Fall In Farm Subsidies May Not Last

Rich nations saved billions of dollars in subsidies to farmers last year, but the OECD said on Thursday the windfall was exceptional and the cost of assistance could climb again without reforms.

A grain price boom was one of the main reasons for the drop in the basic cost of supporting agriculture, which fell to $166 billion in 24 OECD nations last year from $180 billion in 1995.

Higher prices reduce the cost of helping farmers compete.

But the price of grain which influences bread, dairy and meat has fallen steeply since hitting records in mid-1996 and the free-market organisation is worried last years savings will make its governments complacent about streamlining agriculture. There is still much unfinished business on the reform agenda, the Organisation for Economic Cooperation and Development said in a report, noting many farmers were shielded from market forces.

 

Switzerland remains proportionally the most generous OECD country to its farmers, with its mainly environmental aid accounting for four fifths of the value of all crops produced. Japan, which heavily protects rice, is not far behind and the 15-nation European Union is above the OECDs average with 43 per cent of the value of its crops loaded with subsidy. Bottom of this list is New Zealand which axed most support several years ago and earns glowing praise from the OECD.

Diplomats say OECD nations are split on whether to embark on new reforms designed to wean farmers off subsidies when the 1993 Uruguay Round global trade pact, which helped to liberalise agriculture, expires at the turn of the century.

A key meeting of OECD farm ministers in Paris next year will pit free-trading advocates led by the United States and Australia against most Europeans, as well as Japan and newest member South Korea, which want agricultures special status preserved. The OECD is saying these things are more compatible than people think, but you have to spend money in ways which do less to distort the market, an OECD diplomat said. For the OECD, that means reducing schemes which depend on shoring up prices .

The report shows current support is shared roughly equally between taxpayers through direct aid or tax breaks to farmers and consumers who pay artificially high food prices in shops.

It shows consumers have to pay on average 52 per cent more for their food than they would if all subsidies were scrapped.

The most inflated item is rice four-times overpriced and then milk, sold for twice its real value.

However, the OECD does not say what the cost to society would be if farmers were abandoned completely to market rule.

Add on the indirect help from welfare schemes, rural aid and support for marginal types of farming, and the OECD estimate s the full cost of supporting its members agriculture last year at $297.1 billion, down from $332.9 billion in 1995.

The bill is equivalent to 1.3 per cent of gross domestic product in the OECDs 24 core member countries, excluding five which have recently joined like Poland and Mexico.

But disparities are huge, with the cost to each citizen ranging from $23 a year in Mexico to $935 in Switzerland.