argument • To make sure that enough food is produced to meet the country’s needs • To shield farmers from the effects of the weather and swings in world prices • To preserve rural society

  5. Agri-Subsidies: The Winners Developed countries determine eligibility based on crop production and not income • US: Corn, wheat, cotton, soybean, rice growers receive over 90% of total subsidies ($ 40bn) • EU: Sugar, dairy products, wheat growers receive over 60% of total subsidies (€ 100bn approx. $ 121bn)

  6. The Questionable Winners: United States • 10% large farms get 65% of subsidies • 80% small family farms get 19% • 13% farms received over $ 1mn in subsidies

  7. The Questionable Winners: United States • Riceland Foods : $ 110mn in subsidies • Allfarmers in 12 US States: $ 105mn in subsidies

  8. The Questionable Winners: EU • EU total subsidies € 100bn • 78% farmers get less than € 5,000 • Less than 2,000 large scale farmers receive more than € 1bn • Food processors are major beneficiaries  6 major sugar processors receive € 819mn out of € 833mn sugar export subsidies

  9. EU: A Case of Dumping?

  10. Comparative Costs of Sugar Production

  11. Comparative World Sugar Exports

  12. US: Extinction of Small Farmers

  13. The Losers: Developing World • Can’t provide the same levels of Subsidies as Developed World • Subsidy related Global Price Distortion impacts exports, domestic market & national economy

  14. The Losers India: • 10mn people in 80,000 villages produce 84mn ton of milk per annum • EU subsidizes: 60% of int’l price of milk powder 136% of int’l price of butter

  15. Case In Point: Brazil Cotton Dispute • Against United States Cotton subsidies • US breached subsidy cap • Brazil states subsidies distort trade by depressing world cotton prices • Brazilian cotton producers claimed they lost out on sales worth $600m in the 2001-2 season alone • US share of world cotton exports had risen from under 20% in 1999 to more than 40% in 2004

  16. Case In Point: Brazil Cotton Dispute If Not For Subsidies, Brazil claims: • US output would have fallen by 29% • World prices would have risen by 12.6%

  17. Case In Point: Brazil Cotton Dispute Other Countries Supporting Brazil: • West African countries, including Burkina Faso, Benin and Mali • India • Indonesia

  18. Case In Point: Brazil Cotton Dispute US Argues: • “None of the WTO’s business” • Farmers do not get extra for more cotton • Farmers paid according to the number of acres they planted/cotton produced in the past • Do not tempt cotton farmers to overproduce therefore subsidies do not artificially inflate supply or depress prices

  19. Case In Point: Brazil Cotton Dispute Panel Findings: • Some US farm payments cause adverse effects to Brazil • US measures such as export credit guarantees are prohibited for some agricultural commodities.

  20. Case In Point: Sugar Accusation Against EU: • Unfair subsidization • Over-production & dumping • Example of Impact: Mozambique • The single largest source of formal employment • Produces refined sugar at far less than EU average COP • Unable to expand production due to: Limited access to the EU market & Unfair competition from dumped EU sugar in Africa

  21. Case In Point: Sugar WTO panel found: • EU is violated WTO commitments • Exported up to four times as much subsidized sugar onto world markets than it is allowed

  22. Recommendations to the Panel • Subsidies to be retained for small farmers • Subsidies to be based on income levels • To replace majority of agri-subsidies with a ‘subsidized crop insurance program’ • Phase out export subsidies • Support the introduction of a Development Box in the WTO agreement on Agriculture

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