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Rural Industries Research & Development Corporation
Greening farm subsidies - The next step in removing perverse
farm subsidies 2003Prepared by
John Humphreys, Martin van Bueren and Andrew Stoeckel, Centre for International EconomicsRIRDC Publication No. 03/040 RIRDC Project No. CIE-16A
Each year about US$600 billion is given as subsidies to farmers around the world. Most of these subsidies are provided by governments in rich economies, particularly the United States, the European Union and Japan.
About 80 per cent of these subsidies are perverse. Not only do they damage the environment, they also harm the economies of those giving the subsidies as well as the economies of other countries.
Agricultural subsidies have become so big that they have ‘poisoned’ international trade talks. Agriculture is the sticking point in the World Trade Organization’s Doha round of trade talks, and the impasse that has developed midway through the talks threatens to jeopardise progress towards a more effective international trading order.
The environmental damage caused by agricultural subsidies includes water pollution from excess nutrient run-off, acidification of poorly buffered natural habitats, loss of biodiversity, and soil erosion. From prawn fishers in the Gulf of Mexico to rice farmers in Indonesia, the environmental damage caused by perverse agricultural subsidies is extensive, pervasive and widely reported.
The economic harm these subsidies cause to rich and poor countries alike is also just as pervasive and just as widely documented. Equally as well reported are those rare cases where agricultural subsidies have been removed — to the benefit of both the environment and economies.
So why do these subsidies prevail? Why, in an era of sensitivity to the environment and the rising political strength of the green movement, do governments knowingly encourage damage to the environment and harm economic growth? What is missing is good public governance and scrutiny of these subsidies. Good governance by policy makers dictates that farm policies be evaluated for their benefits and costs — environmental, social and economic — and these appraisals be conducted in an open and transparent way by an independent body. This is rarely done.
The nature of each subsidy, its objectives and the reasons for its introduction need to be understood. In short, what is required is a process by which the subsidies that do so much harm to both the environment and economies are separated from those whose benefits exceed their costs.
The framework and elements of such a process are spelt out in this study.
Agricultural subsidies are either good or bad: either the benefits exceed the costs (broadly measured), or they do not. Negotiating over bad subsidies will not make them good. If a subsidy has net benefits, it can be retained. If it is harmful to the economy and the environment, it should be abandoned.
If green organisations around the world could convince
governments to pursue the principles of good governance and subject agricultural
subsidies to an independent systematic review process such as that outlined
here, the result would be fewer harmful subsidies and consequently healthier
environments and more prosperous economies — a win–win situation.
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