GATT threat to global food security

A joint statement presented by the UK Food Group to the UK Government on World Food Day

From the outset, the problem of reforming world farm trade rules has figured prominently in the GATT Uruguay Round. Negotiations on this issue have been dominated by the US and the EC, who have spent much of the past four years using the GATT as a forum for fighting an agricultural trade war by diplomatic means. However, with the talks in their final phase, an agreement on agriculture, if far from certain, appears distinctly possible. Such an agreement, for the first time, will establish multilateral rules setting limits to government policy sovereignty in agriculture. It will therefore have profound implications for rural communities and consumers worldwide.

The implications will be especially important for developing countries. To a far greater extent than in the northern hemisphere, agriculture is central to the economic perform- ance and human welfare of the southern hemisphere. It accounts for ~20% of GDP on average, two- thirds of employment and, in many cases, the bulk of foreign exchange earnings. Moreover, food pro- ducers are among the developing world’s poorest and most vulner- able social groups. Paradoxically, however, developing countries have only had a marginal impact on the Uruguay Round farm trade talks, and on the reform package emerg- ing. This statement is prompted by a concern that a ‘farm superpower’ deal between the US and the EC will undermine the trade interests of developing countries and the food security of their inhabitants.

Our concerns focus on three inter-related questions. Will a GAIT settlement end the problem of structural overproduction in the EC and the US? Will it halt export dumping, a practice which wrought havoc with developing country agri- cultural exporters in the 198Os? And, most importantly, will it recognize developing country policy sovereignty in matters concerning food security?

The UK Food Group comprises: Agricul- tural Christian Fellowship, Christian Aid, Catholic Institute for International Rela- tions, Farmers Link, Farmers Third World Network, Oxfam. Voluntary Service Over- seas and the World Development Movement

Overproduction

Structural overproduction in the US and the EC was at the heart of the agricultural trade crises of the 1980s. It has also seriously damaged the trade interests of developing countries over two decades or more. Import substitution in the EC, for instance, has forced effi- cient agricultural producers in the South out of cereals, beef, sugar and oilseed markets. With produc- tion outstripping demand, mount- ing surpluses have also been trans- mitted, normally with the help of hefty export subsidies, onto world markets. This has depressed and destabilized world prices. It has also resulted in developing countries los- ing world market shares in all of the major commodity areas with the exception of oilseeds.

Central to the Uruguay Round strategy for tackling the problem of overproduction in industrialized country farm systems has been an assumption that farm subsidies, and hence farmgate prices, should be cut. This, so the argument runs, will restore an equilibrium between sup- ply and demand and raise world prices. The most extreme variant of this view was the US ‘zero option’, a proposal to completely withdraw all farm subsidies within ten years. While this position was backed by the Cairns Group, it was rejected by the EC which, quite rightly, saw it as a threat to the Common Agri- cultural Policy and an unrealizable goal. In recent months both the US and the EC have modified their positions substantially. The Com- munity has proposed a subsidy cut of 30% by 1996, taking 1986 as the

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reference year. The US has responded by demanding price cuts of 70% within five years. Despite this wide divergence and a good deal of posturing on both sides, negotiations are underway to reach a compromise. The outcome of the bargaining process now taking place is uncertain, but is likely to result in farmgate price cuts of between 3% and 7% per annum up to 1995.

That cuts of this scale will bank- rupt a very large number of small farmers is not in doubt. But will it reduce production? We doubt it. In our view it is far more likely that the resulting concentration of land ownership and production on more capital-intensive farms will bring big productivity gains. The sur- pluses will remain and prices will continue at the depressed levels of the 1980s. Experience under the EC stabilization mechanisms intro- duced in 1988, reinforces this con- viction. Despite a succession of steep price cuts and rise in farm bankruptcies, reports of emergent cereals, beef and dairy mountains have again become commonplace. This raises the question of whether there is a strategy to restrain over- production less capricious in effect and more certain in outcome than price cuts. We believe there is. In our view governments should be required to withdraw guaranteed price support for any volume of production in excess of domestic demand and implement supply con- trol measures, such as quotas, linked to the promotion of less intensive farming practices. The GATT must. we believe, recognize the legitimacy of such measures and not attempt to impose a blanket free-market regime.

Export dumping

Export dumping is the logical con- sequence of farm policies which encourage overproduction. During the 1980s both the US and the EC were disposing of domestic sur- pluses on world markets at prices well below their domestic costs of production. For instance, in West Africa they were selling wheat at $60 per tonne when the domestic guaranteed price was around $160 per tonne.

The most obvious victims of such dumping practices are developing country exporters. Depressed world

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farm prices were estimated to have been costing Argentina, one of the world’s most highly indebted coun- tries, $3 billion a year in lost export earnings in the mid-1980s - equiva- lent to two-thirds of its debt service repayments. Other exporters, espe- cially in Latin America and Asia, also suffered heavy losses. So, too, did regional exporters in sub- Saharan Africa. For instance, both Zimbabwe and Botswana faced competition from EC beef dumping in regional markets. For these countries, most of them already facing chronic debt problems and deteriorating terms of trade, US and EC export dumping has caused grave social and economic difficul- ties.

The most serious impact of food dumping has probably been on food producers in developing countries. Faced with ruinous competition from Europe and North America, these producers have seen their access to expanding urban markets restricted and their incomes slump. Investment in food staples has inevitably suffered as a result, as have attempts to improve food self- reliance. This is deplorable. Indust- rialized country governments in their aid policies recognize the need to encourage higher levels of food self-reliance in food deficit regions. Yet their agricultural policies deli- berately foster food dependence. In much of Latin America and sub- Saharan Africa imported wheat has now replaced staples such as cassava, yams, millet and sorghum in local, especially urban, diets. Imports have risen by as much as 5% per annum for over a decade in sub-Saharan Africa, while per capita production of local staples has either stagnated or fallen. Con- sequently, the region is less able to feed itself today than it was twenty years ago, relying on imported cereals and uncertain world mar- kets for over a quarter of consump- tion requirements.

We recognize that industrialized country farm policies do not bear sole responsibility for the food dependency of developing coun- tries. But we believe, on the basis of evidence from our partners, that there is clear evidence of an interac- tion between these policies and other forces - such as a lack of state investment, inadequate extension services and exchange rate over- valuation - which marginalize poor

rural households and deny them access to productive resources. This is why we urge industrialized coun- tries to agree a comprehensive ban on export subsidies. Such a ban should cover both direct subsidies, such as EC export restitutions, and indirect subsidies. such as US Deficiency Payments. There are. despite US objections, no practical or conceptual grounds for excluding the latter. Essentially, Deficiency Payments are a form of budgetary welfare support to farmers who, since the 1985 Farm Act, have received market support prices well under the costs of production for their output. However. it is these market support prices, often allied to direct subsidies, which are reflected in export prices. In terms of GAIT debates, the technical distinction between the two forms of export subsidy may be signifi- cant. For developing country food producers forced, in either case, to operate in markets where food prices bear no relation to produc- tion costs it is not. We find it disturbing that the US has pro- posed a ban only on direct export subsidies; and even more disturbing that its position has been endorsed by Art de Zeeuw, the Chairman of the Agriculture Negotiating Group, and, albeit ambiguously, by the Cairns Group. We reject this attempt to tailor the GAIT to the interests of the US - or, more accurately, to those of its giant grain exporting corporations. It is our considered view that agriculture should be subject to the same GAIT prohibitions on dumping as apply to manufacturing. That is, there should be no exports of farm produce at prices lower than domestic production costs.

Political sovereignty

We are deeply concerned that a GATT agreement on agriculture will impinge on developing country efforts to improve food self- reliance. Traditionally, developing countries have enjoyed special and differential (S&D) treatment in the GAIT - an arrangement which means they do not have to recipro- cate developed country liberaliza- tion measures. However, one of the features of the Uruguay Round has

been a sustained assault on the concept of S&D. This has been most in evidence in the agricultural trade negotiations.

It is still unclear what type of dispensations will be offered to developing countries in agriculture. However, the US has made it clear that it wishes to see only limited concessions, with countries allowed longer time-frames for adjusting to liberalization according to ‘proven need’. It also wishes to see severe constraints placed over the policy sovereignty of developing countries with regard to the forms of market intervention which will be accept- able. For instance, US submissions to the GATT have called for the phasing-out of all border controls on food imports, and of price sup- port programmes ranging from buf- fer stock management to guaran- teed price systems. The US view has been endorsed by the de Zeeuw paper noted above. In brief, this stipulates that developing countries should not attempt to maintain domestic producer prices at higher than world market levels, and that they should not implement measures which substantially reduce imports. Importantly, the de Zeeuw text has been accepted as one of the basic discussion docu- ments for the final phase of the negotiations.

In our view, this is a recipe for increased world hunger. Price sup- port systems, allied to wider infra- structural support, played a vital role in enabling Zimbabwe to achieve self-sufficiency in maize during the first half of the 1980s. It is now a regional supplier to its food-deficit neighbours. More recently, remunerative government prices have enabled peasant pro- ducers in Tanzania and Zambia to produce small maize surpluses. The de Zeeuw proposal would outlaw the price interventions behind these all too rare success stories. Simi- larly, the requirement that develop- ing countries remove their trade barriers would open fragile food systems to ruinous competition with the surplus food systems of the northern hemisphere.

To argue for the removal of border controls on the grounds of ‘comparative advantage’ is spurious. The reality is that ‘free market’ prices are dumping prices distorted by US and EC subsidies. Even on narrow economic grounds,

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therefore, there is a case for protec- tion (and one recognized in existing GATT anti-dumping provisions). But the grounds on which we call for developing country food policy sovereignty are social and political as well as economic. There are, we believe, strong ecological, employ- ment and food security reasons for rejecting sweeping liberalization of developing country food systems. Fundamentally, we reject the argu-

ment that people’s right to food should be subordinated to the arith- metic of the market place - espe- cially when that market place is so heavily distorted by powerful traders. For this reason, we believe that the GATT should adopt a more discriminating approach to subsidies. It should accept the dis- tinction, drawn by the Jamaican Government, between subsidies designed to increase self-reliance

and meet legitimate social objec- tives in the southern hemisphere, and subsidies causing over-produc- tion and world market distortions. Whereas the latter are proper sub- jects for the GATT, the former relate directly to the responsibility of governments to provide their citizens with adequate and secure supplies of food. This is not an area in which the GATT should presume authority.

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