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Financial Times

Reducing poverty starts with fairer farm tradeKevin Watkins. June 2, 2003.

Apart from wringing their hands, issuing more promises and giving out a little more aid, what can governments in rich countries do to reduce poverty in poor ones? Answer: use the time remaining in the Group of Eight summit in Evian to get serious about reform of their agricultural policies. With World Trade Organisation agricultural negotiations faltering, this could be a last chance to avoid full-scale collapse in advance of the critical ministerial meeting in Cancun in September.

The problem is this: each year rich countries spend over $1bn (£612m) a day supporting their agricultural producers - six times what they give in foreign aid. The European Union and the US account for almost two-thirds of total spending. The subsidy fest translates into rocketing levels of output, fewer imports and the dumping of vast surpluses on world markets.

Farmers in developing countries lose on several counts. Subsidised exports from rich countries undercut them in local and global markets, while high import barriers shut them out of rich country markets.

Northern governments like to lecture on the merits of open markets. But success in world agriculture depends less on comparative advantage than on comparative access to subsidies - and poor countries lose every time.

Take the 10m-11m people in west Africa who depend on cotton cultivation. Last year, the US, the world's largest cotton exporter, spent more than $3bn subsidising its 25,000 cotton producers - a subsidy larger than the total national income of big African cotton exporters such as Mali. US subsidies lowered world prices by about a quarter, costing west Africa some $200m in lost foreign exchange. The EU, which dispenses hefty subsidies to its farmers under the common agricultural policy, is equally reckless. By using Africa to dump surpluses of dairy, sugar and cereals, it is destroy ing the livelihoods of African farmers.

One of the few predictable outcomes at Evian is yet another G8 commitment to the Millennium Development Goal of halving world poverty by 2015. Three-quarters of all people in developing countries surviving on less than $1 a day - some 900m in total - live and work in rural areas, mostly as farmers. That is why farm trade reform is so vital to poverty reduction. So why are industrial countries so loath to act?

Some governments seek to justify their farm support in terms of social objectives. Henri Gaymard, the French agriculture minister, has declared the CAP a central part of the EU "social model". Yet more than half of all EU and US support goes to just 7 per cent of their biggest producers.

At the start of the current Doha round of trade talks, northern governments pledged to end export subsidies, reduce domestic support and open their markets. They have failed on all counts. With CAP reform mired, the EU has submitted a lamentable proposal that will leave its export subsidy potential intact, CAP spending at current levels and many agricultural tariffs in excess of 100 per cent. Meanwhile, the US has combined free-market rhetoric at the WTO with a massive increase in farm subsidies.

Salvaging the Doha "development agenda" will require bold action in farm trade negotiations. First, and most important, is early agreement on a prohibition covering all direct and indirect export subsidies. This has to include the $7bn in officially supported export credits provided by the US. The call by President Jacques Chirac of France for a voluntary moratorium on export dumping in Africa is a small step in the right direction but it is no substitute for binding rules.

Second, new disciplines are needed on production subsidies. Currently, more than half of EU and US support to agriculture is exempt from WTO rules on the grounds that it is "non-distorting". In fact, many of these payments directly support production and export activity - and they perpetuate unfair competition.

Third, markets must be opened, with the biggest tariffs taking the deepest cuts. It is hypocritical in the extreme for rich countries to advocate open markets for poor countries while closing their own markets. And it is equally hypocritical for the EU and the US, the biggest farm subsidisers, to seek to restrict the right of developing countries to protect their farmers.

Of course, agricultural reform in rich countries is not a panacea for rural poverty. But without it the benefits of world trade will continue to bypass millions of the world's poorest people.

The writer is head of research at Oxfam