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March 28, 2011

EU subsidy policy and disastrous effects on Ghana poultry sector

by Mehdi Shafaeddin

In a recent speech to CUTS in Geneva Mr. Pascal Lamy, the Director-General of WTO, argued, inter alia, that in order to reduce its food deficits, “African Agriculture needs to become more efficient, and…to discover ‘specialization’…”, rather than opting for self-sufficiency. He implicitly drew an analogy between the division of labour between Einstein and his Assistant and Ricardo’s theory of comparative cost advantage (CA). Hence, “… it would make no sense for Africa to produce everything for itself [become self-sufficient], just as it makes no sense for Einstein to process documents too” in addition to his scientific work.

I try to remain within the framework and logic of Mr. Lamy-let alone the fact that the theory of CA of Ricardo is static, suffers from unrealistic assumptions and is inappropriate to development issues.

For the OECD countries, not only the concepts of division of labour, CA, efficiency and market forces do not apply, and import substitution is justified; but also dumping “inefficiently produced” food and other agricultural products to Africa is acceptable. According to Mr. Lamy, African agriculture has suffered because it was shielded from international competition. Although in passing he refers to CAP and agricultural policies of other OECD countries, he does not talk about their impacts on Africa.

Earlier on in an article (jointly written with F. Fischer of EU), on 8 September 2003 he clearly declared that: “Us [sic] Europeans, we refuse to submit fully agriculture to the law of comparative advantage…” In another speech on 20 January 2000 on the future of CAP, he mentioned that agriculture cannot be left “unregulated and solely based on competition”, and spelt out the need for such measure as: external protection, price support and supply control. He added: it [price support] helped Europe become self-sufficient.

On 3 October 2002 in a conference in France he said. “…if agriculture were submitted to the international division of labour [our italics], there is[sic] if we left the consumers to choose, on a global market, the good produced by the most efficient producers [my italics], the 6 million farms in Europe would be cut down to one million….”.

By contrast, according to Mr. Lamy, the agricultural sector of Africa should be subject to liberalization and domestic producers need to compete with the imported foods at “dumping prices”, as OECD countries are not subject to the operation of market forces and efficient production.

The amount of agricultural support received by farmers in OECD countries in 2009 (direct and indirect subsidies, etc. and price supports) amounted to about $348 billion. In terms of per capita of rural population of OECD countries it is about $1421; nearly 2.39 times greater than per capita income of the total population of African least developed countries and Haiti. In the same year, the corresponding support received by EU farmers was $92.954 billion, and the direct support alone constituted 24 per cent of their gross receipts as compared with 22% in 2007.

Consider, as an example, the case of Ghana, and its imports, inter alia, of chicken from EU. Under the pressure from the World Bank and IMF, Ghana reduced its tariffs on agricultural goods and liberalized its agricultural sector fully in the 1980s. Although the bound tariff rate for chicken is higher than the applied tariff, the IMF did not allow the Government to increase it despite the decision of Ghana’s Parliament. The country does not have any legislation to take anti-dumping, countervailing or safeguard measures on imports.

During the last couple of decades Ghana has been dumped on by imported EU chicken. For example, in 2002, total subsidies paid to the EU poultry industry constituted over 27 % of unit value of production out of which 9.7% was in the form of export refund; 8% of the EU’s exports were directed to West Africa (out of which 2.4%-or 27.5 million tonnes) was exported to Ghana- eight times higher than in 1996. The imported chicken was supplied at a price which was sold at 57% of the price of domestically produced chicken.

As a result of dumped imports, in 2001 domestic chicken production in Ghana accounted for only 11% of domestic consumption as against 95% in 1992. Thus, domestic producers developed excess production capacity.

Chicken is not the only agricultural product, and Ghana is not the only African country, suffering from dumping prices: cereal, soya, milk, meat and other animal products, sugar, even tomato and cotton etc. have had more or less the same fate. Hence, I wish, Mr. Lamy would have indicated in which agricultural products Africa should specialize. How about EU and other OECD countries?

Triple Crisis

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