u Notes from the Underground: The subtler point about EU subsidies

The subtler point about EU subsidies

Thursday, July 27, 2006

If anyone ever mentions the EU Common Agricultural Policy (CAP), its almost always to rant about how the massive subsidies given to European (and US) farmers hurts the exports of poor African farmers. Daniel Davies argues otherwise in The Guardian's blog Comment is Free , saying that the subsidised commodities (sugar, grains etc.) wouldn't have been produced more efficiently by Africans anyway and that these subsidies make food cheaper for the global poor. There's a caveat: cotton subsidies *are* evil, because poor countries like Mali and Ghana *do* have a comparative advantage in cotton production but are unable to capitalise on it because of these subsidies. [Another caveat from me: the said subsidies are good for the African poor, *not* for resident Europeans.]

(Thanks to Crooked Timber, which I am finding more and more interesting.
Update: Daniel Davies also has an interesting post about a paper from the "Maharishi University" that talks about the effects of Rishis meditating on peace in the Middle East.)

8 Comments:

At 11:49 AM, July 28, 2006, Blogger kuffir said...

interesting point of view..the fact that he goes to great lengths to justify the 'stipends (non-trade-distorting flat rate payment )' given to eu famers ...what does it indicate..?

'So bearing in mind that there are no good roads or railways on the continent of Africa, that foodstuffs degenerate with transport and that grain, milk and sugar are bulky, low-value commodities, did it ever make sense to think that a viable development strategy for Africa involved the export of milk, wheat or sugar to the USA and EU?'

why doesn't he bear in mind that without all that infrastructure..and without any non-trade-distorting-flat-rate payments, the farmers in the third world are actually producing those goods cheaper perhaps?

you haven't put in your own views venu..

 
At 2:43 PM, July 28, 2006, Anonymous Venu said...

I myself am not sure why he calls the payments 'non-trade-distorting'. see john m's comments on the crooked timber thread (beginning at 22) and daniel's (dsquared's) replies.

As for your conjecture that the 3rd world farmers might be doing it cheaper but for bad infrastructure -
a) I dont really know.
b) Disentangling infrastructure costs from overall costs is probably not all that easy. Even if we could, and it turned out they do produce some foods cheaper, I dont see if that proves anything - it still remains that it is much harder for us to improve their infrastructure (for which you would need functional states) than to maintain the subsidies.

My views - a) from India's point of view, we should take advantage of the subsidies wherever we can. If the government liberalises in a variety of other sectors (manufacturing, retail etc.) there will be a shift in workforce to non-agricultural sectors - something I am majorly in favour of. And I think we should gradually slash tariffs on farm goods, *regardless* of whether others do it or not. At some point we need to start getting out of this self-imprisonment.
b) The subsidies do raise prices within the EU, even if they make stuff cheaper for others. There are better ways to aid poor countries than farm subsidies, I presume, although a large amount of direct foreign aid to African countries hasnt worked as expected.

 
At 5:34 PM, July 28, 2006, Blogger kuffir said...

venu,

'a) I dont really know.
b) Disentangling infrastructure costs from overall costs is probably not all that easy.'

it's not really that difficult to arrive at the accounting costs of agricultural produce in eu..and other developed countries. there is no such thing as a 'non-trade-distorting' payment to farmers - if that kind of a dole is acceptable..india and other 'working states' in the third world should also go in for these kind of direct payments to its farmers (like i mentioned in my dole-for-education post, if you remember).. davies' argument is ingenious..

i agree, somewhat, with your views on subsidies - rather i agree with the spirit of the subsidies - that support should be provided to farmers.. but i think wiser alternatives should be formulated.

i'm convinced the western farmer belongs largely in a museum.. and would have if their cleverly designed 'subsidies-and-non-tariff-protection' structure were withdrawn.. i can't see how long they can find 'smart' excuses for protecting something they're fighting in the rest of the world.

 
At 7:55 PM, July 28, 2006, Anonymous Venu said...

I meant that we should take advantage of *EU's* subsidies, not start giving subsidies to our own farmers.. In many convoluted ways is the Indian farmer supported - exempt from IT, support prices, import tariffs, free power (some states).. I dont know if such direct payments to farmers is feasible - I am just weary of more government solutions and dont see them being implemented or effecting any massive change.

I dont suspect Daniel of having any hidden agenda in writing that piece. For the most part everyone (even in the West) has been arguing for reforming the CAP..

 
At 8:31 PM, July 28, 2006, Blogger kuffir said...

venu,

'In many convoluted ways is the Indian farmer supported - exempt from IT, support prices, import tariffs, free power (some states).. '

too many people in india are exempt from it..the govt is actually saving a lot of money(by way of transaction costs) by not attempting to tax farmers and a lot of others..support prices only help inefficiencies develop in the markets - and they're meant for a different goal..which is food security. in the long run, if the indian farmer is to gain true value from the market the support prices would have to go (and they already have to a large extent)..import tariffs too have been reduced to a great degree post-reform . free power also means that the farmer have to pay by way of near-total power cuts in his home..

looked at from every angle, what the each indian farmer gets by way of support is several times less than his eu counterpart..

and in my view..what he needs basically is : more than support by way of subsidies for seeds and fertilizers/pesticides is a)agricultural related infrastructure- assured irrigation,processing/storage infrastructure b)rural related infrastructure - roads, schools phones like everyone else..so that his children get a decent education at an affordable cost/free like children in eu, he has easier access to markets and the world, c) access to finance - when private moneylenders find farmers good credit risks..i don't see why institutions don't..which means the role/control of the state on the banking sector has harmed the farmers access to credit in the long run..and the devlopment of viable credit institutions in the countryside..there is still enormous potential for professional private players to enter this market...provided the govt gives up the monopoly on banking..d)the development of a market that listens to the farmer..and supports him.. and not preys on him..this can only happen if a strong processing/banking/insurance infrastructure is allowed to grow..

lastly...i don't understand how the indian farmer can take advantage of eu subsidies..the total support that farming community in india gets by way of support everry year doesn't exceed 10-15 billions (i'm not totally sure of the figure)..the eu supports its farmers to the extent of 330 billions or so.. even a ten percent cut in that mammoth figure can mean a lot(by way of market) for farmers in the third world.

 
At 12:19 AM, July 29, 2006, Anonymous Venu said...

Kuffir, I agree with the things you say that will make farming more efficient and improve the lot of the Indian farmer. I want to add that
a)I dont see this happening independent of other phenomena - such as a massive shift in workforce from farming to other sectors such as manufacturing. These two phenomena will be reinforce each other and help each other - as farming gets more efficient, we will need alternative employment for the excess farmers we have which is where manufacturing comes in - and as manufacturing attracts more people, it can help increase the average land holdings per farmer (something I understand can very much improve efficiency..) When I say manufacturing, I dont strictly mean manufacturing ofcourse - it is a proxy for all the industries that can employ unskilled labour. And if we can educate our children.. well I dare not dream.

b)I dont see all the infrastructure materialising just through the efforts of the government. I am sure you must have read about the plans of Ambani. To me this is a step in the right direction. I will like it even better if there is competition for Ambani - Walmart jumps to mind and I sure hope it can enter the country in the near future.

c)I dont know, but I hope irrigation can be done through private, local efforts - big dams are the embodiment of all that I hate about arrogant centralised governmental coercion. (I just hope that river interlinking plan dies a slow death.)

And in my previous comment, when I said we should take advantage of European subsidies wherever we can, I meant we should import farm produce into the country without artificially increasing the price through tariffs. The tariffs of developing countries are *far* higher than those of EU and US (yes, even after 1991.) Such tariffs just dont make sense. Yes, we will hope that Europe cuts the subsidies both for its own good as well as India's good (Daniel's argument doesnt apply to India, Brazil etc. its only about the African countries), but until such time why do we want to shoot ourselves in the foot with these tariffs?

 
At 1:15 AM, July 29, 2006, Blogger kuffir said...

venu,

'I dont see this happening independent of other phenomena - such as a massive shift in workforce from farming to other sectors such as manufacturing. These two phenomena will be reinforce each other and help each other - as farming gets more efficient, we will need alternative employment for the excess farmers we have which is where manufacturing comes in - and as manufacturing attracts more people, it can help increase the average land holdings per farmer (something I understand can very much improve efficiency..)'

if you remember the query you had asked me on otherindia a few weeks ago.. i was trying to let the idea sink in the minds of the bloggers over there, gently, that we can't have the old paradigm of 'state-supports-agriculture' while at the same 'state-controls-industryu' and state-does-everything,,,,that a radical migration/reemployment of a large workforce from agriculture has to happen (and should have happened but for the artificial support systems that still foster the idea that agriculture is a sustatinable idea for such a large number of people).. i've been reading up on this for a year (mostly news and..and articles on the net)..but what many would regard as a simplistic solution -that farmers/workers from agriculture should be encouraged to actually leave agriculture and retraining should be provided for them for absorption in other occupations (an ex-rbi governor, can't recall the name..had done a report on this)..

it's a tenuous myth that agriculture has ever provided 'livelihood' to a great majority of the indian people.. one third depend on it as unskilled labour who earn wretched sustenance income from it.. anothe third are displaced craftsmen who, if the state hadn't transplanted a large soviet model public sector in the country...would have by now grown organically into small industrial class in the country..

this crisis in agriculture is both a great threat and..a greater opportunity for policy makers - it's time to radically rethink old paradigms..prepare for the future..efficiencies in agriculture in countries with much smaller holdings than ours have been achieved (in southeast asia- laos, vietnam)but the old style of thinking on agriculture/rural india wouldn't produce any efficiencies - it's worn-out model..and as you said they can only be accompanied by a large expansion of manufacturing - but i believe the time to initiate this process is now..

more tomorrow..

 
At 1:17 AM, July 29, 2006, Blogger kuffir said...

venu,

'that farmers/workers from agriculture should be encouraged to actually leave agriculture and retraining should be provided for them for absorption in other occupations (an ex-rbi governor, can't recall the name..had done a report on this)..'

i forgot to finish the sentence..here goes 'is possibly the right solution'..

 

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