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South Africa: Thinking Outside the (Amber) Box

Mathabo le Roux

5 August 2008

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opinion

Johannesburg — It is ironic that the US department of agriculture publication on food and farm policy should be called Amber Waves.

IN TRADE parlance, the term "amber box" refers to those domestic support programmes deemed trade distorting and over which there is agreement in the World Trade Organisation (WTO) in favour of their being phased out.

In the Doha round of trade negotiations the US's farm support is arguably the primary issue holding up the talks. And despite undertakings to reduce farm support, the US Congress recently passed a new Farm Bill of $300bn over the next five years to replace one that expired in September last year.

So, the name of the agriculture department's publication is appropriate, even if this is clearly unintentional. Under current WTO rules, for any particular year countries are obliged to maintain support across all agricultural commodities below a set level.

The US ceiling for amber box support is $19,1bn, while the Doha Development Round requires the US to cap trade-distorting support at between $13bn and $16,4bn.

While a significant chunk of support under the new Farm Bill will go towards green box support, such as environmental and conservation programmes and food stamps, the budgetary ambition of the bill shows something of the defiant mood in the US.

When the bill was passed by the Senate President George Bush threatened to veto it. But in an extraordinary show of solidarity the US Congress passed the bill with a two-thirds majority, rendering Bush powerless.

Lori Wallach, a trade lawyer who directs Washington DC-based Public Citizen's Global Trade Watch, says the veto override demonstrates that Congress is unwilling to change the basic framework of US farm policy.

To get a sense of the ambition of the Farm Bill, consider this: its budget of $300bn over five years is more than SA's annual gross domestic product (GDP), yet it will support fewer than 4000 farmers.

During a recent trip to the US, it was striking to note the lack of concern among US taxpayers over the extent of the support, which they are essentially subsidising.

Information from the US agriculture department shows that government subsidies constitute less than 10% of input in cash receipts, but it is also concentrated in a small numbers of sub-sectors. And rather than support particular commodities, specific farms are actually the target of government support -- a glaring demonstration of the power of lobbying and the central role it plays in decision-making in US politics.

The Farm Bill is broad and pretty complex. Aside from commodity programmes, which is the primary target of developing countries' wrath, the bill in reality supports a slew of other activities and related sectors, including conservation, agricultural research, education and extension, non-farm rural development, forestry, credit extension and energy (the biofuels industry in the US is supported at all levels of production, with subsidies allocated for crop production, blending as well as research and development).

Proportionally 80% of the previous Farm Bill budget was spent on non-agricultural programmes, with the bulk (68%) going towards food assistance.

The department argues that the food stamps programme is non-distorting because it supports the purchase of food internationally, with no preference given to US-grown food. The choice of food consumption is, however, at the discretion of individuals and Edwin Young, senior economist with the department's economic research unit, says he is not aware of surveys tracking food programme dependents' consumption patterns.

Overall spending on the commodities part of the programme is highly variable and mostly tied to the performance of the sector. This means payments usually kick in when times are tough -- when commodity prices are low for instance, or when farmers are buckling under drought or flood damage. The Commodity Credit Corporation is a federal owned and operated corporation within the department that handles money transactions for agricultural price and income support. Its figures show that actual outlays in most years since 1980 were below $19bn. But expenditure on commodity-linked programmes topped $32bn in 2000 and in 2005 and 2006 were more than $20bn -- in other words exceeding the $19bn ceiling set by the WTO for US amber box support.

Whichever way one looks at it, there's not much consolation for farmers in the developing world -- first, because they do not benefit from these type of financial cushions that prop up US farmers in difficult times, but secondly because it appears the US won't really take much pain in terms of the concessions it needs to make in the Doha round. Moreover, while developing countries are unable to compete effectively with US farmers, studies cited by the department show if the US did away with farm support, the change to agricultural production on the whole would be negligible.

Why then does the US persist with the plan? Trade economists often point to the phenomenon that those who gain from a situation such as cheaper prices stemming from trade liberalisation or the phasing out of subsidies, enjoy the benefits but do not generally appreciate the source of the gain. However, those who lose out when distorting polices are removed are usually a small but very outspoken band, who will proclaim far and wide the unjust blow dealt them. Politicians fear those protests.

Moreover, never underestimate the power of lobbying in determining the path of US politics. It really is the lobbyists with the deepest pockets who hold sway in the corridors of Capitol Hill.

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