unctad.org | High-level Segment of the United Nations Economic and Social Council<br>Promoting an integrated approach to rural development in developing countries for poverty eradication and sustainable development
Statement by Mr. Rubens Ricupero, Secretary-General of UNCTAD
High-level Segment of the United Nations Economic and Social Council<br>Promoting an integrated approach to rural development in developing countries for poverty eradication and sustainable development
Geneva
29 Jun 2003

It is not, Mr. President, because of some inordinate love of paradox that, rather than focusing on distress, misery and despair in the rural areas of the poorest countries, I propose instead to concentrate on the plight of poor farmers in the two richest agricultural economies of the developed world. Such an approach ought to be nonsensical at a time when wealthy economies are spending nearly US$ 1 billion a day - six times more than what they provide in foreign aid - supposedly to help their small producers. Nonetheless, distress and misery do characterize small-scale agriculture in the world´s wealthiest countries. Over the past 15 years, as subsidies have expanded relentlessly, small farmers in these countries have become poorer and poorer in relation to the rest of the population, so much so that they are now a vanishing species.

My second point is a corollary of the first: if the most forceful moral and political justification for subsidies is that they are needed to save the peasants, then the facts demonstrate they are not achieving their purpose. They should thus be abandoned altogether, or replaced by something more effective.

The third point I would like to make is that farm subsidies have a perverse effect. Not only do they cruelly fail to help the poor in the North, they also seriously harm poor peasants in the South. As a result, the topic of this session of the Council - promoting an integrated approach to rural development in developing countries - can only be achieved if a central element of this integrated approach is the prompt elimination of the external constraints that presently make it an absolute impossibility.

In a New York Times article of 15 December 2002, entitled "Drugs, Poverty and Crime Plague Rural US", Timothy Egan makes a startling assertion: "A rural ghetto is unravelling in the same way that inner cities did in the 1960´s and 1970´s (…). Decades of economic decline have produced a culture of dependency, with empty counties hooked to farm subsidies, just as welfare mothers were said to be tied to their monthly checks. And just as in the cycle of the cities, the hollowed-out economy has led to a frightening rise in crime and drug abuse". "Crime", he went on, is "fuelled by a methamphetamine epidemic that has turned fertilizer into a druglab component and given some sparsely populated counties higher murder rates than New York City (…). Drug-related homicides fell by 50 per cent in urban areas, but they tripled over the last decade in the countryside." At the same time, the exodus from large parts of rural America is continuing: "While the nation as a whole grew by 13 per cent in the 2000 census, many counties" (in rural areas) and several States "lost 9 per cent or more of their population during the 1990´s". The exodus has much to do with another finding of the US Census, namely, that the percentage of people living below the poverty line is nearly 30 per cent higher in rural areas than it is for the cities.

The correlation between these phenomena and the subsidies is mentioned explicitly: "We give a lot of tax breaks and direct payments to big agriculture companies that don´t do much for the local economy". And "in Nebraska, nearly 70 per cent of all farmers rely on government largess to stay in business. Yet, the biggest economic collapse is happening in counties most tied to agriculture - in spite of the subsidies".

Turning our attention to France, the picture is hardly more encouraging. The number of suicides in the French countryside has increased so rapidly that the Mutualité Sociale Agricole considers the phenomenon "a truly public health problem". Rural suicides, contrary to the national trend, are prevalent among the young, and among highly indebted farmers in particular. How can this happen in a country well known for its vigorous defence of farm subsidies? One possible answer is given in a study by Oxfam: "France has one of the most highly skewed patterns of subsidy distribution in the EU, especially at the lower end of the range. Around one-third of farms receive between € 0 to 1,250 each year. Within this group, one-quarter receive nothing. The 15 percent of farms receiving in excess of € 20,000 account for 60 percent of total payments". Over the past 12 years, the peasant population in France has declined by one third. More than one in three rural enterprises has disappeared as a result of death, retirement or the refusal of the new generation to follow in their parents´ footsteps. The family population in the countryside, which accounted for 12 per cent of the 1970 total, fell to 6 per cent in 1988 and 3.5 per cent in 2000.

Thus, the shrinking rural population, the growing concentration in land ownership and the increase in the average size of farms belie the argument that subsidies are a necessary evil if the complete extinction of small farmers is to be avoided. These worrisome phenomena are observed not in marginally agricultural nations like Norway or Switzerland, but in the USA and France - the world´s two largest agricultural exporters and the two most advanced economies in terms of farm productivity and, it goes without saying, in terms also of the number, variety and size of subsidies. The overall amount of subsidies has risen from an average US$ 238 billion in 1986-1988 to US$ 248 billion in 1999-2001. This increase occurred after, not before, the Uruguay Round, and despite its agreement to reduce subsidies. It coincided precisely with the period when peasants were vanishing and the average farm was doubling in size. How to explain the contradiction? The answer is simple: producer subsidies are highly regressive. As Kevin Watkins, Head of Research of Oxfam, puts it: "Far from benefiting small farmers, agricultural support goes overwhelmingly to large-scale, capital-intensive agriculture, and for a good reason: support is closely correlated with production levels, or - in the case of direct payments - to land ownership. In other words, support levels are a function of output and assets and large farmers are capturing a disproportionate share of support benefits". Watkins argues that "distribution of agricultural support in industrialized countries is far more unequal than the distribution of income in the world´s most unequal countries". He cites Brazil and South Africa, with Gini coefficients of 60, compared to coefficients for the distribution of farm subsidies of 79 in the US and 77 in the EU. He rightly concludes: "If policy makers were seeking to create a system of support designed to maximise inequality they would be hard pushed to better current arrangements".

The evil generated by this misdirected welfare policy is by no means limited to its failure to help its hypothetical beneficiaries. In more than one sense, poor-country farmers are financing the social welfare doled out to rich-country farmers. First, even if subsidies were given only to products domestically consumed, and even if such subsidies were decoupled from production or prices, as the European Commission proposes to do, they are still of necessity linked to high market access barriers. Consequently, they limit markets for exports from developing countries. Secondly, whenever subsidized products get into the world market, they drive prices down, creating volatility in prices and hurting developing countries´ exporters. Agricultural support in OECD economies insulates producers from world price changes, shifting the burden of adjustment to the poor. This instability is the cause of fiscal and balance-of-payments problems. Thirdly, many of the subsidies in the EU and the US go to products exported to the world market - such as dairy products, beef, poultry, wheat, soya, sugar and cotton - taking significant market shares away from more efficient producers in developing countries. Fourthly, as subsidized foodstuffs from rich nations enter the markets of the poor, they compete unfairly with local producers, who are often driven out of business altogether. They thus create an artificial dependency on foreign suppliers and aggravate the problem of food security in times when food aid disappears and prices rise.

We should all praise the courage and determination of the EU Commissioner for Agriculture and his colleagues in moving away from production and price-linked subsidies. However, preliminary reports do not allow us to conclude at this juncture whether the reforms announced last week will substantially change the current pattern of concentration of 80 per cent of payments in the hands of 20 perc ent of the bigger farmers, nor the extent to which the new system will prove less trade-distorting. This will very much depend on clarification of the following points: a) will there be a quantitative cap on payments to large farms, and what will be the final percentage of reduction in subsidies to that privileged category; b) is decoupling supposed to remain partial, and when will it be extended to such products as sugar and cotton; c) how to reconcile the criterion of aligning payments to past performance over the period 2000-2001 with decoupling them from production and prices. Despite the uncertainty surrounding these issues, there is no denying that the recent EU decision represents an encouraging change in the right direction. Let us now hope that the same inspiration prevails in the US, where the last Farm Bill was a move in the opposite direction from the 1996 Freedom to Farm Act and chose again to link subsidies to production and prices.

In the light of this analysis, it is undeniable that the farm support systems of OECD nations are seriously aggravating poverty and having an equally serious and direct impact on the prospects for poverty reduction to which the Millennium Development Goals aspire. Nowhere is this linkage more dramatic and less morally defensible than in what I have called "the international scandal of cotton". Subsidies to cotton are provided not only by the United States but also by the European Union and, to a lesser extent, by China. American subsidies are, however, the main cause of the cotton crisis, in part because of their sheer size - between US$ 3 and 4 billion annually - in part because more than 40 per cent of the output is exported, which makes the United States the largest exporter of this good. Even when world prices fell to 38 cents a pound in May 2002, the United States was able sharply to increase its share of the world market, despite its considerably higher production costs. As a result, Africa as a whole lost about US$ 300 million, with West Africa losing US$ 191 million (equivalent to 1 per cent of Burkina Faso´s GDP and 12 per cent of its export earnings). As was recently highlighted, that country lost more than what it had received in debt relief under the HIPC Initiative. Losses for Mali and Benin exceeded what they received in United States aid. In Benin, lower world prices for cotton are associated with a 4 per cent increase in the national incidence of poverty. In those three West African nations -- all of which are LDCs, the poorest of the poor -- about 11 million people depend directly on cotton as the only source of cash income. In some West African countries, over 90 per cent of the production is exported, and cotton accounts for one third of their export earnings.

Aside from its importance for agricultural production and exports, cotton is frequently the only engine of local industrialization, through the production of edible oil, soap, textiles and clothing. There is no better example of the potential for dynamic gains than the fact that every additional dollar generated in the rural cotton economy can raise income by as much as three dollars. In stark contrast to this is the more than US$ 3 billion paid in subsidies to 25,000 cotton farmers in the United States, who received more subsidies per capita and per acre than any other group of producers. The top 10 per cent of those producers account for over three quarters of the subsidies, and the 10 largest among them shared over US$ 17 million in direct payments alone.

More than an economic or trade problem, cotton subsidies pose a moral dilemma for women and men of good will worldwide. As the President of Burkina Faso said at the WTO, cotton requires an "early harvest" decision to be taken at Cancún. It should include an accelerated phase-out of production subsidies and immediate transitional compensation to be provided by Northern cotton producers. Anything short of these clearly unimpeachable demands would be seen as an additional and undeserved blow to countries that are struggling to escape the poverty trap created at least in part by unfair external constraints, such as subsidies for the rich. And if we are not prepared to take those relatively straightforward decisions, then this discussion of rural development in poor countries runs the risk of becoming little more than an exercise in futility.

Thank you.



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