Tricks of the trade
January 1, 2003 / New Internationalist
The global trade system, dominated by rich-world corporations, keeps poor countries poor. The World Trade Organization (WTO) is the international body that makes the rules. These rules require poor countries to cut support to farmers and open their agricultural markets to rich countries – which are powerful enough to protect their own markets. In the words of the US campaigner Ralph Nader: ‘The world doesn’t have free trade, it has corporate-managed trade.’ WTO rules also favour food and agricultural corporations over consumer and environmental concerns. Here are some examples of injustices in the system, explained using some common food items.
PATENTS: Who does the food belong to?
WTO rules allow corporations to patent or own agricultural plant varieties and genetic sequences of animals – thereby permitting huge companies to gain control over poor countries’ crops.
In India basmati-rice exports were valued at $425 million in 1998-99. But in September 1997 RiceTec Inc, a Texas-based corporation, won a US patent on basmati rice. Such examples endanger the livelihoods of farmers in India.
UNNECESSARY TRADE: The great food swap
In 1998 Britain imported 61,000 tonnes of poultry meat from the Netherlands. It also exported 33,100 tonnes of poultry meat to the Netherlands.
Global corporations searching for the lowest commodity prices fuel this kind of unnecessary trading. Local producers are often undercut by cheap meat flooding into the country.
This also has consequences for animal welfare, encouraging intensively reared livestock and the export of live animals under cruel conditions. Under WTO rules a country cannot refuse to export a product – a ban on live exports could contravene such rules.
Aviation fuel is not taxed. This is a hidden subsidy to the global food trade. While much food goes by sea, air-freighted food – such as chickens from Brazil and Thailand, mainly for use in processed foods – makes a major contribution to global warming.
LIBERALIZATION: Poor countries open their markets
Before 1992 Jamaican dairy farmers produced over 25 per cent of the milk consumed in the country. But in 1992 World Bank liberalization policies required Jamaican tariffs (import taxes) on dairy imports and subsidies to local dairy farmers to be eliminated.
Subsidized powdered milk from the European Union (EU) poured in. In 1993, one year after liberalization, millions of dollars worth of local milk had to be dumped, hundreds of cows were slaughtered prematurely and many dairy farms closed down. Nestlé, the major buyer of Jamaican milk, now buys a third less than three years ago.
While Southern governments have to open their markets to the North in line with World Bank loan ‘conditionalities’ and WTO rules, rich countries continue to subsidize their own agriculture. EU milk subsidies do not help farmers anywhere in the world – the benefits go to processors and exporters.
SUBSIDIES: Protection for the rich
Subsidized food from rich countries undercuts domestic markets in poor countries and pushes down world commodity prices.
Under WTO rules developed countries are supposed to reduce export subsidies by 36 per cent. But the US, the EU and Japan have continued to subsidize their corporations and large traders.
EU sugar processors receive a guaranteed price three times that on the world market. The EU is the world’s largest exporter of white sugar – export prices are only a quarter of production costs. A World Bank study estimated that world prices fell by 17 per cent as a result of the EU sugar regime. In 2001 Europe exported 770,000 tonnes of white sugar to Algeria and 150,000 tonnes to Nigeria – both natural export markets for African producers like Mozambique. But sugar farmers in Mozambique – one of the poorest countries in the world – can’t compete with subsidized EU sugar. Meanwhile, small farmers in Europe don’t benefit either – large processors, traders and retailers are the main beneficiaries of subsidies.
DUMPING: Getting rid of surplus food
Dumping (exporting at a price below the cost of production) by rich countries creates unfair competition for local producers. Giving food away as food aid is one way of dumping.
World Food Programme figures show that food aid peaks in years when world cereal prices are low and stocks are high. Ironically this means that food aid is most readily available in overproduction years – when it is least needed. Between 1996 and 2000 the price of wheat dropped while food-aid shipments increased by more than 50 per cent. The US and the EU account for half of all wheat exports, with prices respectively 46 per cent and 34 per cent below the cost of production. WTO rules which outlaw dumping make exceptions for aid. The US is unique in giving its aid in kind rather than cash, helping to undercut local economies.
The International Food Policy Research Institute estimates that in 2000 US food aid – coupled with imports from the EU and Turkey – depressed local wheat prices in Bangladesh by 20 per cent; an additional 100,000 tonnes of food aid reduced local wheat production by as much as 91,000 tonnes.
USAID’s own website reads: ‘The principal beneficiary of America’s foreign-assistance programs has always been the US. Close to 80 per cent of the USAID contracts and grants go directly to American firms. Foreign-assistance programs have helped create major markets for agricultural goods.’
COMMODITY PRICES: Over-production pushes down prices
Countries that have developed their capacity to produce and export cash crops are confronted with falling prices due to chronic world overproduction.
Overproduction has caused the price of coffee to crash by almost 50 per cent in the past three years to a 30-year low. Twenty-five million coffee farmers face ruin. Families are unable to buy medicines, enough food, or to send their children to school. The four big coffee corporations (Nestlé, Sara Lee, Kraft, Procter and Gamble) make the profits, while farmers receive a smaller and smaller share of the market value. Ugandan farmers get 2.5 per cent of the retail price of coffee. Cheaper prices are not being passed on to consumers.
Prices were previously controlled by the International Coffee Agreement. But the coffee market has been transformed from a managed market, in which governments played an active role both nationally and internationally, to a free-market system. Recently this has brought very cheap raw-material prices for the giant coffee companies.
There has been a massive increase in coffee production in Vietnam and in Brazil, where mechanization has increased yields. Together with the slowing of coffee consumption in the North, this has pushed down farm-gate prices. Coffee farmers, mostly poor smallholders, now sell their coffee beans for much less than they cost to produce – only 60 per cent of production costs in Vietnam’s Dak Lak Province.
LABELLING: Informing consumers about their food
GM SOYA & MAIZE
In the US, manufacturers of genetically modified (GM) foods are not required to label their products. Almost all food produced there contains some GM soya or maize. But European consumers have consistently shown that they want their food labelled GM or non-GM. So the European Commission has introduced a limited labelling scheme covering GM soya and maize. However, soya and maize derivatives – which are used in most processed food in Europe – including soya oil, lecithin and corn (maize) syrup, were excluded from the labelling scheme, to the dismay of pressure groups.
In any case, such labelling could be challenged by the US under WTO rules, arguing that GM foods are equivalent to conventional foods and so to label them as different is to discriminate against US producers.
While the US hasn’t yet taken Europe into an all-out trade war over GM crops, worried that this might derail the free-trade train, the threat remains potent. When Sri Lanka tried to ban GM crops outright in 2001, the US didn’t hesitate to exert pressure via the WTO rules to get the ban overturned.
Julian Edwards, Director General of Consumers International, representing 235 consumer organizations in 109 countries, stated: ‘One of the ironies of this issue is the contrast between the enthusiasm of food producers to claim that their biologically engineered products are different and unique when they seek to patent them – and their similar enthusiasm for claiming that they are just the same as other foods when asked to label them.’
Sources: Action Aid; Corporate Watch; Oxfam; CAFOD; Compassion in World Farming; Caroline Lucas MEP.