Under the current WTO-brokered global trading system, wealthy countries spend billions of dollars each year to support their domestic agriculture sectors. In 2002, direct support to farmers by countries belonging to the Organisation for Economic Co-operation and Development (OECD) added up to around US$235 billion -- three quarters of the total OECD support estimate of US$318 billion. Subsidies by this group of countries account for over 90 percent of trade-distorting domestic support and export subsidies reported to the WTO, says FAO.

The figure is particularly striking if one considers that in high-income countries such as those belonging to the OECD, agriculture employs around 5 percent of the labour force and contributes only 2 percent to gross domestic product (GDP). In low-income countries, however, the sector provides around 70 percent of the labour force with work and contributes 36 percent to GDP.

Subsidies to farmers in the developed world have negative ramifications for agriculture in the developing world in a number of ways. By enabling farmers and agro-companies to sell on the international market at prices far below production value, they leave growers in the developing world unable to compete. They also encourage excess supply, which further lowers world agricultural prices -- reducing the money that poor farmers make, or pushing them out of the business entirely.

"Farm subsidies in rich countries distort the global marketplace," notes FAO Director-General Jacques Diouf, "making it in many cases almost impossible for farmers in developing countries to compete internationally."

The World Bank estimates that subsidies to OECD agriculture cost farmers in poor countries more than US$30 billion a year. Other studies double that figure. Conversely, the Bank has calculated that removing all subsidies would result in an additional US$250 billion earned each year by the agricultural sector -- with nearly $150 billion of that total accruing to low- and middle-income countries.

Food imports: questions of security
Subsidies also at least partially underlie a trend towards increasing food imports by poor countries. FAO research shows that during the 1990s imports of basic foodstuffs by developing countries increased at the rate of 5.6 percent a year (the rate rises to 6.9 percent for Low Income Food Deficit countries) and project that this tendency will continue in years to come. Overall, the total food import bill of the developing world has grown by 60 percent since 1980.

This is a situation with significant implications for food security.

"The contribution of food imports to food security is limited by the foreign exchange earning capacity of developing countries,” explains Hartwig de Haen, FAO Assistant Director-General and head of the Organization's Economic and Social Department. “Closing the food gap through commercial imports is not always a realistic possibility for most countries."

And, adds Alexander Sarris, Director of FAO's Commodities and Trade Division, the increased profile of cheap food imports can also be a disincentive to investment in domestic agriculture in importing countries, leading governments to neglect the sector. "High import growth can undermine otherwise viable domestic production," Sarris says, "with few opportunities for alternative uses of productive resources."

Tariffs remain an issue
While average tariff rates have generally been reduced following the Uruguay Round of trade negotiations, high duties continue to be placed on certain select products by wealthy nations in order to protect domestic producers. Such "tariff peaks" -- sometimes running as high as 350 percent -- are often concentrated in products that are of export interest to developing countries. These include major agricultural staple food products, such as sugar, cereals and fish; tobacco and certain alcoholic beverages; fruits and vegetables; and food industry products with high sugar content.

September 2003

FAO Media Office
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