Time to End Agricultural Subsidies

At a recent trade conference I was astonished to see a poster with the words “Aid not Trade.” As though the two were mutually exclusive and that all the poor want are hand-outs. One wonders if the holder of this banner imagined the rich countries he was berating would be happy to continue to pour money into his country forever. Mind you, given the history of foreign aid, he was on fairly safe ground since there are numerous instances of decades long aid programs leading to no positive results.

Of course aid delivery and performance measurement of aid are notoriously difficult to do. There has been much widespread failure, corruption and counterproductive policies enacted by governments the world over as a result of aid, and in the demands for that aid. But aid persists for at least two reasons. First, and most important, because it can work, especially in short run humanitarian relief situations. Second, the desire to help is a fundamental human urge and, like the poor, will always be with us.

But how to do it? With the failure of many poor governments to deal well with their populations’ concerns as well as the aid sent to address those concerns, the NGO community has partly filled the void–in traditional humanitarian roles, but also in very wide-ranging roles such as the provision of long term medical care and infrastructure development to business development advice and even lobbying at international fora, like the upcoming WTO meeting next week. But while aid preoccupies far too many NGO discussions, the value of trade to poor countries dwarfs any aid they receive. And thankfully the people of the poorer nations don’t want much aid, they want to trade their way out of poverty, as we in the West did.

I spend a lot of time in countries that have few possible exports, food products being one of them. So I’m personally delighted that our distinguished speakers are addressing such an important topic of agricultural trade liberalization today.

Exchange, as Adam Smith explained–Wealth of Nations Adam Smith that is–is how value is established. Whether across tables, or across borders, trade is essential for all economic development–it is no surprise and not just coincidence that trade dwarfs all forms of aid assistance in all but the poorest countries. Erecting and sustaining barriers to that trade harms that development. Some of the more ludicrous barriers including slapping tariffs on life-saving medicines, including those donated by western countries! Removal of all tariffs on essential medicines will hopefully be a target of the post-Hong Kong WTO process.

First a few numbers–the World Bank estimates that free agricultural trade would provide benefits of an additional $248bn: $106 billion would accrue to the rich world, $142 bn to the poorer world. Of that $142bn, $31bn would come from wealthy countries’ barrier removal (internal subsidy support and quota limit system removal) and a staggering $111bn from poor countries removing barriers between their own countries–and that is partly because barriers are far higher between poor countries than with the West. Poor countries also trade a great deal with each other. In other words the largest trade gains are with barrier removal and between the poorer countries of the world.

But the media and political focus is on Western barriers, and even if their removal is of less economic importance, it is of the utmost political significance. The U.S., for one, should abolish its barriers–for at least two reasons: it will help the poorest in the world, but also the U.S. has a comparative advantage in agriculture, even if resource inputs–such as overly cheap water in the west–were priced correctly, so overall it would benefit.

The key for European politicians (whose consumers would benefit from free agricultural trade), but which has no real comparative production advantage in agriculture, is obtaining some level of cross sector reciprocity from the U.S., but that’s for the negotiators.

What is critical right now as we approach next week’s WTO meeting in Hong Kong is leadership. No major breakthrough of substance is likely to be agreed, but for the first time the right signals are coming out from some influential quarters, and none more so than our guest speakers.

Roger Bate is a resident fellow at AEI.