US farm bill will drive down prices in Africa, say experts

African and Caribbean countries have slated the new US farm law, which tilts the playing field of agricultural trade further against the interests of farmers in the developing world, as the next two articles attest.

by Farah Khan

JOHANNESBURG: For Africa, the US farm bill, signed into law by President George W. Bush, is like giving with one hand and taking with the other.

African farmers fear that just as sub-Saharan African farmers start to enjoy the benefits of preferential trade from the US’ Africa Growth and Opportunity Act (AGOA), the generous farm subsidies will undercut the gains.

“It negates AGOA,” says Willie de Klerk, a trade policy director of KWV distilleries in the Western Cape, a wine-producing region beginning to harvest the fruit of increased trade with the US.

This impact is ironic, given the US’ first report on AGOA, which says that the trade pact aims to “pursue a strategy to expand free markets, trade and economic growth in sub-Saharan Africa”.

While it is still early days to properly assess the impact of the farm bill on these goals, De Klerk says that the generous subsidies could skew the trade balance in the US’ favour. Already, US wine exports  into South Africa are at record highs.

Economists also fear that the farm bill, which almost doubles subsidies to US farmers, will drive down essential commodity prices. “The impact is not so much that it makes it more difficult for African products to get into the US market, but that it drives down commodity prices in Africa,” says Charles Mather of the Geography Department at Wits University in Johannesburg.

Falling commodity prices are behind Africa’s economic decline in the past two decades. And the US subsidies are being granted on the commodities where the continent could be competitive. These include cotton and wool.

In South Africa, pressure is likely to grow on the government to object strongly to the US legislation that will extend support to US agriculture by an additional $83 billion over the next 10 years.

Like many developing nations, South Africa has obeyed the liberalizing edicts of the World Bank and International Monetary Fund (IMF), which preach lowering tariffs and farm support.

When the African National Congress (ANC) first came to power in 1994, one of its first policy steps was to unravel state support for agriculture. Now, farmers will push the government to fight against what they see as a hypocritical stance by the US.

It could also resurrect calls for state support for local agriculture. South Africa is likely to join the European Union and other developing countries in objecting to the US action at the WTO.

South Africa’s Trade Minister Alec Erwin has often been a lone campaigner for the WTO in Africa and the farm bill could put him in a tight spot. Whereas the African Group of governments, for example, wanted to put the breaks on an accelerated open-market trade agenda at the WTO ministerial meeting in Doha last year, Erwin lobbied them to support the launch of a new round.

If that round is not a developmental round - one which takes account of the trade needs of the developing world - then Africa is likely to lose confidence. A key item on the post-Doha agenda has been the reduction of agricultural subsidies, which already amount to more than $1 billion a day in the OECD countries.

“The farm bill does not bode well for post-Doha agricultural negotiations,” believes Mather.

Agriculture Department officials in South Africa said they were “extremely concerned” about the bill’s impact on agricultural exports, one of the sectors believed to hold the key to local growth.

“We are in negotiations at Doha to reduce subsidies and this bill does the opposite,” said an official, who could not understand the US about-turn. “It allows uncompetitive producers to stay in business and it means our products might lose on other markets because of gluts.”

In its AGOA report, the US highlights the strategic importance of sub-Saharan Africa as being the bloc’s voting power at the WTO. “Sub-Saharan African countries represent the largest bloc - 38 - of WTO members.”

Bush signed the Farm Security & Rural Reinvestment Act to almost double  subsidies to US grain and cotton farmers and extend generous support to wool, honey, wine, milk and legume farmers.

“The bill is a textbook example of the haves taking from the have-nots,” believes De Klerk.

But another trade economist, Rashaad Cassim, advocates cool heads. “Any country has a right to support any sector. The crunch comes when that support leads to the lack of a level playing field,” he argues.

The early prognosis  is  that  for Africa, at least, the US  farm  bill has made the playing field even more uneven. (IPS)                                                 

From TWE No. 280 (1-15 May 2002)