US trade representative Susan Schwab this weekend denied that subsidies to rich country farmers are contributing to the food crisis – and said progress in trade talks depended on developing countries giving ground on market access. In a telephone interview from Bali, where she was attending trade talks with ASEAN countries, Schwab told Emerging Markets: “No-one would say that domestic subsidies are contributing to the current situation on food prices. The main factors are on the demand side. China and India are consuming more.”
Government policies including export restrictions were an issue, she added. “The areas where, in the context of Doha, we can make a contribution [to the food price crisis] is in a reduction of the distortions associated with subsidies and trade barriers.”
Development experts challenged Schwab on the role of rich countries’ domestic agricultural subsidies, and argued that financial speculators are aggravating the food crisis.
But ADB president Haruhiko Kuroda – who unveiled a bank report on the food crisis in Madrid yesterday that warned food inflation is jeopardising the Millennium anti-poverty goals – joined Schwab in focusing on the need to lift export restrictions. Susan George, chair of the Transnational Institute, said rich countries’ domestic agricultural subsidies were doing great damage to poor farmers.
The subsidies, permitted under WTO rules, “reduce the costs of production for rich country farmers” to the point where the poor could not compete, she told Emerging Markets. Poor countries are “bullied” in trade talks to open their markets: so, for example, US corn exports to Mexico had grown from less than 1 million tonnes prior to the adoption of the North American Free Trade Agreement in 1994, to 8.8 million tonnes in 2006. George blamed speculators for exacerbating the food crisis. Having been burned by the sub-prime crisis, they are buying into agricultural futures and creating a bubble, she warned.
In Madrid, ADB president Kuroda – who pledged budgetary assistance to countries hit by the food crisis – said food prices in Asia had almost tripled in four months, despite the fact that supply appears able to cover demand. He attributed the rise to hoarding, rather than speculation, and to export bans some countries have imposed on rice.
Kuroda slammed the idea mooted in Thailand on Friday of forming an OPEC-style cartel to regulate rice prices. “A cartel is not good for exporters and it is certainly not good for importers,” he said. “The agriculture market should be market-oriented.”
Schwab made a blunt call to developing countries to give ground on market access in order for the Doha round trade talks, now in their seventh year, to make progress. “Clearly content takes precedence over calendar,” she said, “but there is a sense of urgency. We can see a finite number of ‘to do’s that need to be discussed.”
“The real key at this stage is what level of commitment are the emerging markets willing to make in the form of meaningful contributions – China, India, Brazil, Asean, and so on – particularly on services.” Asked whether the rich world needed to shift on farm subisidies, Schwab responded: “The contributions that developed countries need to make are already laid out. That’s clear. But unfortunately some of the market access aspects are not laid out.