Fair trade or free trade? Let your voice be heard on Minnesota’s future!
The Obama Administration is negotiating two new mega trade deals (one with Pacific Rim countries, another with Europe) entirely in secret, with the goal of further expanding the NAFTA-model of free trade. These trade agreements could have major impacts on Minnesota's farmers, workers, small business owners and rural communities. They could limit Minnesota’s ability to support local food and energy systems and grow local businesses. In order to stay up to speed, Minnesota has set up a new Trade Policy Advisory Council (TPAC) to advise the state legislature and Governor.
TPAC wants to hear from Minnesotans: What concerns do you have about free trade? What role could TPAC play in the future? Now is your opportunity to have a say in our future trade policy. Complete the survey and let them know future trade negotiations should be public, not secret. Help ensure the voices of all Minnesotans are heard in the development of trade agreements and that they protect local control and our quality of life. The free trade model has failed for Minnesota and we need a new approach to trade. Help ensure the voices of all Minnesotans are heard before trade agreements are completed, and that they protect local control, our natural resources and our quality of life.
Posted February 26, 2014 by Shiney Varghese
The food crisis of 2008 led to a broad agreement in the agricultural development community that the lack of appropriate investment in agriculture had been a key contributing factor to unstable prices and food insecurity. The crisis coincided with an increase in land grabbing in many parts of the world, but especially in Africa. It is in response to these events that the idea of developing some criteria on agricultural investments came up in international policy and governance arenas.
The food crisis also led the United Nations in 2008-09 to reform its Rome-based Committee on Food Security (CFS) to address both the short term food crisis, and the long-term structural issues that led to it. It involved bringing new people to the table where decisions were being made, and this included a new Civil Society Mechanism (CSM).
In October 2010, the newly reformed CFS was faced with a challenge: Should it endorse the international Principles for Responsible Agricultural Investment that Respect Rights, Livelihoods and Resources (PRAI) developed by the Inter-Agency Working Group (IAWG), composed of FAO, UNCTAD, IFAD and the World Bank, or refuse to endorse it in response to the CSM position rejecting the PRAI?
To the credit of the CFS, the majority of the stakeholders, including most governments agreed with the CSM in October 2010 that the PRAI was inadequate to protect vulnerable communities from land grabbing. Rather, in the CSM view, PRAI would have helped facilitate the large scale investments which were already depriving people of their livelihood sources. Unfortunately, at its November 2010 Summit, the G-20 continued to endorse that flawed process, encouraging "all countries and companies to uphold the Principles for Responsible Agricultural Investment."
But the debate continued at the CFS, which, while 'taking note of the ongoing process of developing' the PRAI, agreed that there needed to be a more inclusive process if these principles were to protect communities from getting displaced from their lands. It initiated the development of Terms of Reference that were endorsed by the CFS Plenary in October 2012. The current Zero Draft of the Principles for responsible agricultural investment (also referred to as CFS-rai) is the outcome of an almost year-long inclusive consultative process on those principles.
We believe there is much scope for strengthening these principles. Over the last six months the zero draft was discussed around the world through regional consultations processes and e-consultation. Civil society groups that advocate for the rights of small-scale producers and workers are actively engaging in this process to make sure that the final draft principles presented to the CFS in October 2014 are indeed strong enough to protect the resource rights of the communities; leads to the progressive realization of the right to food, right to water, and the protection of the genetic, bio diversity as well as enhancement of ecosystem functions. Thus our comments stress that responsible agricultural investments should address the specific needs of small-scale food producers and workers: this entails investors assessing the specific needs of small-scale producers and workers and identifying how they can be supported to strengthen their food sovereignty, rather than seeking to make them part of the industrial food system, with its concentrated value chains. Those investments would support agroecological approaches to food production and the development of locally appropriate technology to reduce their drudgery and postharvest losses. Such investments will help retain wealth in their communities, contributing to ecosystem regeneration and rural economic development.
The first draft of the CFS-rai principles, based on the feedback received through the consultation process, will be developed in March-April 2014. There is a very small window of opportunity for civil society to comment on this first draft by contacting their CSM regional focal points, before it is negotiated in May 2014 by the Open Ended Working Group (OWEG) that include CSM representatives. The negotiated text will be presented for endorsement to the 41st session of the CFS in the fall of 2014.
Even when rai principles are strengthened according to the civil society inputs and endorsed by the CFS, there is still a real danger that those principles would be rendered ineffective by legally binding provisions in trade and investment agreements. We hope that the CFS-rai principles, if finalized with these inputs received from small-scale producers, workers and those advocating for their rights, come to govern national and international agricultural investments, and pave the way for ensuring that bilateral and multilateral investment agreements do not violate small-scale producers’ right to livelihoods, and result in biodiversity protection and ecosystem restoration.
Posted February 18, 2014 by Andrew Ranallo
IATP is excited to announce the release of a series of new reports looking in-depth at China’s feed, pork, poultry and dairy sectors, the past and future trajectory of the industry, and global impacts of China’s efforts to balance grain self-sufficiency and the desire to provide cheap meat.
China's transition to an industrial, resource-intensive model of livestock production could have major implications around the world, impacting farmers, public health and the environment.
Posted February 12, 2014 by Dr. Steve Suppan
Economists are still struggling to quantify the trillions of dollars of costs to the global economy of collapse and bailouts of the world largest private banks. Three Federal Reserve Bank of Dallas economists “conservatively estimate” $6-14 trillion dollars of damage to the U.S. economy alone from the 2007-2009 financial and commodity market crisis. At the upper end of their estimate, that’s $120,000 for every man, woman and child in the U.S. The global damage caused by the global bank near defaults, publicly funded bank rescues, and fiscal crises that followed the rescues, has yet to be estimated.
International cooperation on the regulation of global banks is required because of the global trading practices and corporate structure of the largest banks, most of which are major commodity traders. For example, according to another Fed study, the seven largest U.S. headquartered bank holding companies have about 5,700 foreign subsidiaries in dozens of foreign jurisdictions. To judge by the geographic distribution of these subsidiaries, the largest banks are structurally transatlantic institutions that require intensive U.S. and EU regulatory cooperation to prevent another 2007-2009 debacle.
In the U.S., commodity market reform is outlined in the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act. Three and a half years after the passage of Dodd Frank, U.S. financial regulators still are working on rules to implement that legislation. Budget cuts to financial regulators and lawsuits to impede implementation are among the tools that the publicly bailed out financial institutions and their Congressional allies have employed to shrink reforms to their liking.
Market reform is no less complex and the opposition no less persistent and well financed on the other side of the Atlantic. Much of the opposition comes from the lobbyists representing the European offices of U.S. banks, hedge funds, exchanges and corporate users of financial instruments. Indeed, so intense was the bank lobbying on bank structure reform legislation that European Commissioner Michel Barnier announced a six week ban on meetings between bank lobbyists and EC regulators, so that the Commission could finish its work before a new Commission is selected in 2014.
On January 14, after a four-year struggle, the European Parliament, Council and Commission came to an informal agreement about a large and complex piece of legislation, the revision of the Market in Financial Instruments Directive (MiFID 2). Following translation from English into the 22 other EU Member State languages, MiFID 2 will be likely voted on in a plenary of the European Parliament in March. The EU rulemaking process, called Level 2, by the European Securities and Markets Authority (ESMA) and the European Commission, together with EU member state implementation, is scheduled for completion by the end of 2015.
As the Brussels based NGO Finance Watch noted, most of the European civil society organizing and lobbying on MiFID 2 concerned financial speculation on agricultural derivatives contracts. The main articles designed to curb financial speculation are the current Article 59 (position limits/’position management) and 60 (position reporting). Position limits are quantitative limits of the share of contracts that ‘a person’ may own during a specified time period. Each EU member state will use position data from Trade Data Repositories to calculate limits for contracts traded on markets in its jurisdiction, according to a methodology to be developed by ESMA. Adherence to the methodology should prevent member states from setting high and permissive limits to attract trades on exchanges in their jurisdictions.
One of the Level 2 debates to come is, of course, over the terms of this methodology. The Financial Times reported that most exchanges and financial institutions were “miffed by MiFID.” They believe that the current “position management controls,” i.e. market self-regulation, suffice to prevent market manipulation. However, MiFID does not concern simply market manipulation, but the prevention of “price distortion” by all means, whether intentional or not. Because the vast majority of commodity contracts are traded by Automated Trading Systems, demonstration of intentional manipulation is becoming less relevant for rule enforcement.
Another Level 2 debate will concern the frequency of position reporting. Reform advocates battled to require exchanges to report positions traded in “near real time” (exchanges report to the Commodity Futures Trading Commission within 15 minutes after a trade is settled). Market participants will report trades to exchanges and other trading venues in near real time. However, he Article 60 position reporting requirement of “at least on a daily basis” from exchanges to regulators will be subject to various interpretation by member state authorities. If a contract traded on several member state exchanges reports more frequently than on other exchange, traders in the less frequently reporting jurisdiction will have more information about the contract position and price than trades in jurisdictions that require more frequent reporting. Such information is a huge competitive advantage for traders.
The rules over which “persons” must report and aggregate positions likewise will be hotly contested. In a major Article 60 exemption, traders of Over the Counter (non-exchange traded) “wholesale energy products,” will not have to comply with position limits nor have to report until three and a half years after the anticipated implementation of MiFID in member states, i.e. in 2018. It is not at all clear how or whether this exemption from regulation will present difficulties for CFTC staff attempting to determine whether MiFID provides the “comparable comprehensive oversight” that Dodd Frank requires of foreign jurisdictions whose “persons” trade in U.S. markets.
But as Finance Watch also noted, commodity market regulation is just a small part of MiFID. Equally important are measures on consumer financial protection, cross-border implementation of MiFID, and rules to prevent price distortion as a result of High Frequency Trading (HFT) practices. HFT positions are held for just milli-seconds before being traded in response to computer trading algorithms. Because HFT positions are closed out before the end of the trading day, HFT traders and exchanges elude position limits and position reporting requirements of Dodd-Frank. However, MiFID will slow down HFT’s propensity to crash through provisions for emergency trading halts, requirements for minimum price increments and measures to prevent destabilizing volumes of orders that do not result in trades, but distort prices. The Level 2 battle over HFT implementing rules will be fierce, and in our view, requires at least as much European NGO lobbying as that which will be devoted to position limits and position reporting.
In a response to the Commodity Futures Trading Commission’s request for comment on its HFT and ATS concept release, a preliminary step towards possible rule-making, IATP assumed that the CFTC would regulate HFT, at least to the extent of complying with MiFID’s cross-border application of HFT rules. Although the vast majority of HFT trades concern interest rate contracts, the sharp increase in HFT trading in commodity contracts since 2007 has exacerbated price volatility across commodities. The costs of trying to manage that volatility, together with HFT fees, are among the costs that inflate both the wholesale cost of raw materials and the retail cost of consumer goods, including food.
Orthodox agricultural economics, as reflected in a recent U.S. Department of Agriculture report, continues to explain agriculture prices within traditional terms, as if HFT and commodity index funds had not and do not affect agricultural prices. The USDA report adopted the Chicago Mercantile exchange explanation, given to the CFTC in 2010, for the failure of contract prices to converge to a reliable reference price for farmers to use when forward contracting sales. That USDA/CME explanation concerns a failure of contract design to take into full account storage fees and delivery points for physically deliverable contracts.
In view of the orthodox explanation for agricultural prices and the downward price trend, should we conclude that the agricultural market has “self-corrected” and that traders should continue to “self-regulate,” as they did by and large before the 2007-2009 market collapse? The temporary exit of investors from commodity index funds in 2013 has reduced the excessive financial speculation in commodities that took place during 2004-2012. In anticipation of Dodd Frank regulation of Over the Counter trades, which pre-Dodd Frank were dark to regulators and the public, trades have migrated to what the Europeans call “lit venues”, i.e. regulated exchanges. However, some trading venues remain dark, e.g. when trading large positions (bloc trading) would cause the price to move against the trader because of exchange grade pre-trade transparency requirements.
This trade migration has improved price formation transparency. Price transparency and reduction of financially induced volatility will have a direct bearing on the cost of crop insurance for U.S. farmers under the just passed Farm Bill. For example, corn insurance premiums will be calculated according to the February average price of the Chicago Board of Trade (CBOT) corn futures contract.
Fundamental supply and demand factors also have helped to reduce price levels. For example, the globally influential CBOT price for a No. 2 Yellow Corn Futures contract, at $4.36 a bushel on February 3, is about 50 cents below the estimated cost of producing a bushel of corn in Iowa under a high-yield scenario. In the absence of regulation to prevent agribusiness monopoly input pricing, tax payer financed revenue assurance programs in the just passed U.S. Farm Bill will make up for the prices the market doesn’t yield.
Notwithstanding improvements in price formation transparency that are a result of the Dodd Frank requirements on price reporting, a fully implemented position limits regime and regulation of HFT are urgently needed. Just as the European institutions have taken a big step towards creating a position limits regime to reduce excessive financial speculation, the CFTC is now challenged to write an HFT rule that can be harmonized with the HFT rules that will result from MiFID 2. A financial speculator tactical retreat from commodities as an investment asset class is no sound reason to abandon the struggle to regulate the commodity markets and traders on both sides of the Atlantic and beyond.
Posted February 7, 2014 by Tara Ritter
It’s a big week in the agriculture world. Just days before Obama signed the new Farm Bill into law, Agriculture Secretary Tom Vilsack announced the locations of seven regional hubs for climate change adaptation and mitigation. These hubs will attempt to address the risks that farmers increasingly face due to climate change—including fires, pests, droughts and floods—by disseminating research on ways landowners can adapt to and adjust management strategies to build resilience.
This is a notable step forward in climate policy and has important implications for rural communities. Many rural communities tend to view large governmental agencies negatively, especially those agencies that regulate the agricultural activities that dominate many of those communities’ economies. However, farmers feel the direct impacts of extreme weather more than anyone. The climate hubs will help by linking a diverse network of partners, including universities, nongovernmental organizations, federal agencies, state departments, native nations, farm groups and more. Broadcasting climate change research and information from this wide array of sources, including sources that farmers trust and regularly interact with, could make climate change adaptation and mitigation a more accepted and commonly desired goal.
Encouraging action on climate change is paramount not only from an environmental perspective, but from an economic perspective as well. The drought of 2012 cost the American economy an estimated $50 billion between 2011 and 2013. It’s too early to assess the costs of the current drought punishing California, which produces nearly half of the country’s fruits and vegetables. Clearly, the risks posed by volatile weather events have implications not only for farmers, but for the economy and society as a whole.
Increasing farm resiliency to climate change will be critical to realizing the new Farm Bill’s projected $23 billion in savings. Most of these savings are due to the elimination of direct payments, but this figure does not take into account the likelihood that crop insurance payments could skyrocket as the climate continues to fluctuate. Unfortunately, the Farm Bill does not acknowledge climate change, and actually cuts programs like the Conservation Stewardship Program that could help support farmers building climate resilience. Therefore, encouraging on-farm climate change adaptation could bring significant savings by decreasing reliance on crop insurance.
These climate hubs have the potential to advance a comprehensive suite of agroecological farming practices. Practices such as reduced tillage, cover crops and crop rotations serve multiple purposes by increasing soil nutrients and water-holding capacity and decreasing erosion and the prevalence of pests and disease (adaptation), as well as helping sequester more carbon in the soil by building soil organic matter (mitigation). Despite the start-up and transition costs of some of these practices, they save farmers money in the long run by boosting yields and decreasing reliance on synthetic chemicals. The hubs should focus on helping farmers implement these practices and support them in the transition years.
There is no single initiative that will provide the answer to the challenges that climate change presents, but the establishment of these regional climate hubs is a step in the right direction.
Posted February 5, 2014 by Ben Lilliston
Was it just exhaustion from two-plus years of negotiations that finally produced the Farm Bill that is expected to be signed by the President this week? Or, was it the sense that “it could have been a lot worse” when compared with a mean-spirited, destructive Farm Bill passed by the House of Representatives last year. For whatever reason, there is a sense that a deeply flawed Farm Bill—the terms of which were dictated largely by austerity fanatics from the start—is the best we’ll get under the current political environment.
That’s a problem for all of us. It’s definitely a problem for the growing number of working age Americans who rely on food stamps. This Farm Bill cuts food stamp benefits (about 80 percent of the Farm Bill costs) by $8.6 billion.
It’s a problem for the environment and the urgent need to help farmers shift toward more climate resilient production systems to deal with extreme weather events. The bill cuts about $6 billion from conservation programs, the first time conservation funding has been cut since it became part of the Farm Bill in 1985 (excellent analysis by the National Sustainable Agriculture Coalition). Those cuts reduce the number of acres for the Conservation Reserve Program (which takes sensitive land out of production to protect habitat and wildlife) from 32 million to 24 million acres. It also limits the new acres of enrollment into the Conservation Stewardship Program (which support conservation measures on working farms) to 10 million per year—a cut of 2.8 million acres per year over the next decade.
It’s also a problem for a host of other smaller Farm Bill programs, including the outreach focused on Disadvantaged and Minority Farmers, which was slashed in half from $20 million to $10 million.
Democratic decision-making and transparency saw major setbacks, too. Breaking a promise for an open public vote, the Farm Bill conference committee instead cut a deal in secret and unveiled a final bill early last week.
Like all Farm Bills, it is not all good or bad, and there was some good. Many advocates (including IATP) succeeded in beating back efforts by the meat industry to weaken Country of Origin Labeling and undermine enforcement of fair competition rules for poultry and hog producers. The bill relinks crop insurance programs with requirements for farmers to take conservations measures like wetlands protection and stops incentives to expand cropland into native grasslands. It also renews commitments to Beginning Farmer programs, local foods programs, requires the development of a whole farm insurance program (benefitting diversified farms) and improves options for insurance for organic producers. It expands organic research and provides mandatory funding to important energy programs like the Renewable Energy for America Program and the Biomass Crop Assistance Program.
While the champions of this Farm Bill tout an estimated $23 billion in savings over 10 years, we are skeptical. Much of the savings come from the elimination of direct payments to commodity crop farmers regardless of price, and a shift toward government-subsidized revenue insurance programs. The agricultural services (crop insurance) and crop production (i.e., Monsanto) industries spent more than 57.5 million lobbying the Farm Bill, according to Open Secrets, and they got what they wanted in these programs. But given the extreme price volatility of the agricultural marketplace (the price of corn saw the largest single year drop in 60 years last year), combined with a continued series of climate-related weather events, it’s quite possible that the new farm programs will cost more than the old ones in the end.
Just as important as what’s in this Farm Bill, is understanding what isn’t. In fact, many of the biggest challenges in agriculture and food are not currently addressed in this Farm Bill:
We badly need strong food and farm policy if we’re going to take on these challenges, and that must include a reformed Farm Bill that is more true to its critical legacy of empowering farmers over agribusiness and protecting nature coming out of the New Deal. We don’t need to wait another five years for the next Farm Bill to get started; we can start now on the road to reform. More and more groups around the country are working on creative policy approaches to reform our food and farm system. New political alliances are being developed that not only focus on short-term battles but could pay dividends for the next Farm Bill. This is why we’ve launched Beyond the Farm Bill initiative. We’re engaging with policy experts around the country and highlighting the best policy approaches at the local, state and national level to bring about a fair, sustainable and healthy food and farm system. Join the conversation and stay informed at beyondthefarmbill.org.
Posted February 3, 2014 by Karen Hansen-Kuhn
Farmers, union, environmental and women’s activists gathered in Mexico City last week to take stock of the lessons from NAFTA and plan strategies to confront the next big threat: the Trans Pacific Partnership (TPP). One of the earliest lessons from the NAFTA experience was that people and environments in all three countries were affected. The stories from Mexico, Canada and the U.S. were remarkably similar: environmental destruction, threats to union and community organizing, and, in all sectors, a marked increase in corporate concentration as companies gained new abilities to move different aspects of production across borders in search of lower costs and higher profits.
This has been especially true in agriculture. As part of the multisectoral forum, more than 100 members of ANEC, (the National Association of Rural Commercialization Enterprises, which brings together more than 60,000 Mexican small- and medium-scale farmers), organized a farmers’ forum with international allies. Alberto Arroyo, a longtime leader in the Mexican Action Network on Free Trade (RMALC), explained that Mexico’s dependency on food imports has increased dramatically since the agreement began, from 16 percent before NAFTA, to more than 42 percent today. That situation is even more alarming when we consider that today nearly half of Mexican families, even with two wage earners, can’t afford the “canasta basica” of basic necessities. Adding on to the devastation wreaked on the countryside by the influx of cheap corn under NAFTA, TPP would compel Mexican coffee farmers to compete with cheap Vietnamese robusta coffee.
Doug Peterson from the U.S. National Farmers’ Union echoed those concerns. None of us is against trade, he said, but how that happens, and what the rules are, really do matter. He highlighted intellectual property rights proposals in TPP that would grant enormous new rights over seeds and other inputs to already powerful transnational corporations. NFU is concerned that those rights would be extended to patents on animal husbandry, expanding Monsanto’s dominance over seeds to breeding rights. In general, he said, what we really need are stable public policies to balance innovations in agriculture with food justice.
Victor Suarez, the leader of ANEC, emphasized the importance of rebuilding ties among farmers and consumers, unions and environmentalists. The TPP negotiations are forcing Mexicans to fight some of the same battles that came up during the NAFTA debate. The privatization of the Mexican ejido system of communal land owning, which the government liberalized as a pre-condition for NAFTA, is once again on the table. The 1991 reforms allowed existing ejidos to remain under community control, but new agricultural reforms announced in January would put those farms on a “fast track” for privatization, expelling thousands of small-scale farmers from their lands. Investment rules in NAFTA support changes in laws on land and mineral rights, often carried out in the dead of night, that devastate communities’ rights to natural resources. Plans to carry out a “second green revolution” in Mexico will increase pressure to use GMO seeds, as well as chemical fertilizers that will poison the soil and water so that they will not support sustainable agriculture, Suarez told participants. People in all three countries, he said, need to work together to recover sovereignty over our food, seeds and land.
Those efforts are already underway, starting with a massive march against neoliberal reforms in Mexico that pushed back on reforms to labor, energy and education policies. We added our voices against the expansion of the NAFTA model in TPP to more than 65,000 people who rallied at Mexico’s Monument to the Revolution and marched to the historic Zocalo Square to demand a new economy that puts equality, justice and human rights first. We were joined by activists in more than 50 cities across the United States and Canada in an international day of action against TPP and Corporate Globalization. The next joint actions will take place on February 19, when Presidents Obama and Peña Nieto and Prime Minister Harper meet in Toluca, Mexico.
The fight against fast track is the urgent issue right now in the United States. But our experience with other trade debates (such as the failed negotiations for the Free Trade Area of the Americas), demonstrates the crucial importance of coordinated action among civil society groups in the countries involved. Together, this chorus of voices has real potential to stop trade talks based on expanding the NAFTA model and create new economic ties based on human rights and food sovereignty.
Visit Citizens Trade Campaign’s Action Center to learn more and to get involved with the campaign on fast track and TPP.
Posted January 31, 2014 by Patrick Tsai
Food insecurity is a lucrative endeavor for U.S. agribusiness corporations. As a matter of course, hunger has taken a backseat to maintaining a dominant trade position when it comes to U.S. trade negotiations and domestic policy. As long as the U.S. holds its position as the world's largest agricultural exporter, and import-dependent countries continue to be bound by rules that exploit their vulnerability to volatile commodity markets, U.S. agribusiness will profit indefinitely at the expense of the most vulnerable.
In order to address global hunger effectively, the U.S. government will have to acknowledge the effect its current agricultural policy has on global food security and extend the same lenience to allow developing countries the reestablishment of sovereignty in their own food systems without threat of dispute settlement or retaliatory trade sanctions. As it stands, wealth, subsidy classification, export credits and food aid contribute to a system of subjugation and persisting power disparities.
Inequalities in power between nations exist before negotiations begin. Initial positions of wealth determine the degree to which countries can leverage the allowed subsidies outlined within international agricultural agreements to promote food security and rural development. Developed countries’ subsidies comprise the “lion’s share” of global spending supporting agriculture (though they are, in theory, bound by greater reduction commitments under trade agreements). This raises the question, “Given the inequality in initial positions, must [the situation] inevitably result in inequality in outcomes?” (Matthews 2008, 82). Developing countries’ stagnant progress toward food security and rural development, compared to developed countries relative effectiveness, attests to the importance of economic wealth.
Power disparities are further exacerbated through exploitation of the WTO’s Agreement on Agriculture (AoA). The AoA, a byproduct of the General Agreement on Tariffs and Trade (GATT) Uruguay Round (UR) negotiations, was agreed upon in 1994. The AoA guides agricultural trade for WTO member countries, and the text acts as the basis for the WTO’s agricultural subsidies categorization system. The categories signify the extent of trade distortion and what is allowable. For the most part, agricultural subsidies fall under one of three classifications:
** In addition to these three subsidy classifications, developing countries may use the classification of "special and differential treatment" (found in Article 6.2) and all member countries may use “De minnimis” rules for spending on product specific support, developed countries 5 percent and developing countries 10 percent of value of production.
It is believed that countries subject to AMS reductions and limits, such as the U.S., exploit the system through “box shifting,” the practice of re-categorizing trade-distorting amber box subsidies into the blue or green box without making any substantive reform to subsidy programs (ICTSD 2007 2). Box shifting best characterizes the changes in U.S. agricultural policy stemming from the 1996 Farm Bill in order to conform to the newly implemented AoA. Domestic food security programs, seen as minimally trade distorting by the WTO, have historically comprised a large portion of U.S. agricultural subsidies and after the 2007-08 financial crisis these allocations grew even more. The degree to which the U.S. leverages and continues to grow green box subsidies is apparent in the following slides from WTO economist Diwakar Dixit (Figure 1) and ICTSD (Figure 2).
Figure 1 – US Green Box and AMS spending from 1995 to 2010
Figure 2 – US subsidy spending from 1995 to 2010
Subsidies are critical for helping producers adequately address risk and in helping achieve higher levels of food security. In 2010, the U.S. allocated $120.5 billion to green box subsidies, $94.9 billion of which went to domestic food aid (WTO 2012 G/AG/N/USA/89). Though the U.S. takes full advantage of green box subsidies to provide food security to its own people, the World Bank reports 5 percent of the U.S. population is undernourished (~15.6 million people1). At the recent Bali ministerial, the U.S. actively denied developing countries, such as India which experiences 18 percent undernourishment (~219.8 million people undernourished2), from taking measures to subsidize further development of food security programs. India allocates about one-ninth the amount of money to food security programs5 while managing a population approximately 4 times the size3 and suffering 14 times the amount of hunger4 as the U.S. The G-33, a “coalition” of developing countries facing similar trade and economic issues (including India), proposed three amendments to the AoA at the Bali WTO ministerial. The G-33 proposal allows more leeway in terms of how money can be used for food reserves and how AMS is calculated (see also, ICTSD 2013). Adoption of the G-33 proposal could result in greater food security for countries able to leverage the revised language by establishing stockholdings that reduce price volatility in domestic markets and provide a source of emergency food relief.
The U.S. argues that the G-33 proposal centers on trade-distorting supply-management structures. The argument is predicated on free market ideology, the tenets of which the U.S. circumvents through misidentified subsidies and its own trade-distorting green box subsidies. The U.S. decoupled subsidy payments under the 1996 Federal Agriculture Improvement Reform Act (FAIR) to follow Green box criteria, however ICTSD points out that the OECD (OECD 2001), World Bank (de Gorter 2003, 5) and USDA ERS (USDA 2002, 12) have found decoupled payments trade distorting. (ICTSD 2007 25,26) For many, the laissez-faire economic paradigm is seen to perpetuate hunger by reducing sovereignty in the agricultural sector of developing countries through reductions in government support, removal of protectionist policies and opening markets to increased imports of cheap and below production cost commodities (ActionAid, 7, IATP/UNCTAD, Food First).
Timothy Wise of Tufts University aptly describes the U.S. position on the G-33 proposal as hypocritical and an “attack on the right to food.” Some may argue that the U.S. position on the G-33 proposal comes as no surprise due to the fact the U.S. has not accepted the right to food under the human rights framework (IFPRI 2007 1, the Nation, Righting Food) and was the only dissenting country, out of 181, to vote against a 2008 U.N. “resolution on the right to food, by which the assembly would ‘consider it intolerable’ […] that the number of undernourished people had grown to about 923 million worldwide, at the same time that the planet could produce enough food to feed 12 billion people, or twice the world’s present population. (See Annex III)” (GA/SHC/3941). Indeed the U.S. continues to adhere to a course guided by infamous precedent.
Figure 3 – Projections for reaching WFS and MGD hunger goals
It is true that U.S. food aid has saved lives, however the net effect is arguably detrimental. U.S. food aid and hunger relief programs have been associated with undermining local food systems resulting in vulnerability and dependence on world markets (Clapp 2004, Hansen-Kuhn 2012, OECD 2000). The failing trajectory for both international goals to halve hunger (Figure 3), the World Food Summit (WFS) and Millennium Development Goals (MDG), warrants sincere consideration of food aid critique. Two notable areas of controversy in U.S. policy, said to address hunger, are the export credit guarantee program (GSM-102) outlined in the current Farm Bill (PL 110-246 section 3101) and Public Law 480 (PL 480), the 1954 Agricultural Trade and Development Assistance Act otherwise known as Food for Peace. The latter institutionalizes the dumping of U.S. overproduction on vulnerable countries feigned as food aid (Weis 2007, 67).
While appearing charitable, the use of export credits takes advantage of poor nations’ vulnerability to high prices and the need to feed their large populations on small budgets. Officially supported export credits are characterized by below market interest rates, longer repayment schedules, reduced/no fees and government guaranteed repayment of loans (OECD 2000, 8,Clapp 2004, 1441). These attributes result in lower purchasing prices for importers, effectively subsidizing exporter goods. (OECD 2000, 8) The current Farm Bill outlays 5.5 billion dollars a year for the program, though not always used in its entirety (FY 2013 $3 Billion). The OECD determined that due to the immense size of outlays and the excessive use, US export credits have a much greater trade distorting effect on world markets than any other country. The OECD also found that historically the US extends a very small proportion of overall export credits to countries most in need, least developed countries (LDC) and net food importing developing countries (NFIDC) (Clapp 2004, 1442). In addition to trade distortion, the burden of export credit debt acts to retard progress in developing countries by diverting funds for social programs to debt repayment (Eurodad, 2011).
PL 480 Title I is controversial for many of the same reasons as export credits. The title outlines policy on food aid sold under concessional terms, “grace periods of five years, repayment periods of up to 30 years, and below market interest rates” (Clapp 2004, 1442). Furthering the controversy, Title I has the explicit purpose to “improve commercial markets abroad,” (Clapp 2004, 1442) and therefore is not necessarily a tool dedicated to relief, but rather a title used to promote the U.S.’s own trade interests. Titles II and III of PL 480 pertain to U.S. in-kind food aid. Most U.S. food aid is purchased from U.S. producers (at least 75 percent by law) and shipped as in-kind donations to countries in need (Hansen-Kuhn 2012, 1). In-kind food aid sales are seen to “distort international trade by displacing commercial trade,” and are inefficient compared to other forms of assistance (Clapp 2004, 1442). Alternatively, food aid programs focused on local and regional procurement offer monetary donations that stimulate local economies by providing means for local purchases from farmers in the afflicted country or region. There are also less costs due to reduced distances of travel (Hansen-Kuhn 2012, 1; Murphy 2005, 12). The current U.S. food aid titles have addressed hunger to some extent, however it can be argued that their usage has, to a greater extent, amplified power asymmetries by undermining sovereignty and local food systems, making these nations more reliant on imports and subservient through debt.
Sadly, agricultural trade has become an art of identifying loopholes and re-categorizing subsidies that curtail risk to profits at home while perpetuating hunger abroad. Trade dominance amounts to how well a country can leverage subsidies exempt from World Trade Organization (WTO) limits and reduction commitments, and maintain programs that create and expand markets in vulnerable regions. Developing countries suffer under the brunt of these actions in the form of food insecurity. The issue of hunger has found a blind spot in the purview of developed country trade negotiations, which are focused more on maintaining powerful trade positions than ceding any control that might bring about food security and food sovereignty to developing countries.
Advocating rules that obstruct a country's ability to feed its hungry is an act of subjugation. By leveraging trade agreements and perverting the intentions of trade rules, the U.S. is negotiating the terms of global oppression where it could be genuinely helping others.
3 World Bank numbers 1.221 billion (India pop.) / 311.6 million (US pop.) ~ 4
4 219.8 million / 15.6 million ~ 14
5 India’s GAIN 2009/10 stockholding numbers compared to US WTO domestic food aid notification for year 2010 G/AG/N/USA/89
Posted January 29, 2014 by Tara Ritter
The second Rural Climate Network newsletter was released last week, featuring updates on how rural America is responding to the climate challenge. Since the first newsletter, the network has welcomed five new member organizations that represent the diversity of climate work across the country and display how climate change impacts sectors ranging from fisheries to forestry to meat production. The member spotlight this month is Organic Valley, and a featured interview with Sustainability Program Manager Jonathan Reinbold outlines the organization’s views on climate change. Policy that incentivizes this kind of on-the-ground work is critical in supporting the growing rural movement to adapt to and mitigate climate change.
This edition of the newsletter also features a brief interview with Renata Brillinger of the California Climate and Agriculture Network (CalCAN) to better understand how California farmers and ranchers are handling the drought that is currently underway in California. According to Brillinger, “mandated cutbacks in water distributions, along with depletions in available surface water and groundwater, are forcing farmers to dig deeper into their pockets while making tough decisions about crop planting and livestock management.” Some farmers have resorted to pumping groundwater to compensate for the lack of water elsewhere, but that is not a sustainable strategy in the long term should the drought persist and other ideas are needed.
Certain agricultural practices work to increase soil resiliency and keep the raindrop where it falls more effectively than others. For instance, crop rotation and crop diversification encourage increased water-holding capacity in soils and reduce the amount of runoff that occurs from monocropped soils. Particular crops are also less water-intensive than others, and farmers would benefit from increasing the amount of hardy crops grown on their land.
However, Brillinger is right on point when she says, “while there are actions individual growers can take to cope with drought and other climate change impacts, this is not just a farmer’s problem.” In order to encourage an agricultural system that remains resilient in the face of extreme weather events, farmers need technical and financial assistance to build soil health and water efficiency. With today’s stalled farm policy, it is more important than ever to advocate for policies that will incentivize sustainable, robust farm operations.
Sign up for future editions of the Rural Climate Network newsletter and learn more about what member organizations are doing regarding climate change in their communities at www.ruralclimatenetwork.org. If you are involved with an organization that would be a good fit for the network or would like to add your voice to this growing movement in another way, please email firstname.lastname@example.org.
Congress is quietly considering legislation that would speed the passage of two mega trade agreements, and seeks to specifically eliminate government programs that favor “localization.” The bill would give the Obama Administration what is known as “fast track” authority—meaning Congress would surrender its constitutional authority to shape trade agreements negotiated by the president and instead can only vote up or down on the deal.
Why should those working for a fair, sustainable food system care? Perhaps no area of policy has undermined local food systems around the world more than the slew of trade agreements passed over the last several decades. These trade rules cover everything from tariffs, food safety and intellectual property to enshrining corporate rights. They place restrictions on what is allowed in national policies, like the Farm Bill, as well as the state and local level. These deals have heavily tilted the playing field from farmers and consumers toward global agribusiness and food giants like Cargill, Monsanto and Wal-Mart.
Because these trade deals, like NAFTA and CAFTA, have been so blatantly negotiated on behalf of multinational corporations and have contributed to growing income inequality, they’ve been extremely unpopular. This is why the Obama Administration has decided to negotiate these two new trade agreements in secret. That’s right, the Trans-Pacific Partnership (including more than a dozen countries) and the Transatlantic Trade and Investment Partnership (with our biggest trading partner, the EU) is being negotiated entirely behind closed doors. The negotiating text has not been made public, and, amazingly, even many members of Congress are in the dark about what’s happening.
Aside from putting these secret trade deals on a fast track, the bill introduced by Senators Max Baucus and Orrin Hatch and Representative Dave Camp includes a new negotiating priority objective to eliminate what it calls “localization barriers.” Local content requirements have been a stated target of the U.S. Trade Representative in other countries like India. But of course, any agreement to undermine local content rules in another country would also apply to U.S. programs that give preference to locally sourced food or energy.
Here are 5 issues on the negotiating table in these trade agreements that local food activists should be worried about:
There is too much at stake for Congress to pass fast track and open the door for the speedy passage of mega trade deals that threaten to undermine much of the important work being done to build more sustainable, healthy and fair food systems. The good news is that we can prevent this from happening. There is growing opposition to Fast Track in Congress. More than 150 House members have expressed their opposition to the bill. Now is the time for the local and sustainable food community needs to tell their member of Congress to oppose fast track. IATP is a member of the Citizens Trade Campaign, go to their action center and let your member of Congress know your concerns.
Posted January 28, 2014 by Shefali Sharma
Over 13 years ago, IATP documented the transformation of U.S. hog production in The Price We Pay for Corporate Hogs. In a period of 30 years (1950–1980), the number of U.S. hog farms declined by nearly 80 percent, while the average farm size increased six-fold. Whereas in 1950, 2.1 million independent farmers raised pigs outdoors or indoors with bedded straw or hay (raising 31 pigs a year); at the end of the 90s, a total of 105 farms accounted for 40 percent of U.S. production (50,000 pigs each). By 1999, 50 percent or more of the farmers were under some sort of contractual arrangement and four companies (including Smithfield) controlled 20 percent of the production. In the last decade, this process has only intensified. By 2007, four companies controlled 66 percent of the production, all at great cost to U.S. farmers, consumers, the environment and public health.
What do the United States and China have in common when it comes to pigs today? The answer is not just Smithfield, now part of the world’s largest pork producing corporation owned by Shuanghui—China’s largest pork processor. The process that neared its end in the 80s in the United States began in China during that same period. Literally, millions of small-scale farmers raising a small number of pigs, chickens and cows have disappeared in the last 30 years. Those who continue to survive and further scale-up have become “specialized farmers”—part of a brutal cost-cutting supply chain dictated by intense competition between meat companies who increasingly double up as feed companies and vice versa. In the midst of these changes, China is grappling with environmental pollution, public health risks, and recurrent and rampant food safety concerns—again, very similar to the concerns that have arisen in the United States.
In February, IATP will launch four reports on China’s feed, pork, dairy and poultry supply chains. It is an endeavor to understand and share how China’s transformation toward a U.S. model is both a common story of industrial meat production anywhere (be it the United States or Germany) and also specific to China. It is also an attempt to show how China’s story, like the U.S.’s, is a global one, with global links and global impacts. Understanding how Chinese companies are “going out” to develop their supply chains, and how major U.S. and other international livestock and dairy companies are “going in” to China, better prepares us to address the global nature of this industrial complex and its impacts both domestically and globally. It can help us to get beyond big headlines in the paper about China’s growing meat consumption and dig deeper into how and why it is taking place and imagine a different pathway toward fairness, nutrition, public health, and environmental protection in food production—lessons that are readily available from the U.S. experience.
The global trend points to ever greater consolidation of fewer and more powerful corporations controlling ever scarcer water and land resources to feed millions of animals in confined spaces to produce more cheap meat. How citizens and governments deal with the externalities of this sector and its endemic global ramifications merit careful thought. China—as the largest producer of pork, the second largest producer of poultry, the largest feed importer in the world and the fourth largest dairy producer—is a critical piece of this global puzzle.
Financiers such as Morgan Stanley, Rabobank, Goldman Sachs have a great stake in China’s increased and unquestioned meat consumption growth. Meanwhile, Chinese consumers are increasingly concerned about growing food safety problems in their meat and food supply. Food safety concerns have the potential to be game changers in China’s consumption trends. Currently, these threats are used to further industrialize the meat and dairy sectors, but if lessons are learned from the U.S. experience, this needn’t be a fait accompli.
IATP’s forthcoming reports help understand these production and consumption trends and map some of these critical issues in order to gain more insight into China’s role in the Global Industrial Meat Complex and the global industry’s role in China.