Investing in Agriculture in Developing Countries: The Whole World Says Yes, But the WTO Says No

Changes in global trade rules are needed to allow developing countries to invest in agricultural production.

Farmers, development activists and food security advocates alike are united in the need for resilient agro-ecological local food systems to achieve the Right to Food.

Unfortunately, there remains an international constraint towards achieving this: The global rules that actually govern agriculture – not just for trade but also domestic production – are set in the World Trade Organization (WTO), and they are appallingly unfair and antiquated.

Fortunately, we now have the best chance in 20 years of changing the single most damaging aspect of the WTO: the rules that prohibit developing countries from investing in their own farmers. 

The Problem: Unfair, Antiquated Rules in the WTO

The Agreement on Agriculture, which would become a foundational part of the WTO, was finalized in 1994. At that time, it was agreed that agricultural subsidies would be capped at their then-current level, and would be subject to gradual reduction. This applied most strongly to subsidies for food that would be exported, but it also applied to domestic subsidies, except in certain specified circumstances.

The core unfairness of this arrangement resides in the fact that it was overwhelmingly rich countries that were subsidizing agricultural production at that time. Developing countries, by and large, were either too poor, or were subject to restrictions by the International Monetary Fund or the World Bank against agricultural subsidies.

The argument was that countries would be better off producing cash crops like coffee or sugar cane for export, and then buying food in the global market for cheaper than they could produce at home.

But things did not work out that way. Many countries producing the same commodity led to oversupplies, which brought down prices. Aggressive deregulation of agriculture and consolidation of retail chains has led to downward pressure on global prices. Climate change has led to droughts that even the World Bank says will only get worse. Financialization of, and speculation in, the commodities market has led to volatility in world food prices, with speculators getting rich, but prices staying low for poor producers. These problems together caused food prices to skyrocket, resulting in two global food crises that induced widespread hunger and rioting across the globe while enriching profits for transnational agribusiness producers and suppliers.

Food products are not the same as widgets, as most people have come to appreciate, and should not be subject to the same rules in the WTO – rules that are explicitly designed to increase trade in food rather than facilitate global food security.

At the same time, this food security fight illustrates a core problem of the WTO. The rules that govern global trade were set during a time in which the neoliberal ideology of deregulation and privatization were ascendant, following the collapse of the Soviet Union. In the period since, these policies have led to a number of global economic, financial, food, and climate crises, and the pendulum has swung back to a more complex view, which posits that the private sector and the public sector each have a role, and that issues such as human rights, food security, financial stability, and climate survival must be dealt with through public deliberations with a focus on the public good, and not dictated by corporate craving for private profits.

Global Consensus: Invest in Domestic Production

Every international body that deals with agriculture has come to recognize the need to prioritize food security over simply promoting trade. While the originalRome Declaration on Food Security in 1996 talked about ensuring food security through market-based mechanisms, the 2009 World Summit on Food Securityplaced emphasis instead on national investments in agriculture. The African Union announced in the “Maputo Declaration” in 2004 the commitment by each country to invest 10 percent of national budgets in agricultural production, which it reiterated last year in launching the “Year of Food Security.”

Olivier de Schutter, the former UN Special Rapporteur on the Right to Food, has detailed how WTO policies are incompatible with the Right to Food, and has made concrete suggestions for what changes need to be made in his superb paper, “The World Trade Organization and the Post-Global Food Crisis Agenda: Putting Food Security First in the International Trade System,” which cauased a massive uproar at the WTO. He highlighted the importance of developing countries maintaining food reserves, as well as the importance of protecting their markets from international market volatility.

In the proposed Sustainable Development Goals being negotiated at the United Nations, the need for developing countries to invest in food production is highlighted as a priority more than half a dozen times. The South Centre’sextensive report on the issue documented the need for equity and justice and thus a change to the WTO’s rules on agricultural subsidies.

Some developing countries are taking action. In India, more than half of the population depends on agriculture, and most farms are no larger than a few acres. Meanwhile, hundreds of millions suffer from hunger and a lack of access to adequate food; half of children under five years old in the country are chronically malnourished. The Indian Food Security Act is intended to reduce poverty among both producers and consumers. It purchases food from poor farmers at a Minimum Support Price (MSP), and then distributes that food to the poor through a Public Distribution System (PDS) in what is called a public stockholding, or food reserves, program. And it is because of this, amazingly, is where it runs afoul of the WTO. 

Despite the global consensus, the actual rules in the WTO remain unchanged from decades past. WTO rules do not allow developing countries that were not subsidizing in 1994 to subsidize beyond the de minimis (Latin for “so small it’s not worth tracking”) amount allowed to all WTO members. Meanwhile, the United States and Europe are allowed tens of billions a year in overtly trade-distorting subsidies for exported products, and have yet to implement the abolition of those subsidies to which they agreed nearly 10 years ago.

But that’s not the only problem. When calculating the subsidies, the rules state that countries must figure the difference not between the MSP and current prices; they have to use the WTO “reference price,” which is – get this – the average world price from 1986-1988. As if the price of rice or wheat more than 25 years ago had any bearing on today’s markets. Since developing countries have experienced far more inflation than have developed countries, this “reference price” is another aspect of the injustice – not to mention ludicrous nature – of the current rules, as regularly argued by India’s former Ambassador to the WTO, Jayant Dasgupta.

While this reference price must be used by developing countries to calculate the subsidies for the type of public stockholding and food reserves programs recommended by most experts, the same is not required of developedcountries including the United States in reporting its Supplemental Nutrition Assistance Program (SNAP). Subsidies to consumers to purchase food (processed or healthy, foreign or domestically-produced) in the market are not disciplined, although many would claim that they “distort the market” just as much as food reserves programs.

Countries as diverse as Bangladesh, Botswana, Cameroon, Egypt, Ghana, Kenya, Malawi, Morocco, Nepal, Senegal, Tanzania, Tunisia, Zambia, Zimbabwe, and many others have public stock holding programs, in line with the African Union and proposed global SDG commitments. Many more countries are currently developing them.

In essence, because these countries are attempting to reduce poverty both on the consumer and the producer side, their programs run up against the WTOrules and are subject to absurd accounting rules which vastly overinflate the subsidies, while countries like the U.S. are allowed to directly distort markets through export subsidies, and have rights to unlimited subsidies through the SNAP. This paradox has allowed corporate lobbyists and industry tohypocritically claim that India and other developing countries’ subsidies are orders of magnitude more than what is actually invested.

Many farmers and other groups, such as ActionAid International and theAlliance for Food Sovereignty in Africa, are pushing at the domestic level to ensure that investments are directed to support agro-ecological solutions rather than imported chemical inputs, corporatization and land grabbing. But the rules must still be changed in order to allow for these types of investments.

In addition, sometimes countries experience an “import surge” of subsidized food imports, which can result in a precipitous price drop, negatively affecting domestic production. This is especially the case in net food importing developing countries. But while most developed countries have access to price insurance and the Special Safe Guard (SSG) provision in the WTO (which allows certain countries to temporarily increase protective tariffs during import surges), developing countries and their farmers do not have access to these mechanisms. Developing countries in the WTO have demanded a workable Special Safeguard Mechanism (SSM) that would be tailored to the market dynamics and needs in their countries, as the SSG was tailored decades ago to the dynamics in developed countries.

The point is that there are straightforward changes that urgently need to be made to global trade rules, simply to allow developing countries to make the investments in agricultural production that the entire world sees as essential to guaranteeing global food security.

Proposals towards a Solution for Food Security, and Hypocritical Resistance

Fortunately, change is afoot. A group of 46 developing countries, supported by the Africa Group and other groups totaling over 100 countries, have introduced a proposal at the WTO to change the rules, to allow developing countries to invest in agriculture for domestic food security purposes.

Given the global consensus, a solution should seem well within reach.

Unfortunately, throughout 2013, the United States blocked negotiations on the food security proposal. It unscrupulously argued that India was trying to “roll back commitments” or that its distribution of poor farmers’ produce to poor citizens would somehow distort global markets.

These claims are egregiously hypocritical, because the United States is theworld’s largest agriculture subsidizer. The United States filed domestic support of over 139 billion dollars in 2011 – which is, astoundingly, double the amount of those subsidies in 1995. Most of this is for food stamps for the poor. But the U.S. is still allowed around $15 billion in overtly trade-distorting support. And while the European Union’s notified domestic support of 79 billion dollars is still high, at least it has been reduced since the WTO’s inception. In fact, members of the Organization for Economic Cooperation and Development spent a total of$258 billion subsidizing agriculture in 2013, according to the organization.

The United States has lost several cases at the WTO, as its farm subsidies have been found to distort the level playing field. U.S. cotton subsidies alone – which enrich a few thousand producers in politically important Congressional districts – have so depressed global cotton prices that Brazil has twice wonWTO cases against the U.S. But rather than change the subsidies, the U.S. now pays off Brazil to the tune of hundreds of millions of dollars. Unfortunately, this arrangement leaves less politically powerful small farmers in Benin, Burkina Faso, Chad, Mali, and other African cotton-producing countries who have been suffering for years, in the dust.

In advance of the last ministerial decision-making meeting of the WTO in Bali, Indonesia in December of 2013, the UN Special Rapporteur on the Right to Food again called for developing countries to be granted the freedom to use food reserves to help secure the right to food, without the threat of sanctions under the WTO. “Trade rules must be shaped around the food security policies that developing countries need, rather than policies having to tiptoe aroundWTO rules,” the expert said. Indian farmers called on their government not to give in, a position that was supported by over 286 organizations of international civil society. The food security coalition in the WTO, led by India, fought a hard battle against U.S. intransigence.

A Temporary Peace Clause

In the end they were able to gain a commitment for further negotiations; WTOmembers would try to find a permanent solution through future talks, but gave themselves an entire four years to do so. In the interim, a Peace Clause would be in effect. In return, developing countries gave the rich countries a permanent “Trade Facilitation Agreement,” as part of what is called the “Bali Package.”

It is deplorable, but not surprising, that the first “early harvest” in the Doha Round – which developing countries had only agreed to rich countries’ demands to launch, on the basis that it was to be a “development” round – is an agreement that will primarily benefit transnational shipping and logistics corporations rather than foster development.

Under the Peace Clause, countries with existing subsidy programs could not be subject to a legal case by another WTO member, if they comply with onerous reporting requirements and prove that their subsidies are not distorting markets (something that the United States is not required to do for its subsidies). No new programs may be implemented, and there was no guarantee that a permanent solution would be agreed at the end of the four years.

However, there was a wrinkle. Legal ambiguity in the text meant that it was not clear whether the Peace Clause would be in effect until a permanent solution was agreed, or only for four years – and would then expire. Thus when the new government of India came to office last spring, they requested a clarification that the Peace Clause would be in effect until a permanent change in the rules was agreed. Again, the United States refused to make this clarification – demonstrating that indeed, it had been planning on allowing the Peace Clause to expire without a new deal in place.

India then countered that it would not let the other aspects of the Bali Package come into effect, until it had received this simple clarification. And while the United States spent the summer blaming India for supposedly scuttling the Bali Package, it refused to agree to the clarificationIndian farmers kept the pressure on their government, and global civil society supported them. Months dragged on, but the U.S. corporations didn’t want their Trade Facilitation deal imperiled won out – and the U.S. finally agreed to allow the Peace Clause to remain in place until a permanent solution is agreed. WTO members alsoagreed to “make all concerted efforts to agree and adopt a permanent solution on the issue of public stockholding for food security purposes by 31 December 2015,” moving up the date by two years. This means that a decision should be taken at the upcoming Ministerial meeting in Nairobi, Kenya, December 15-18this year.

As part of the Bali Package, countries also agreed to re-launch the Doha Round, which includes expanding the WTO’s deals on trade in goods, services, and agriculture. The Round should instead focus on fixing other drastic problems with the existing WTO; but these negotiations are likely to stretch on for years, if they are ever concluded.

A Key Moment: An Opportunity for Real Change

In contrast, the immediate opportunity to strike a deal to remove food security programs from WTO disciplines by December 2015 is quite real and far more possible. It won’t come close to “fixing” the WTO. Many argue that the Committee on Food Security of the FAO should be the global body that regulates agriculture, not the WTO, because the main focus should be on guaranteeing global food security and food sovereignty, not the WTO’s myopic focus of merely increasing trade. But no member is proposing to take the WTOout of agriculture, and there are many who argue that removing agriculture from the WTO would only make global agricultural trade even more unfair.

But removing WTO obstacles to food security – by allowing developing countries to invest in their own agricultural production, and feed their own populations, thus reducing their dependence on global food aid – should be achievable. This would involve allowing developing countries to operate public stockholding for food security purposes; allowing developing countries to protect their markets against import surges through a workable Special Safeguard Mechanism, and prohibiting export subsidies which damage other countries’ domestic production.

Achieving this change would remove the most damaging aspect of the current WTO, as the global trade rule most responsible for keeping farmers poor and keeping over 800 million people hungry worldwide. It would bring the WTOrules more in line with the global consensus on agricultural investment and food security. It would allow countries to be more self-sustainable, which, in the United States, Republicans and Democrats alike should appreciate. It would allow more poor nations to achieve Millennium Development Goal (MDG) number 1: Eradicating extreme poverty and hunger. It could save some of the 99 million children under age five who are undernourished and underweight. It won’t solve global hunger; but it will remove key WTO obstacles to developing countries’ efforts to reduce hunger in their own countries.

What is it going to take? Anti-hunger groups worldwide will need to take up the cause and bring their powerful advocacy to bear on the issue. Farmers, Right to Food campaigners, and development advocates in Africa, Asia, and across the developing world – like the ones in India who achieved landmark legislation – will need to pressure their governments to support food security in the WTO. Unity among developing countries and Least Developed Countries (LDCs) will be essential. The U.S. Trade Representative and Department of Agriculture must be exposed for their divide-and-conquer tactics, as they are currently circulating inaccurate and misleading information about India’s stockholding programs to scare the LDCs in the WTO. Likewise, European and other developed country solidarity with the poor and hungry must be mobilized. International agencies with a voice on food security must speak out, as has the former UN Special Rapporteur, that the WTO must be adapted “to ensure compatibility with the establishment of food reserves,” noting that this should be “agreed to immediately and with expectation of trade concessions.” 

It can be done. There is a short window to act. Let this opportunity not be missed.

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