WORLD TRADE
ORGANIZATIONG/AG/NG/W/38
27 September 2000
(00-3892)
Committee on Agriculture
Special SessionOriginal:  English
EXPORT SUBSIDIES - FOOD SECURITY OR FOOD DEPENDENCY?
A Discussion Paper presented by Argentina,  Brazil, Paraguay and Uruguay (MERCOSUR),
Chile, Bolivia  and Costa Rica
1. Analytical papers, studies, newspaper articles, agricultural literature in general systematically
refer to export subsidies as "the most trade distorting agricultural policy".  The effects of export
subsidies are frequently associated with the depression of international prices, the lowering of thenon-subsidized farmer income, the displacement of competitive exports, the use of environmentally
unsustainable methods of production and, last but not least, the perpetuation of rural poverty in
developing countries.
2. As exporters and importers of agricultural g oods, Argentina, Brazil, Paraguay and Uruguay
(MERCOSUR), Chile, Bolivia and Costa Rica  want to stimulate an informed debate on the perverse
effects of export subsidies .  As developing countries, with rural populations and economies highly
dependent upon agricultural activities, we  see the mandated negotiations on agriculture as an
opportunity that must be seized to eliminate dist orting policies and to bring international trade in
agriculture in line with the general rules of the multilateral trading system.
3. The present paper discusses these issues and puts into question the myth of export subsidies
as a solution to the problems of food security in developing countries.
4. The most advertised argument in favour of expor t subsidies attempts to link this policy to the
legitimate needs of food security in net f ood-importing developing countries (NFIDC).  When
advocating for this line of thought, some industrialized countries appeal to the economic theories of
efficiency in order to sustain that NFIDCs are the "main beneficiaries" of subsidized exports, by
reason of access to cheap imports.
5. It is true that export subsidies do promote a downw ard trend in prices of agricultural products,
but in doing so, they certainly do not contribute to NFIDCs' justifiable concerns with food security
and legitimate expectations to develop a domestic agricultural industry.
6. "Food security" is commonly defined as the physical availability of food, the stability of
supply, but also the economic access to the product.  All that entails the necessary resources to
purchase food, produce it locally or both.
7. To purchase food, one needs a strong and manageable balance-of-payments situation.  To
produce it locally in an efficient way, one needs to be able to participate in the international
agricultural market on competitive terms, that is, without having to compete with dumped imports.
Developing countries and, among them NFIDCs, encounter difficulties in both fronts.  Heavy
dependence on imports of subsidized food, can lead to serious financial difficulties, due to a morevulnerable balance-of-payments situation, regardless of the price of food.  If the choice is to invest inG/AG/NG/W/38
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domestic agricultural activities to supplement imports, competition from export subsidies will limit
the few opportunities that similar products can enjoy both on the international and the domestic
markets.
8. Developing countries' permanent concerns with balance-of-payments vulnerability and the
availability of foreign exchange are compounded by all sorts of adversities imposed upon their ownproducers. When faced with the challenge of developing a domestic economic activity, producers in
developing countries are punished twice. The scarce national or expensive foreign currency, which
could be invested in the infrastructure necessary to support domestic agriculture, is deviated to
support subsidized production elsewhere, and in its wake, sustain the employments and high level of
life of developed country producers.  Consequently, the option for imported "cheap" food curbs the
development of a domestic industry in poor countries and contributes not to food security, but to
perpetuate "food dependency" and the external vulnerability of developing countries.  Additionally,when local production is forced to compete, in dom estic and international markets, with artificially
depressed prices of imported goods, domestic farmers' income declines substantially.
9. In a short-term perspective, the sole possible beneficiary of subsidized exports is the
consumer of the importing country, particularly the urban consumer, who has access to dumped food.
But this "benefit" in many situations would be quickly eroded by balance-of-payments difficulties orby taxes paid to support domestic agriculture, both aggravated by the subsidized imports.  Developed
country producers, whose income is secured or even amplified by the export subsidy is also the other
beneficiary.  In a medium and long-term perspective, the entire society of the importing country will
suffer the highly negative consequences caused by export subsidies. This economic scenario will have
financed the agricultural activity in the exporting country, in detriment of the economic and socialdevelopment of those who need most  – the importing developing country.
10. From the point of view of the supply stability, papers and analysis of food security problems
sometimes ignore that export subsidies allow the flow of artificially competitive products.  In this
process, the trade of these products, which is not dictated by the market or by competitive advantages,
relies solely in the exporting country's governmental support policies.  This artificial processfacilitates trade diversion and depresses the world agricultural market and, thus, helps to cut back the
agricultural economic activities in non-subsidized countries.  The result being the concentration of
production in a few rich countries and, therefore, the reinforcement of the developing countries'
"dependency" on developed countries economic policies.
11. Dependency on a limited number of international suppliers, particularly of staple food, often
exacerbates situations of instability and shortages usually brought about by climatic, economic and
even political reasons.  Contrary to what some countries advertise, export subsidies do not favour
"food security".  In fact, they generate concentration of production and, hence, exacerbate the already
unstable nature of the agricultural activities, contributing strongly to "food insecurity".
Domestic Agriculture and the Elimination of Export Subsidies
12. FAO studies indicate that in the majority of developing countries, the agricultural sector,
usually the main area of the economy, remains underdeveloped and unable to supply the domestic
market, let alone participate in the international market.  FAO analysts observe that development
objectives, such as, among others, that of food security cannot be attained without the active
participation of domestic agriculture.
13. To that effect the "Decision on Measures Concerning the Possible Negative Effects of the
Reform Programme on Least-Developed and Net Food-Importing Developing Countries" is of
paramount importance. Paragraph 3 (iii) of the Decision instructs Member countries to facilitate
technical and financial assistance to LDCs and NFIDCs so as "to improve their agriculturalG/AG/NG/W/38
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productivity and infrastructure".  The same Decision calls for the adoption of guidelines "to ensure
that an increasing proportion of basic foodstuffs is provided to LDCs and NFIDCs in fully grant
form".  The transposition of these political commitm ents into concrete measures directed to solve
specific and acute problems of food security would foster a true and permanent solution to "food
security" concerns.
14. However, the implementation of the Decision in favour of NFIDCs will not be enough if it
does not come hand in hand with the elimination of distortive practices, which impede the
participation of developing countries in the international agricultural trade.  Far from being a
permanent solution for concerns with food security, the perpetuation of export subsidies constitutes, in
fact, a special and differential treatment in favour of some rich developed countries.  A clear and
balanced set of disciplines will ensure a more equitable participation in world trade and will help
guarantee the distribution of income and wealth, necessary not only to develop domestic agriculturalactivities, but also to finance the imports of food not produced locally. If these actions are combined
with the granting of food aid for the needy ones, food security problems will be solved through
legitimate means.
15. For those reasons, it would be advisable to approach with some degree of skepticism
arguments that are simplistic and lopsided and, therefore, advocate for policies that serve only toexacerbate food dependency instead of reducing food security. The liberalization of trade in
agriculture and the consequent elimination of export subsidies are the real solutions to "food security".
These solutions should, however, be coupled with the implementation of the Decision and with the
provision of food aid to those NFIDCs in need wit hout commercial conditions and in fully grant form.
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