IMF Presses World to Scrap Farm Subsidies

Agence France-Presse
September 19, 2002

The world economy would gain an annual boost of 128 billion dollars if lavish farm subsidies were scrapped, the IMF said in a report. Industrialized nations spent more than 300 billion dollars last year on agricultural subsidies -- six times the total government aid to developing countries, the International Monetary Fund noted.

"While agricultural support benefits some farmers in industrial countries, it can actually hurt others by increasing the prices they pay for inputs and depressing world prices for those who receive relatively little support," the fund's report said. "Furthermore, it imposes substantial costs on consumers and tax payers in industrial countries, and on commodity producers in the rest of the world, many of whom are poor. Indeed, the vast majority of the world's poor are farmers in developing countries, whose product prices are depressed by industrial country farm-support programs."

Support to farmers in rich countries averaged 31 percent of farm income in 2001, said the IMF report, which was contained in its twice-yearly World Economic Outlook. The level ranged from one percent in New Zealand to 61 percent in Switzerland. "If agricultural support in industrial countries were eliminated tomorrow, there would be significant gains, both for industrial countries themselves and for many countries -- particularly commodity producers -- in the rest of the world," the report said.

Calculating the effects, it estimated that industrial countries would increase their real income by 0.4 percentage points of gross domestic product, or 92 billion dollars. Most gains would go to the big producers, Australia, Canada and New Zealand, and to those with the steepest subsidies, such as the European Union, Japan, South Korea, Norway and Switzerland.

Developing countries also would gain from the dismantling of rich nations' farm subsidies. But they could reap a richer benefit by erasing their own restrictions, the IMF said. "If all countries removed their agricultural protection, all regions of the world would gain 128 billion dollars, with about three-fourths of the gains accruing to industrial countries and one-fourth of the gains to developing countries."

While noting some reductions in subsidies worldwide, the IMF criticized the US farm bill passed in May, which distributes 180 billion dollars to farmers over 10 years. IMF economist David Robinson, in a teleconference briefing, said the US farm bill "was indeed a disappointing development," although he cited some positive developments since then, including the US and European Commission proposals for farm liberalization, and the US Congress' passage of fast-track trade negotiating authority.

The European Commission had proposed reforms that would reduce the share of price-based support to farmers, the IMF noted. "By contrast, the 2002 farm bill moves in the opposite direction, locking in much of the emergency support given to farmers in recent years in the form of inefficient price supports," the IMF said.

It noted, however, that the United States also had proposed reducing the maximum agricultural tariff to 25 percent, eliminating all export subsidies and capping domestic farm subsidies at five percent of output.

More Information on the International Monetary Fund
More General Analysis on Poverty and Development

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