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From agricultural perspective: Developing nations protect interests

Everybody does it; some just do it more than others — supporting, or subsidizing, a nation's agricultural production and infrastructure is as common among nations as the people's need to eat and clothe themselves.

But the apparently widely-accepted notion that developed nations take advantage of developing ones through higher subsidies is, in modern parlance, messed up.

A recently published report from the Cotton Economics Research Institute (CERI) in the Department of Agricultural and Applied Economics at Texas Tech University, Lubbock, takes on that notion and compares crop subsidies and tariffs of 21 developed and developing countries.

Southwest group

The study was initiated by the recently-organized Southwest Council of Agribusiness.

It shows that “all countries, both industrialized and developing, support their agriculture sectors, but use vastly divergent policy tools and combinations of tools. Most use guaranteed minimum prices and import tariffs to protect domestic producers.”

The report also indicates that developing countries use a plethora of tools often not considered in measuring the amount or rates of subsidies.

These include input subsidies, such as reimbursement for seed, fertilizer, equipment and labor. Producers in some developing countries also get tax incentives or low interest loans.

“Developing countries' tariff protection is substantially higher than that of industrialized countries,” the report notes.

Developing countries also are more likely to employ sanitary and phytosanitary measures to limit imports.

Nations have compelling reasons to protect agriculture, including a desire to achieve: self-sufficiency in food production, food safety, and sustainability of natural resources.

The report says most countries, developing or industrialized, “use some form of guaranteed minimum price to producers and use import tariff-rate-quotas to protect domestic industries.”

Protection may be a loan rate, as in the United States, intervention price in the European Union, minimum support price in India and Pakistan or a minimum floor price in China.

Surprising results

Findings reveal that the minimum support price for cotton in the United States is lower than that of other cotton-producing countries.

Findings also indicate that industrialized countries have, in recent years, moved away from price supports to broader farm income support options and direct income payments to stabilize agriculture. Countercyclical payments serve that function in the United States. The European Union also is moving toward decoupled instead of commodity support payments.

Studies indicate, based on per unit prices, extent of support may be higher in developed countries. “But major developing countries supplement price support programs with sizable amounts of input subsidies to protect their agriculture sectors.

“For example, India provides annual subsidies of $12 billion for food storage and distribution, fertilizer, water, and electricity. China provided its producers subsidized seed and machinery purchases, technology adoption and investments in rural infrastructure of $43 billion in 2006, up from $18 billion in 2004 and $15 billion in 2003.

“Brazil, a rising force in the world agricultural market, is proposing $26.1 billion in various forms of credit assistance and agricultural production insurance.”

Protect agriculture

The research found that developing and developed countries use import tariffs to protect their agriculture sectors. “But an interesting point, supported by World Bank estimates, is that average bound/applied tariffs for agriculture are higher in major developing countries than in developed countries. In 2004, the average applied tariff rates were 8.2 percent for the United States and 9.5 percent for the European Union. For major developing countries like India and China, the average applied tariff rates for agriculture were 30 percent and 15 percent in the same year,” the report says.

“The differences are even more pronounced when one compares average bound tariff rates for agriculture between major developed and developing countries.”

Studies also show that major developed countries allow more agriculture products to come in duty free than do major developing countries. The United States and the European Union allow more than 25 percent of agricultural products in duty free. That percentage for most developing countries is less than 3 percent.

A less apparent but significant advantage developing counties have over industrialized agricultural nations comes through lower standards for environmental and workplace regulations.

Add to costs

Programs that restrict pesticide management in the United States, for instance, add to production costs. So do mandated environmental initiatives to protect soil, water and air. Minimum wage standards required in the United States and other developed countries do not apply in developing nations. Neither do stringent U.S. regulations that maintain worker safety, freedom from forced labor and basic union rights for workers.

“In effect, low standards in these areas may be considered a form of subsidy in that they represent costs that producers in developing countries do not have to bear. The presence and enforcement of environmental and worker standards increases the cost of production … in developed countries.”

Countries analyzed in the comparison are: Argentina, Australia, Brazil, Canada, China, Egypt, European Union, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, Russia, South Africa, South Korea, Thailand, Turkey, Uzbekistan, Vietnam and West African Countries.

The CERI researcher team includes Don Ethridge, Director; Samarendu Mohanty, Associate Director; Suwen Pan, Mark Welch, and Mahamadou Fadiga, Research Scientists; Margarita Velandia-Parra, Research Assistant; and Samantha Yates, Publication Specialist.

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