Chapter 7. Eradicating Poverty, Stabilizing Population: Reducing Farm Subsidies and Debt
Eradicating poverty involves much more than international aid programs. For many developing countries, farm subsidies in aid-giving countries and debt relief may be even more important. A successful export-oriented farm sector—taking advantage of low-cost labor and natural endowments of land, water, and climate to boost rural incomes and to earn foreign exchange—often offers a path out of poverty. Sadly, for many developing countries this path is blocked by the self-serving farm subsidies of affluent countries. Overall, the farm subsidies in the affluent countries at $279 billion are roughly four times the development assistance flows from these governments. 54
The size of the agricultural budget of the European Union (EU) is staggering, accounting for over half of its total annual budget. It also looms large internationally. As the Financial Times points out, the cash subsidy to a dairy cow in the EU exceeds the EU development assistance per person in sub-Saharan Africa. 55
Within affluent countries, the EU-25 in 2004 accounted for $133 billion of the $279 billion spent by affluent countries on farm subsidies. The United States spent $46 billion on farm subsidies. These encourage overproduction of farm commodities, which then are sent abroad with another boost from export subsidies. The result is depressed world market prices, particularly for sugar and cotton, the two commodities where developing countries have the most to lose. 56
Although the European Union accounts for more than half of the $78 billion in development assistance from all countries, much of the economic gain from this assistance in the past was offset by the EU’s annual dumping of some 6 million tons of sugar in the world market. This is one farm commodity where developing countries have a strong comparative advantage and should be permitted to capitalize on it. Fortunately, in 2005 the EU announced that it would reduce its sugar support price to farmers by 40 percent, thus discouraging the excess production that depressed the world market price when it was exported. The affluent world can no longer afford farm policies that permanently trap millions in poverty by cutting off a main avenue of escape. 57
Help in raising world sugar prices may come from an unexpected quarter. Although it is too early to say for sure, rising oil prices may boost sugar prices as more and more sugarcane-based ethanol refineries are built. In effect, the price of sugar may track the price of oil upward, providing a strong economic boost for those developing-world economies where nearly all the world’s sugarcane is produced. 58
Recent developments may also lift world cotton prices. Although the U.S. government does not have explicit export subsidies, production subsidies provided to farmers enable them to export cotton at low prices. These subsidies to just 25,000 cotton farmers exceed U.S. financial aid to all of sub-Saharan Africa’s 750 million people. And since the United States is the world’s leading cotton exporter, its subsidies depress prices for all cotton exporters. 59
U.S. cotton subsidies have faced a spirited challenge from four cotton-producing countries in Central Africa: Benin, Burkina Faso, Chad, and Mali. In addition, Brazil successfully challenged U.S. cotton subsidies within the framework of the World Trade Organization (WTO). To make its case, the Brazilian government hired a leading U.S. agricultural economist. Using U.S. Department of Agriculture data, Brazil convinced the WTO panel that U.S. cotton subsidies were depressing world prices and harming their cotton producers. In response, the panel ruled that the United States had to eliminate the subsidies. 60
Along with eliminating harmful agricultural subsidies, debt forgiveness is another essential component of the broader effort to eradicate poverty. For example, with sub-Saharan Africa spending four times as much on debt servicing as it spends on health care, debt forgiveness can help boost living standards in this last major bastion of poverty. 61
In July of 2005, heads of the G-8 group of industrial countries, meeting in Gleneagles, Scotland, agreed to the cancellation of the multilateral debt that a number of the poorest countries owed to the World Bank, the International Monetary Fund, and the African Development Bank. This initiative, immediately affecting 18 of the poorest debt-ridden countries (14 in Africa and 4 in Latin America), offers these countries a new lease on life. Up to another 20 of the poorest countries could benefit from this initiative if they can complete the qualification. A combination of public pressure by nongovernmental groups campaigning for debt relief in recent years and strong leadership from the U.K. government were the keys to this poverty reduction breakthrough. 62
Although this was a giant step in the right direction, it eliminated only a minor share of the total debt of the poorest countries to international lending institutions. In addition to the 18 countries granted relief so far, there are at least 40 more countries with low incomes that desperately need help. The groups that are lobbying for debt relief, such as Oxfam International, believe it is inhumane to force those with incomes of scarcely a dollar per day to use part of that dollar to service debt. They pledge to keep the pressure on until all the debt of these poorest countries is cancelled. 63
54. Organisation for Economic Co-operation and Development (OECD), Agricultural Policies in OECD Countries: Monitoring and Evaluation 2005, Highlights (Paris: 2005); U.S. Bureau of International Information Programs (IIP), “Official Aid to Developing Countries Rose 4.6 Percent in 2004,” press release, (Washington, DC: 11 April 2005); “The Hypocrisy of Farm Subsidies,” New York Times, 1 December 2002.
55. Roger Thurow and Geoff Winestock, “Addiction to Sugar Subsidies Chokes Poor Nations’ Exports,” Wall Street Journal, 16 September 2002; Mark Turner, “African Nations ‘Off Track’ in Reducing Poverty,” Financial Times, 9 July 2003.
56. OECD, op. cit. note 54; “The Hypocrisy of Farm Subsidies,” op. cit. note 54.
57. U.S. IIP, op. cit. note 54; “South Africa: Weaning States Off Subsidies,” Africa News, 19 August 2005.
58. See Chapter 2 for further discussion of oil prices and ethanol.
59. Kevin Watkins and Joachim von Braun, “Time to Stop Dumping on the World’s Poor,” in Trade Policies and Food Security (Washington, DC: International Food Policy Research Institute: 2003); population from United Nations, op. cit. note 4.
60. Elizabeth Becker, “Looming Battle Over Cotton Subsidies, New York Times, 24 January 2004; Elizabeth Becker, “U.S. Will Cut Farm Subsidies in Trade Deal,” New York Times, 31 July 2004.
61. “Ending the Cycle of Debt,” New York Times, 1 October 2004.
62. G8 Leaders, “G8 Finance Ministers’ Conclusions on Development,” Pre Summit Statement by G8 Finance Ministers, London, 10–11 June 2005; Oxfam International, “Gleneagles: What Really Happened at the G8 Summit?” Oxfam Briefing Note (London: 29 July 2005).
63. Abid Aslam, “18 Poor Countries to See Debt Slate Wiped Clean, Saving $10 Million Per Week,” One World US, 26 September 2005.
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