In his State of the Nation speech, President Mbeki said government wanted to increase black entrepreneurship in agriculture by 5% per year. While this sounded good in parliament, it’s an impossible goal without the proper support from government. The sharp increase in the bread price resulted in pleas for agricultural subsidies by some prominent people, such as agriculture director general Masiphula Mbongwa. This insistence on agricultural subsidies shows a clear lack of understanding of the negative role subsidies play in the international trade environment.
Scope and nature of agricultural support
Production and export subsidies are two of the many measures countries use to support and protect agriculture. The Organisation for Economic Cooperation and Development (OECD) monitors and periodically reports on the level of agricultural support to agriculture in various countries. It uses Producer Support Estimates (PSE) to measure different countries’ total levels of producer support. Total PSEs for different countries are shown in Table 1. South Africa had a total PSE of 8%, calculated between 2003 and 2005, which would probably be significantly lower if calculated over 2004 to 2006, due to higher product prices. Domestic support to agriculture is one of the pillars of the World Trade Organisation (WTO) agreement on agriculture. New Zealand’s Crawford Falconer, chairperson of the agricultural negotiations for the Doha Round, has tabled proposals for large cuts in total agricultural subsidies. The EU would have to cut its limit on total support by 75% and the US by 66%. These substantial cuts will have a marked effect on world prices if implemented. The OECD calculates that lower support will result in higher prices on world markets, especially for livestock products. Many farmers in subsidy-offering developed countries like the EU, US and others can’t survive without government support. While the average level of support in the EU is estimated at 34%, it’s much higher for specific products like milk, mutton and beef. As pressure from developing countries and within the WTO mounts, there’s little doubt that developed countries will have to lower total support to agriculture. T he Doha Round will probably make provision for developing countries to support their agriculture at higher levels than those allowed for developed countries. We can thus increase support to our own industries without fear of challenge by the WTO.
What type of support do we need?
The heavy support for farmers in the EU and other countries created agricultural sectors that are totally dependent on government to survive. The leaders in the international trade in agricultural products are those countries that did not oversubsidise their agricultural sectors. here are various options open to government if they want to support local agriculture and allow it to grow. Direct price support is probably the least attractive option. The problem with price support is that local prices above import parity will increase imports. The EU counters these with higher import tariffs, a very unattractive option for South African politicians with one eye on the price of food. The sectoral plan on agriculture envisages an increase in agricultural research and development expenditure. In spite of this, the budgets of the Agricultural Research Council and other agricultural research institutions remain under heavy pressure. Many studies have shown that society gets a large return on money spent on agricultural research and development. Contrary to general belief, improving agricultural production efficiency not only benefits farmers and the rural population – more affordable food also impacts strongly on the urban poor. In addition to research support, agriculture needs various types of regulatory support. Government must ensure sub-standard and dangerous products are not imported into South Africa. These include fertilisers, feed and chemicals. Government is also responsible for maintaining production and health standards so that our products are allowed on world markets. Our track record in this regard is not one to be proud of. S outh African producers do need protection against the importation of highly subsidised, cheap products. While it’s theoretically possible to use so-called trade remedies such as special safeguards and anti-dumping rules, the red tape associated with these types of application makes them very difficult to lodge successfully. We need a streamlined way for agriculture to counter threats to local industries. Hopefully the proposed new trade and tariff policy will provide a solution in time.
Dr Koos Coetzee is an agricultural economist at the MPO. All opinions expressed are his own and do not reflect MPO policy.
