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Agri-Trade Subsidies:
Recommendations to WTO
Maxwell WTO Team:
Maithreyi Seetharaman &
Han Sic Cho
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
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.
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
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)
The Questionable Winners: United
States
70

60
50
40
Top 10%
11-20%
30
20
10
0

Bottom
80%

10% large farms get
65% of subsidies
80% small family
farms get 19%
13% farms received
over $ 1mn in
subsidies
The Questionable Winners: United
States
110
109
108

107
Riceland
106
12 States 
combined
105
104
103
102
Riceland Foods : $
110mn in subsidies
All farmers in 12 US
States: $ 105mn in
subsidies
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
EU: A Case of Dumping?
90%
Of Global
Agri Subsidies
18%
of world
sugar exports
28%
of world
dairy exports
8%
of world
wheat exports
At 34% of
Production
Cost
At 50% of
Production
Cost
At 75% of
Production
Cost
Comparative Costs of Sugar
Production
30
25
20
15
cent / lb
10
5
0
World
EU
Zambia Thailand
Brazil
India
Comparative World Sugar Exports
South Africa
Guatemala
Cuba
Australia
mn ton
Thailand
EU
Brazil
0
2
4
6
8
10
12
US: Extinction of Small Farmers
Big Farms
Consolidate
Via Buy-Outs
Size of Farms
Increase by
350%
No. of Farms
Decrease by
70%
Small Farms
Sell
& Become
Tenants
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
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
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
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%
Case In Point: Brazil Cotton
Dispute
Other Countries
Supporting Brazil:



West African
countries, including
Burkina Faso, Benin
and Mali
India
Indonesia
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
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.
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
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
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