Thursday, June 23, 2011

Infamous Agicultural Subsidies Are Spreading From Rich Countries To China and Russia

Ms. Raquel Landim from a major Brazilian newspaper reports today a very interesting and disturbing price on global agricultural subsidies, the subject of major fights between emerging nations and rich countries. It appears to be a case of "if you can't beat them, join them", at least for some emerging nations.

While rich countries insisist on providing subsidies, and they have a huge lobby machine to get them, China and Russia are now granting financial support for their farmers at a similar level to that of rich countries.

Subsidies represent 17% of agricultural production in China and 22% in Russia. In the OECD, support for farmers is 18% of production. There is no data on the subject in India, which also gives generous agricultural subsidies. In Brazil and South Africa, subsidies are only 5% of production.

As a result, the so-called BRICS countries (Brazil, Russia, India, China and now South Africa) have now fewer points of convergence. At the beginning of the Lula government, Brazil's Foreign Ministry received a major victory by arranging support of poor nations around the end of agricultural subsidies in the World Trade Organization (WTO). This will not work anymore.

The emerging giants are important customers of Brazilian agribusiness and food business, as their consumption grows exponentially (see our many posts on this matter). In rich countries, the consumption of food is stabilized. In addition, the United States and the European Union have cut agricultural subsidies because of the strong fiscal adjustment imposed by the global crisis. The recent defeats of the farm lobby in Congress are proof of that. However, agricultural subsidies of emerging countries, of the two mentioned above at least, are going up.

This never ends well.

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