The Hindu : The subsidy-tariff tangle

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Thursday, Feb 19, 2004

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The subsidy-tariff tangle

By Sripad Motiram, Vamsi Vakulabharanam & Vijay Prashad

While the tariff-subsidy regime ensures that the state in the U.S. intervenes to benefit agro-business, in India, the state has had to withdraw.

A TRAGIC paradox stalks Shining India and Resplendent America: nutrition rates decline, hunger increases, farmers commit suicide, and yet the Indian state hoards surplus food grains. In the United States, suicide rates in the States with the largest farm populations have risen dramatically in the last two decades, at the same time as the U.S. farm profits rose skywards. How can this be? Two words explain why the U.S. farm State of Iowa is not far from the Indian region of Telengana: tariffs and subsidies. Or rather, the curtailment of tariffs within India and the promotion of subsidies in the U.S. Many of the crops grown by the Indian farmers and farm workers come to a marketplace where prices are undermined by the U.S.-based agro-businesses and the subsidies they enjoy.

Take the case of King Cotton. Between 1999 and 2002, the U.S. agro-business share of the world cotton market grew by 40 per cent from 25 per cent. This was almost entirely due to the $12.9 billion subsidy paid by the U.S. taxpayer to the cotton industry. In the same period, India's import of cotton grew by almost 29 per cent, while production of cotton fell. The U.S. cotton crop, meanwhile, has grown to its largest quantity since 1927. The loss to Indian farmers from U.S. subsidies is calculated to be about $1.3 billion (in 2001). The U.S. cotton giants would not remain competitive without the subsidy and, according to the World Bank, less than a tenth of the farmers would remain in business.

Faced with the overwhelming subsidy-tariff regime in the U.S., there is a temptation to believe that all farmers benefit from it. This is not so. Since the 1980s, the small farmers and farm workers in the U.S. have lost their lands and livelihoods to banks and agro-businesses — while industrial science (expensive fertilizers and genetically modified crops) as well as subsidies and tariff supports expanded the power of agro-businesses. ConAgra, Monsanto and Cargill, among others, now dominate the system, what might as well be called a "military-industrial-agricultural complex." Cargill is the largest private corporation in the U.S., with net earnings in 2003 of $1.3 billion. At the 1996 World Food Conference, Cargill lobbied the U.S. Government to oppose the statement that food is a human right: the only human right for Cargill is to turn a profit. Among its victims are the U.S. small farmers and farm workers.

Apart from subsidies, agriculture in countries such as India is additionally under pressure from trade restrictions and tariffs employed by advanced industrial states. In 2003, the World Bank reported that the average tariffs on agricultural as opposed to industrial goods are almost five times higher in the U.S. and the European Union. Tariffs on products such as sugar and beef as well as on processed fruit and dairy produce often exceed 100 per cent. High tariff barriers prevent farmers in India from accessing markets in the U.S. and the European Union.

The escalating tariffs (higher on finished than raw produce) ensure that the farmers in India remain in low value-added segments of agriculture, in the sale of unprocessed produce. By the calculated suffocation of agricultural exports, the tariff-subsidy regime prevents states such as India from maintaining healthy and stable foreign exchange reserves.

While the tariff-subsidy regime ensures that the state in the U.S. intervenes to benefit agro-business, in India, the state has had to withdraw from its activist role. Since the early 1990s, successive Indian governments have pushed a structural adjustment policy (supported by the IMF and the World Bank) that demands that the state reduce its support, in various forms, to agriculture. As the latest Economic Survey indicates, total investment in agriculture as a share of GDP has fallen from an already low 1.6 per cent in 1993-94 to 1.3 per cent in 2001-02. This is primarily because public investment has either remained stagnant or fallen (in some years). As the state increasingly withdraws from the agricultural arena, it leaves the small, marginal farmers and agricultural labourers without any support, so decimating their food security.

Given this grim portrait, the latest news from the Food and Agricultural Organisation's State of Food Insecurity should come as no surprise. This report shows that after a marginal decline in the number of the hungry in India between 1990-92 and 1995-97, the total number of the famished has increased by 19 million between 1995-97 and 1999-2002. There are more hungry people now than there were in 1990, and this has little to do with any increase in population.

Indian small farmers and farm workers have been doubly squeezed: they face a revenue decline because of the collapse in world agricultural prices and escalation of costs as a result of the reduction of government support. They survive by their own sacrifices. Women in these communities courageously hold up more than half the sky. With less work, with little subsidised grain, with insecurity similar to that faced by small farmers and farm workers in the U.S., the Indian farmers' and farm workers' existence is precarious in this large corner of Shining India.

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