Problems with current U.S. policy.

Key Problems

* The AoA ignores the reality of global agricultural markets, which behave differently than markets for other goods.

* The AoA focus on increasing exports results in promotion of unsustainable industrial agriculture at the expense of sustainable agriculture.

* The U.S. and the EU practice double standards in their advocacy of liberalization for developing countries but increased protection for their own agricultural export sectors.

There are three main problems with the AoA: it ignores the realities of global agricultural markets, it reinforces industrial agriculture at the expense of sustainable agriculture, and it fails to acknowledge the widely differing needs of countries at different levels of development.

The AoA embodies an approach to agriculture that ignores key elements of real world markets for agricultural goods. For example, it is expensive to move land into and out of production, especially in regions where highly specialized, technology-based production is the norm. Producers are many and relatively independent, obstructing coordinated efforts to reduce supply in the face of a glut. Demand for food is relatively inelastic--to get enough to eat, people will spend what money they have on food, because it is essential for their survival. However, you can only eat so much food. No matter how low prices fall, people do not significantly boost their consumption. The biggest determinants of agricultural commodity prices are the weather and whether harvests were good in certain countries. China, a huge producer and consumer of food, can dramatically affect prices of certain crops by entering the market as a buyer (as it did after bad harvests in 1995-96) or, as it has on other occasions, as an exporter. These conditions suggest that farmers need support and insurance programs to compensate for the fluctuations in production and to help dampen the boom and bust cycles common to agricultural commodities. Despite the leeway provided for different kinds of support programs in the AoA, the agreement does not allow for a national system to manage food supplies, which many believe is a necessary feature of an agricultural system that seeks to ensure that demand can be met through relatively stable prices.

Moreover, the AoA operates as if only governments affect international trade in agriculture. The power of transnational corporations is largely ignored. This bias is reinforced by Bush administration efforts to impose greater restrictions on state trading enterprises (STEs), even though a number of transnational corporations have greater capacity than STEs to exercise market power in trade distorting ways. For example, the markets for many commodities such as coffee, cocoa, and some grains are dominated by a small number of companies. Commodities in these markets do not respond to classic models of supply and demand--price increases are generally passed on to the final consumer, though declining prices in raw commodities seldom are. Although some countries have privately expressed concern about the difficulties of managing a market dominated by powerful companies, there has been no formal discussion on how best to regulate market power exercised by these private companies.

The AoA also reinforces export-based industrial agriculture, often with damaging ecological results. Industrial agriculture places enormous stress on the world's renewable resource base, including its water and soil. Research by agroecologists has demonstrated the resilience and productivity of many traditional agricultural practices and has documented the damage done by programs that replace small, diverse farms with larger monocultures, often oriented to export production. Although there is no necessary connection between export production and large-scale intensive farming--witness the successful creation of markets for fair trade coffee--the demands of export markets often favor larger suppliers.

The debate over multifunctional agriculture (MFA) also reveals the narrowness of U.S. agricultural trade positions. MFA sets objectives for agriculture that go beyond increasing production to seek other social, ecological, and economic benefits by providing incentives to protect water quality, soil, and habitats for particular species. These services are seldom reflected in market prices for agricultural products and yet have public (and economic) value. In Europe the debate over MFA has led to important proposals for the reform of the EU's Common Agricultural Policy. Unfortunately, EU trade officials have used MFA to justify existing agricultural trade practices, despite the damage they inflict. In the U.S., trade officials have decided to ignore the domestic debate on MFA altogether and have joined others at the WTO in an effort to keep the concept off the agenda for negotiations.

Finally, the AoA ignores real differences among countries by suggesting that all nations can benefit from following varying degrees of the same liberalization policies. Worse, the agreement allows rich countries to buy themselves extraordinary exceptions to the rules, something developing countries cannot hope to do. This hypocrisy is perhaps most clear in the case of the United States. Although the U.S. Trade Representative office (USTR) continues to insist on a market-based agricultural trade system at the WTO's Committee on Agriculture, Congress has authorized billions of dollars for various kinds of domestic and export support programs in the last three years. At the WTO Committee on Agriculture, Washington tries to keep the debate focused on export subsidies--the support mechanism preferred by the EU--while avoiding discussion of U.S. domestic support programs. The end result of U.S. farm policy is that the market power of agribusiness firms is increased while farm numbers dwindle and production remains bloated.

In essence, the U.S. negotiating position claims the right to spend tens of billions of dollars on agriculture to compensate farmers for market failures rather than addressing those failures directly. U.S. policy promotes access to export markets as the solution to chronic overproduction and imbalances in market power, which have squeezed all the profit out of farming and into trading, processing, and retailing. At the same time, U.S. agriculture and trade policies encourage the use of soil, water, and carbon-based energy at levels that are unsustainable in the medium-term and are already a major source of ecological damage.