Commerce ministers of the developing countries are focusing on free trade in agricultural commodities in the WTO. The presumption is that farmers of the industrial countries would not be able to compete in crops like cotton , wheat and soybean without the subsidies and farmers of developing countries would get larger markets and better prices for their produce.
Indeed, the supply of cotton, wheat and soybean in the world markets will reduce upon dismantling of these subsidies. But it is not necessary that this will translate into an increase in prices for the developing countries. The supply from developing countries can increase and nullify the impact of expansion of the market.
This can be easily verified by looking at the behaviour of prices of crops like coffee, tea, sugar and rubber which are not grown by the industrial countries. The prices of wheat, cotton and soybean will behave in the same manner upon dismantling of the subsidies by the industrial countries as the prices of coffee, tea, sugar and rubber have behaved in the past.
According to the World Bank's Global Economic Prospects 2003, the real price of coffee today is about one-third of those prevailing in 1960. There are two reasons for this decline in price.
There has been a huge increase in production of coffee in Vietnam and Brazil; thus supply in the world markets has increased. On the other hand, the consumption of coffee in the industrial countries has remained stable at about 4.5 kg per person. The increase in supply together with stagnant demand has led to this decline in price.
There has been a six per cent decline in the price of tea in 2002. There was four percent higher production of tea in India, Kenya and Sri Lanka. China and Vietnam are also increasing their production.
The price of sugar has moved between 10 to 30 cents per kg in the last twenty years. They have been around 15 cents per kg in 2002-the lower end of the range-because there has been an eight per cent increase in production in Brazil which is the major exporter. The other exporters are Thailand and Australia who have had 50 and 70 per cent increase in production in the last 20 years.
The prices of rubber had declined much after the Asian crisis in 1997. There has been an increase of 32 per cent in 2002 from those low levels. But the prices are still much below those in 1997.
The recent increase in price is more in the nature of minor correction within the long term declining trend. The World Bank predicts that the prices are likely to decline by three percent in the next ten years because the demand of rubber in industrial countries for making automobile tires is declining. Two percent less rubber was consumed in the OECD countries last year.
The prices of these agricultural commodities have declined in the last few decades and are likely to decline further in the coming years. The prices of crops like wheat, cotton and soybean, which are grown both in the developing and industrial countries today, may be expected to behave similarly if the industrial countries stop giving agricultural subsidies.
Thus we may expect their price to decline due to increased supply from the developing countries. Farmers of developing countries will, therefore, not be much benefited by the dismantling of the subsidies by the industrial countries.
The developing countries should yet ask for removal of those subsidies because it is a good bargaining point and it exposes the true intentions of the industrial countries. But the gains from the dismantling of the subsidies to the farmers will be, if at all, nominal.
A better strategy would be to instead demand loosening of the patent laws. There is a fundamental difference in the impact of agricultural subsidies and patents on the developing countries though both affect the industrial countries adversely.
Removal of agricultural subsidies leads to increased competition in the agricultural markets and nullifies the benefits of the enlargement of the markets. Patents, on the other hand, protect the monopolies of mainly industrial country multinational corporations.
The developing countries have nothing to loose and much to gain from the loosening of the patents regime. It is time for developing countries to put the patents regime at the centre of their attack in the WTO.
e-mail: bharatj@nda.vsnl.net.in.