The Financial Express

Global farm subsidy cut & Bangladesh

| Updated: October 31, 2021 20:15:53

File photo used for representation purpose (Collected) File photo used for representation purpose (Collected)

Bangladesh is weighing losses and gains from farm-subsidy cuts by wealthy countries following the World Trade Organization (WTO) Agreement on Agriculture (AoA) that provides the nations flexibility to provide higher domestic support to their farmers.  Doing this arithmetic is promoted by a crossroads of export and import trades created by the WTO deal in the farm sector.

Bangladesh has the possibility to export some farm products, including fresh fruits and vegetables, if their prices increase on the international market as a result of agricultural subsidy cutbacks particularly in the rich nations. 

India, as a leading exporter of farm products and developing country, felt discriminated against by the agreement and raised the issue with the WTO on the plea that the flexibility allowed to the developed economies would distort the international farm products' market. Opposing the flexibility allowed to the developed economies, New Delhi proposed that the developed countries ought to lower their farm subsidies to end trade distortions.

As Dhaka is evaluating the Indian proposal, economists say that Bangladesh is likely to be affected if subsidy cuts lead to price hike of farm products in source countries as the country has to make import of some items of agricultural produce to make up for domestic- supply shortfalls.

Economists say that Bangladesh ought to take the option of balancing between defensive and offensive positions on the farm- subsidy issue, as the country is poised on the horns of a dilemma.

At the ongoing WTO negotiations, Bangladesh has supported a proposal to protect the interests of small farmers if the import bills of developing countries go up due to the flexibility given to the developed economies through the WTO Agreement. The United States (US) and the European Union (EU), however, stand opposed to the proposal and plea for removing ''all the barriers to free market activities''.

And developing countries supported a counter-proposal to reduce farm subsidies by developed economies, instead of a blanket withdrawal.

Bangladesh confronts two possibilities: its agricultural exports will go up if the wealthy nations reduce subsidies but its import bill will also go up having to pay higher prices of many products it now imports at lower prices.

The country uses product-specific Aggregate Measurement of Support (AMS) to provide price support to rice and wheat, and non-specific AMSs subsidies to fertiliser imports. It provides tariff protection to domestic agriculture and restricts export of several agricultural commodities to ensure domestic supplies. Bangladesh also provides cash incentives to promote agricultural exports and concessional credits for farm machinery, procurement of rice and wheat from farmers, lower electricity tariffs for irrigation and tax holiday to agro-processing industries.

Between 2017 and 2019, the Paris-based Organisation for Economic Cooperation and Development (OECD) had paid $708 billion to support agricultural producers in 54 countries. Although high farm subsidies in developed countries reduce global prices, they also reduce farmers' earnings in low-income countries.

According to a number of studies conducted by the World Bank, the US subsidies alone reduce West Africa's annual revenue from cotton exports by $250 million annually.

To protect their trade interests, Canada, the US and Ukraine, though among the 32 members that pay the highest domestic farm subsidies, at the WTO  oppose developing countries subsidising their agricultural production.

A farmer in Switzerland gets $37,952 in subsidy a year, while an Indian farmer ends up with $451.

From 1995 to 2018, Japan had provided domestic subsidies ranging from 42 per cent to 48 per cent  of the total value of agriculture production, Norway - ranging from 32 per cent to 61 per cent, Switzerland - 38 per cent to 43 per cent-- far beyond what developing countries like Bangladesh could pay. 

Domestic subsidies provided by the US exceed 50 per cent to 100 per cent of the value, depending on products. The US subsidises rice production by 82 per cent of the production cost, 65 per cent to  sunflower, 74 per cent to cotton and 215 per cent to wool.

The US heavily subsidises its dairy industry and Canada its  milk production, as part of their strategy of flexibility.

To reduce the distortion, there is a proposal before the WTO for all the member-countries to reduce domestic farm subsidies for three to five years.


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