| February 13, 2004—World Bank senior managers insisted – in a recent journalist workshop held in Delhi – that farm subsidies doled out by industrialized country governments are distorting world trade in agricultural products, resulting in income losses for developing countries; and cautioned India from joining the race in extending irrational subsidies to the farm sector. Moderated by Anil Sharma, Economist from the National Council for Applied Economic Research (NCAER), the journalist roundtable, organized by the New Delhi office of the World Bank, explored the issues of: - Agricultural trade after Cancun, and the World Bank’s strategy for rural and agricultural development;
- Rural development in India and the work of the World Bank; and
- Piloting Weather Insurance in India, a World Bank Group sponsored initiative to help bring certainty to small farmers
Kevin Cleaver, Director of the World Bank’s Agriculture and Rural Development Department (ARD), gave a detailed picture on the distribution of the average annual support to the farm sector of the OECD rich countries during 2000-2002, and a summary of the Bank’s agriculture and rural development strategy. Of a total OECD agriculture subsidy of $315 billion per year from 2000 to 2002, $26 billion was in the form of budgetary transfers to consumers through food stamps, etc., and $54 billion on account of support for general services such as research and development, extension services, and other support services to OECD farmers. But the biggest chunk of subsidies – $235 billion – was constituted as direct government payments to farmers – $89 billion – and an indirect consumer-financed component of $146 billion through import barriers and tariffs. Cleaver suggested that the developing countries, particularly the G-22, should continue to insist on phasing-out this subsidy of $235 billion for ensuring fair practices in global trade. He said that ‘border protection’ and subsidy measures resorted to by most rich economies were distorting world trade by denying market opportunities to competitive farmers in developing countries, including those in India. “To form an idea of what total annual subsidies of $315 billion given to farmers in OECD economies means, one needs to juxtapose this with the total annual aid flows of around $50 billion to developing countries from all multilateral and bilateral sources,” Cleaver pointed out. “Further, compare this to the total annual budget of $400 million for all public funded international agricultural research institutions – IRRI, CIMMYT, ICRISAT, etc.; within the Consultative Group for International Agriculture Research (CGIAR).” “Of the total farm support estimate of $315 billion, $104 billion was accounted for by the European Union, $94 billion by the US, and $60 billion by Japan. The annual per farmer subsidy worked out to $23,000 in Japan, $19,000 in the US, and $16,000 in the EU, while averaging $11,000 for the OECD countries as a whole,” Cleaver added. Connie Bernard, the Bank’s Director of Agriculture and Rural Development for South Asia, alleged that India had already joined the race for rendering subsidy. She estimates that India rendered subsidy to the extent of 5.6 percent of its agricultural GDP. This works out to a relatively low subsidy per farmer. Whether the total Indian agriculture subsidy is too high or not is a public finance question. However, Michael Carter, the World Bank’s Country Director for India, suggested that there is a need for targeting subsidies to the poorer farmers and to the landless rural population, or to use public funds for investment in rural infrastructure, instead of the current system which disproportionately subsidizes the rich farmers and promotes the use of scarce commodities such as water and energy. Carter and Bernard both pointed out that the Bank was ready to assist in the expansion of investment in rural areas. Sharma clarified that India’s subsidy to the farm sector was still low compared to OECD subsidies, but he also favored the targeting of subsidies to the poor, as well as an increase in public investment in rural infrastructure. Ulrich C Hess, an ARD economist, suggested that Indian farmers take up the pilot scheme of weather insurance designed by the World Bank Group, which would help farmers to hedge risks in an event of any natural calamity. |
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