How Do the Export Subsidies of the Industrialized Countries Harm the Developing Countries?
How do the export subsidies of the industrialized countries harm the developing countries?
Export subsidies are a direct form of agricultural support. The main justification for the high levels of support for the European Community, the United States and Japanese farmers is the politically destabilising effect of food shortages; self-sufficiency in food remains a common objective. The problem with these three members approach is that it provides an incentive to over-produce and to dispose surplus production on the world market, driving the world prices down. As a result, the opportunities for efficient producers, especially those from developing countries, to compete in export and local markets, become limited. This trade-distorting domestic support not only penalizes efficient producers by displacing their exports, but also reduces the demand for imports in the subsidized countries.This way, inefficient producers are protected: they can continue producing even though it wouldnt be economically viable for them to do so.
By having domestic support, industrialized countries artificially improve the price competitiveness of their agricultural products. This way, agricultural exporters dont compete on the real price and quality of their products, but on the availability of export subsidies.The result of this unfair contest is the intensification of poverty. Losses in agriculture can be quantified and have a strong negative impact on the developing and less developed countries economies: Latin America and the Caribbean lose about US$8.3 billion in annual income from agriculture, developing countries in Asia lose some US$6.6 billion and sub-Saharan countries around US$2 billion.
Looking at economic indicators, we can notice the paradoxical fact which proves the unfairness of the world market: the agriculture share of GDP in one country is inversely proportional to the share of world agricultural exports it has. Agriculture in Thailand accounts for 11,6% of its GDP, while its agricultural exports account for only 2,4% of the worlds total agricultural exports. Indonesia is even more dependent on its agricultural income, 15,8% of its GDP coming from agriculture. In a liberalized world market, that would mean Indonesias agricultural exports are a big share of the worlds agricultural exports, while, in reality, the share is as little as 2,2%. Coming back to the heavily subsidized US, where the agriculture share of its enormous GDP is only 1,2%, we may discover the share of its agricultural exports in the world is greater than those of Thailand, Indonesia and a number of other developing and less developed countries gathered. Let aside the European Union, which exports no less than 42,3% of the worlds agricultural products. Its easy to see now why poor countries are so vulnerable and ask for significant down payments in reducing