Why fear subsidies?

Agricultural subsidies and the refusal of the US and EU to phase them out are preventing poorer countries from developing and damaging multilateral trade says Joseph Stiglitz in Taipei times.

KICK-ASS, a website started by the Guardian aimed at kicking into oblivion all agricultural subsidies, states that “over 60% of US farmers don’t get any subsidies at all and manage to survive. New Zealand abandoned subsidies unilaterally some years ago and its farming industry has thrived.”

The main concerns are
1) With elections looming in November, US President George W. Bush could not “sacrifice” the 25,000 wealthy cotton farmers or the 10,000 prosperous rice farmers and their campaign contributions.
2) With 70 percent or so of people in developing countries depending directly or indirectly on agriculture, they are the losers under the current regime.
3) If markets are opened up, countries should be given the right to countervail US and European subsidies.

In India, more than 60% of the populace depend on agriculture for their livelihood. The subsidies that the developed nations offer their farmers vis-à-vis to what the developing countries can offer is very large. The developing nations find it difficult to withstand this competition in the world markets. If the subsidies are not reduced by the US and the EU, it will be the developing nations who will have to bear the brunt.

19 thoughts on “Why fear subsidies?

  1. every round of talks is a disappointment and a hope.the developed countries are not crazy about free-trade any more,they know its not a one-way street now with consolidation among countries like SA,Brazil and India and their regional allies.maybe if there was a communist bloc somewhere things wud have been different in cancun,singapore and Doha .The ‘operational’ bias towards the G6 should go…thats what I think

  2. I really was pissed, the way Manmohan went to Vidarbha and sidestepped the core issue behind the whole mess there…america subsidizing cotton farmers allowing them to dump cotton cheaply here which puts our poor farmers way out of their league…atleast cant he just raise the import duties or whatever!

    i used to be really interested in economics earlier but getting into the tech industry killed that love. i actually was overawed by your blog at first but i think i will sit back and read a few posts and improve my knowledge.

  3. Jiby,
    Eventhough you are in the tech industry you can still feed your interest in Economics through the net.

    Moreover, there are many other villages like Vidarbha in other states of India. The government seems to be least bothered about them.

  4. Jiby,

    I too am in a tech industry.. but Alex’s blog is really interesting and informative… keep up the reading and thou shall be enlightened one day !! :-)

  5. This is where I probably bring Levitt out of my heart. We are pointing USA subsidies for our low productivity and inefficiencies. Accepted USA does subsidize it’s farmers and the whole bill is 20 billion dollars per annum.

    Now come, see the productivity. Indian farmers are unable to cross 30% of what their counterparts in USA are able to achieve in terms of farm output. Why? They imbibed technological advances into their farming. They also use and experiment with new bio-tech and genetic seeds and assess the land fertility and rotate crops.

    Come back to India. We have a highly fragamented land, our farmers go for subsitance farming.No adequate access to credit. No access to commodity market. (you wonder that the price at which a farmers sell his farm produce is one third to one fourth of market price!, so many middle men eat into his profits).

    Wait, in the disguise of ineffiency in the irrigation projects and power supply, we pretend to give power at subsidy and only 3-7 hrs a day. No water management, nothing, but a paralyzed system that just breaths.

    Can it compete with global forces if WTO doha round succeeds even if US/Europe lift all subsidies, I seriously doubt.

  6. Harsha,
    Like you argue, it will be close to impossible even if the US were to lower its subsidies. The problem here in India is structural.
    But a lowering of the US prices will ensure that developing nations can compete (Though a very small extent) in the global agricultural market.

  7. is it not possible for the government to try and replicate the agricultural dynamics of punjab….where farming is still seen as a lucrative job? even then we will require u.s to reduce its subsidies but at least b able to compete at a improved position.

  8. Chetana,

    If farming can be made a lucrative job i.e. by eliminating the middle men menace and also by procuring grains from the farmers at market prices, by providing easy loans etc; then the situation will improve for sure. Again, a lot of factors are needed to supplement the agricultural sector. The onus cannot be placed only on the government alone.

  9. Chetana,

    I have plans to go there after my Masters here probably for an MPhil or so. [Earlier i wanted to do another masters in LSE] But, i will decide once i get into an MA programme.

    The article title did help. :)

  10. Pingback: On Indian Agriculture « Undergraduate Economist

  11. Hi All,

    Some have raised concerns about how effective the removal of Agricultural subsidies by US and the EU will be for countries like India and other developing countries .
    well…maybe our agricultural sector is not as fit as it sould be and the traditional problems like low productivity fragmentation of lad etc will still persist.even after subsidies are removed.
    But I guess the phasing out or abolision of Agricultural Subsidies will incentivise individual farmers to put in more efforts to make agriculture work for them.
    A lot will depend on how different countries deal with the situation once the subsidies are removed but atleast it will provide hope for the agricultural class in general that there will be a slightly more leveled playing field to play on.
    apart from India it could have massive impact on African economies which are even more agrarian than we are

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