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Chapter 7. Eradicating Poverty, Stabilizing Population: Reducing Farm Subsidies and Debt
Eradicating poverty involves much more than international aid programs. For many developing countries, the reform of 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, industrial-country farm subsidies of $280 billion are roughly 2.5 times the development assistance flows from these governments. 66
The size of the agricultural budget of the European Union (EU) is staggering, accounting for over one third of its total annual budget. It also looms large internationally. In 2005 the EU-25 accounted for $134 billion of the $280 billion spent by affluent countries on farm subsidies. The United States spent $43 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 cotton, one of the commodities where developing countries have the most to lose. 67
Although the European Union accounts for more than half of the $104 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 on the world market. This is one farm commodity where developing countries have a strong comparative advantage they should be permitted to capitalize on. 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 lowered the world market price. The affluent world can no longer afford farm policies that permanently trap millions in poverty by cutting off their main avenue of escape. 68
Additional help in raising world sugar prices may come from an unexpected quarter. Rising oil prices appear to be increasing sugar prices as more and more sugarcane-based ethanol refineries are built. In effect, the price of sugar may start to track the price of oil upward, providing an economic boost for those developing-world economies where nearly all the world’s cane sugar is produced. 69
Recent developments may also lift world cotton prices. Production subsidies provided to farmers in the United States have historically enabled them to export cotton at low prices. These subsidies to just 25,000 American cotton farmers exceed U.S. financial aid to all of sub-Saharan Africa’s 800 million people. And since the United States is the world’s leading cotton exporter, its subsidies depress prices for all cotton exporters. 70
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). 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 in 2004 that the United States had to eliminate the subsidies. 71
After the 2004 WTO ruling, the United States removed some export-credit guarantees and payments to domestic mills and exporters to buy U.S.-grown cotton. In response, Brazil argued that the U.S. payments to farmers continued to depress world cotton prices. The WTO again ruled in Brazil’s favor. Despite this ruling, the Farm Bill passed by the U.S. House of Representatives in the summer of 2007 included cotton subsidies in violation of the WTO rules. 72
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. 73
In July 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), offered these countries a new lease on life. Up to another 20 of the poorest countries could benefit from this 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. 74
The year after the Gleneagles meeting, Oxfam International reported that the International Monetary Fund had eliminated the debts owed by 19 countries, the first major step toward the debt relief goal set at the G-8 meeting. For Zambia, the $6 billion of debt taken off the books enabled President Levy Mwanawasa to announce that basic health care would be now free. In Oxfam’s words, “the privilege of the few became the right of all.” In East Africa, Burundi announced it would cancel school fees, permitting 300,000 children from poor families to enroll in school. In Nigeria, debt relief has been used to set up a poverty action fund, some of which will go to training thousands of new teachers. 75
If the international community continues to forgive debt, it will be a strong step toward eradicating poverty. Yet there is still room for progress. The Gleneagles’ commitment eliminates only a minor share of poor-country debt to international lending institutions. In addition to the 19 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 people 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. 76
66. Organisation for Economic Co-operation and Development (OECD), Agricultural Policies in OECD Countries: At a Glance 2006 (Paris: 31 July 2006), pp. 18, 19; OECD, “Development Aid from OECD Countries Fell 5.1% in 2006,” press release (Paris: 3 April 2007); “The Hypocrisy of Farm Subsidies,” New York Times, 1 December 2002.
67. European Commission, General Budget of the European Union for the Financial Year 2007: The Figures (Brussels: February 2007), p. 4; OECD, Agricultural Policies, op. cit. note 66, pp. 18–22; “The Hypocrisy of Farm Subsidies,” op. cit. note 66.
68. OECD, “Development Aid,” op. cit. note 66; “ South Africa: Weaning States Off Subsidies,” Africa News, 19 August 2005.
69. See Chapter 2 for further discussion of oil prices and ethanol.
70. Number of farmers from Oxfam International, “Oxfam Dismisses US Cotton Market Access Offer as ‘Empty Promise’,” press release (London: 15 December 2005); Julian Alston et al., Impacts of Reductions in US Cotton Subsidies on West African Cotton Producers (Boston: Oxfam America, 2007); OECD, OECD Statistics, electronic database, at stats.oecd.org/wbos, updated 25 September 2007; U.N. Population Division, op. cit. note 4.
71. 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; Randy Schnepf, U.S. Agricultural Policy Response to WTO Cotton Decision (Washington, DC: Congressional Research Service, updated 8 September 2006).
72. Schnepf, op. cit. note 71; Mark Drajem and Carlos Caminada, “WTO Rules Against U.S. in Cotton Dispute With Brazil (Update 1),” Bloomberg News, 27 July 2007; Alan Bjerga, “Bush’s Opposition to ‘Soviet’ Farm Bill May Get Plowed Under,” Bloomberg News, 23 July 2007.
73. “Ending the Cycle of Debt,” New York Times, 1 October 2004; debt servicing from World Bank, Little Data Book on External Debt in Global Development Finance 2007 (Washington, DC: 2007), p. 8; health care spending calculated from IMF, World Economic and Financial Surveys: Regional Economic Outlook—Sub-Saharan Africa (Washington, DC: September 2006), pp. 36, 43, from David Goldsbrough, “IMF Programs and Health Spending,” presented at Global Conference on Gearing Macroeconomic Policies to Reverse the HIV/AIDS Epidemic, Brasília, Brazil, 20 November 2006, and from U.N. Population Division, op. cit. note 4.
74. “G8 Finance Ministers’ Conclusions on Development,” Pre Summit Statement by G-8 Finance Ministers, London, 10–11 June 2005; Oxfam International, “Gleneagles: What Really Happened at the G8 Summit?” Oxfam Briefing Note (London: 29 July 2005).
75. Oxfam International, “The View From the Summit—Gleneagles G8 One Year On,” briefing note (Oxford, U.K.: June 2006).
76. Abid Aslam, “18 Poor Countries to See Debt Slate Wiped Clean, Saving $10 Million Per Week,” One World US, 26 September 2005; Oxfam International, op. cit. note 75.
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