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Elliott was with the Peterson Institute for many years before joining the Center full-time. Her books published there include Can International Labor Standards Improve under Globalization? (with Richard B. Freeman, 2003), Corruption and the Global Economy (1997), Reciprocity and Retaliation in US Trade Policy (with Thomas O. Bayard, 1994), Measuring the Costs of Protection in the United States (with Gary Hufbauer, 1994), and Economic Sanctions Reconsidered (with Gary Hufbauer and Jeffrey Schott, 3rd. ed., 2007). She served on a National Research Council committee on Monitoring International Labor Standards and on the USDA Consultative Group on the Elimination of Child Labor in US Agricultural Imports, and is currently a member of the National Advisory Committee for Labor Provisions in US Free Trade Agreements. Elliott received a Master of Arts degree, with distinction, in security studies and international economics from the Johns Hopkins University, School of Advanced International Studies (1984) and a Bachelor of Arts degree, with honors in political science, from Austin College (1982). In 2004, Austin College named her a Distinguished Alumna.
“A leading World Bank economist's claims that biofuels are a major cause of soaring world food prices could further undermine support for the alternative fuel worldwide and cause tensions with the White House, which fervently supports the new industry.
The draft report by the World Bank's top agricultural economist, Don Mitchell, estimates that the growing use of food for fuel, combined with low grain stocks, market speculation and export food bans, contributed as much as 75 percent of the 140 percent rise in prices between January 2002 and February 2008.” (Reuters, July 9, 2008)
The draft report by Don Mitchell is yet another volley in the debate over the role biofuels are playing in the food price crisis. The stakes are high because, if his estimates are accepted as credible, it would be unconscionable for US and EU policymakers to maintain their policies supporting the production of food-based biofuels, especially corn-based ethanol and vegetable oil-based biodiesel.
The biofuels industry and corn-state policymakers are sure to fight back, arguing that biofuels are only a small part of the problem. The looming battle over “the number” should not distract us from a more fundamental fact: support for the current generation of biofuels makes no sense, regardless of the impact on food prices. The two key rationales for government subsidies for biofuels are to promote “energy security,” by reducing dependence on imported oil, and to slow climate change, by reducing greenhouse gas emissions.
Ethanol does neither. Around a quarter of the US corn crop will go into ethanol this year but even this huge amount of corn will displace only around 4 percent of US gasoline consumption. And, contrary to hopes, producing corn ethanol and biodiesel is speeding rather than slowing climate change, which is perhaps the biggest threat to agriculture and food security in many developing countries, especially in Africa (See William R. Cline’s book Global Warming and Agriculture: Impact Estimates by Country). Chopping down forests or plowing up grasslands to raise food to replace the crops being diverted to fuel releases more than enough carbon dioxide to swamp any gains from burning biofuels rather than gasoline.
Whether biofuels are responsible for 75 percent of the recent food price hikes, as Don Mitchell contends, or 30 percent, or even just 5 percent, tax incentives and subsidies for biofuels make no sense.
A report in the Financial Times by John Thornhill leads with a remarkable quote from French President Nicolas Sarkozy warning the EU that he would block a proposed World Trade Organization (WTO) agreement on agriculture that would reduce European production incentives:
In a world where there are 800m poor people who cannot satisfy their hunger and where a kid dies every 30 seconds from hunger, I will never accept a reduction in agricultural production on the altar of global liberalism.
President Sarkozy is happy to have French farmers feed poor, hungry people in developing countries, but not happy to have those people improve their livelihoods by competing with French farmers on a level playing field. According to the OECD, between a quarter and a third of European Union farm receipts in recent years are the result of government subsidies and price support programs. Until the recent price spikes, one effect of the generous farm subsidies provided by Europe, the United States, Japan and other rich countries was to push down world prices, thereby depressing the incomes of farmers in countries that could not afford such largesse and reducing incentives for farmers in those countries to produce more domestically. France has been one of the strongest advocates of retaining these trade-distorting policies.
With elections in the United States this fall and in India next year, the barely alive Doha Round of international trade negotiations is facing a long hiatus or even failure if ministers cannot achieve a breakthrough in meetings later this month at the WTO. Success in these negotiations would not have any immediate impact on the current food crisis, both because any agreement would be phased in over a number of years and because feasible reforms are likely to be modest. But an agreement to reduce trade and production-distorting policies in rich countries would create opportunities and incentives for farmers in developing countries to increase production over the longer run. If President Sarkozy succeeds in blocking progress at the WTO in Geneva, no one should be fooled into thinking that failure of the talks is somehow in the interest of poor and hungry people around the world.
In the past fifteen years, the U.S. and other rich countries have strengthened patent protection for pharmaceutical products. In this paper, Carsten Fink describes the global shift in intellectual property policies and employs economic analysis to evaluate its consequences for developing countries. He then offers recommendations for policymakers in developing countries and in the United States who seek to better reconcile innovation incentives and access needs.
It was supposed to be an emergency conference on food shortages, climate change and energy…. but when the microphone was turned on for the powerful politicians who had flown in from all over the world, they spoke mostly about economic issues in their own countries and political priorities.
The conference was preparing to issue its concluding statement on Thursday, and delegates said the wording of the section on biofuels was a point of contention. The United States said only 2 to 3 percent of the global increase in food prices was attributable to competition from biofuels. But other countries put the figure far higher.
The assertion by American officials that biofuels have contributed only 2-3 percent to the rise in food prices is consistent with estimates of the impact on food prices in the United States, where most foods are processed and the value of the crop in the final retail product is a tiny fraction. In poor countries, where minimally-processed staple grains make up a much larger share of calories consumed, the impact of recent food prices is much larger.
Nor is it true, as asserted by congressional defenders of ethanol subsidies, that corn-based ethanol cannot have a large effect on food prices because it uses feed corn, which people do not eat. That is true, but people do eat poultry, eggs, and dairy products from animals fed on corn; increased production of corn also means reduced production of other crops, thus raising their prices, and high corn prices lead people to substitute other food products, again putting upward pressure on other crop prices. Mark Rosegrant of the International Food Policy Research Institute estimates that increased biofuel production contributed 30 percent of the rise in grain prices through 2007. [Resegrant's congressional testimony] (The acceleration of price increases in 2008 is likely due primarily to other factors.)
Moreover, as shown in the chart, the level of biofuels mandated by Congress in last year's energy security act that can be derived from corn would rise sharply and would require roughly 40 percent of total US corn production. It is simply folly to believe that would not have an impact on food prices. Far from defending US subsidies for corn-based ethanol, President Bush should order the Environmental Protection Agency to suspend the biofuels mandate, as requested by some states and by Senator John McCain (R-AZ) and 23 other Senate Republicans in a letter to the EPA last month.
Congress should help the President bury this farm bill, pass supplemental funding for hunger and nutrition programs here and abroad, and then start over next year on reform legislation that recognizes the vast changes in global agricultural markets.
"Asked how she could justify paying so much money to wealthy farmers when food prices are rising and Democrats are calling for change in Washington, [House Speaker Nancy] Pelosi listed the bill's nutrition and conservation spending.
"I justify it by saying this is the best farm bill I've ever voted on." - San Francisco Chronicle, May 15, 2008, p. 1.
In fact, the article on the front page of Speaker Pelosi's hometown newspaper highlights the many reasons that the farm bill passed by the House of Representatives is not a "very big step in the right direction," as Pelosi also claimed. Senator Richard Lugar (R-IN) agreed that the farm bill "contains many worthwhile polices, including valuable investments in conservation and nutrition programs," but he came down on the other side and was one of only 15 senators voting against the bill today. More than 300 House members voted in favor of the bill yesterday, enough to easily override President Bush's expected—and well-deserved—veto. Reform champions Ron Kind (D-WI), Earl Blumenauer (D-WA) and 13 other brave souls in the majority also deserve kudos for bucking their leadership on this issue.
The absurdities in the farm bill are put in stark relief by reporter Caroyn Lochhead in the San Francisco Chronicle article cited above:
"A farm couple will be allowed to earn up to $2.5 million a year before government payments are cut off under new rules that lawmakers called a major reform. An urban couple applying for food stamps is cut off at $17,808 in income and may own only one car."
Yet, this is the best farm bill that Pelosi has ever voted on because, under previous bills, there was no cap at all on the amount of income that a person could earn by farming and still collect subsidies, and individuals could earn as much as $2.4 million in non-farm income and still get a subsidy check from the American taxpayer—that's you and me. Under this year's bill, all subsidies are cut off when non-farm income exceeds $500,000 but, contrary to the Chronicle article, only direct payments, which are paid out no matter how high prices go, are cut off for those earning more than $750,000 from farming. And in each case, a spouse can earn just as much and the household will still be eligible for taxpayer largesse, thus adding up to $2.5 million.
Worse, in order to ensure that farmers selling at the highest prices in decades aren't squeezed too hard, the farm bill cuts funding that had been allocated to provide school lunches for poor kids in developing countries. Even in the midst of a global food crisis, the farm bill also maintains a system for delivering US food aid that means that tens of millions of dollars go to American shipping companies rather than to feeding hungry people. The farm bill also continues policies that have already been found to violate US obligations under international trade rules and, according to the Chronicle, it would allow farmers to collect subsidies for crops grown on newly plowed grasslands, which contributes to global warming.
Relative to past farm bills, maybe you could call this reform. But is it really the best that Congress can do?
"House and Senate negotiators bargaining over a new farm bill have reduced funding for a key school lunch program for poor children abroad and agreed to sharply expand nutrition programs for low-income families and children in the United States."Washington Post, May 6, 2008
"How can the world's hungriest schoolchildren be denied meals while the farm bill being debated in a House-Senate conference provides millions in subsidies for wealthy farmers? That's what Congress proposes. In all fairness, it should not become law."Former Senators Robert Dole and George McGovern, Washington Post, May 6, 2008
No one would criticize Congress for doing more to help poor children in the United States, but at the expense of even poorer children overseas? Apparently farm bill negotiators have decided that they must cut nearly $800 million over 5 years from a program that provides school lunches for poor children in developing countries in order to increase funding for nutrition programs for American children. But as the congressional sponsors of the program noted yesterday in the Washington Post, the money could easily be found elsewhere with just a little political will. A few examples of the egregious excesses in the farm bill include:
Millions that might be saved by capping the adjusted income level at which farmers can collect subsidies at well under the nearly $1 million that has been proposed (income after expenses).
The failure to fix the rules so that farmers cannot game the system by collecting subsidies and then selling commodities later when prices rise above the subsidy-linked price floor.
Finally, as much as $5 billion annually could be saved by eliminating the so-called direct payments that are paid out every year, no matter how high prices go. A version of these payments was originally created in the 1996 farm bill when the intent was to bolster farm incomes as part of a reform to gradually reduce production-distorting subsidies (for more on this, see my book, Delivering on Doha: Farm Trade and the Poor) The administration has continued to support inclusion of the direct payments because they are "non-distorting." But it is now clear that Congress has no interest in reform and, in today's market, the payments are a pure windfall for farmers already reaping the benefits of historically high prices. They should be eliminated.
And now for a really bad idea: according to the Financial Times Michel Barnier, France's farm minister, told a food crisis summit in Berne that Africa and Latin America should adopt their own versions of Europe's Common Agricultural Policy -- massive trade-distorting subsidies -- as a response to rising demand for food.
In fact, as those who have been tracking the crisis know, and as Anthony Faiola is explaining in a five-part series on the global food crisis in the Washington Post, restrictions on agricultural trade are part of the current problem. Instead of export resrictions and subsidies, Nancy Birdsall and Arvind Subramanian argued in an op-ed published in the Asian and European editions of the Wall Street Journal last week, the solution is to...
...promote trade and efficiency while also boosting agricultural production and reducing the vulnerability of the poorest around the world.
Unfortunately, U.S. agricultural policies, like those in Europe, continue to cater to special interests in ways that make the problem worse. Despite record high food prices, the 2008 U.S. Farm Bill, expected to pass Congress soon, would maintain a system that transfers billions of dollars annually to the largest farm operations. Roughly 70 percent of subsidy payments go to just 10 percent of the largest recipients and one version of the farm bill would allow farmers with incomes as high as $1 million to continue receiving subsidies. And this is touted as a "reform" measure because it lowers the income cap from the current $2.4 million (see the Environmental Working Group's Farm Subsidy Database).
If that were not enough, despite the current global food crisis, the farm bill retains an additional subsidy to U.S. shipowners, as well as farmers, by requiring that U.S. food aid be purchased in the United States, packaged here, and much of it shipped to where it is needed on U.S.-owned ships. That means that roughly half of the already-inadequate U.S. food aid budget goes for distribution and transportation, rather than to feed hungry people in poor countries.
Ensuring that food supplies are adequate and that poor people around the world can meet their basic nutrition needs is a critical problem that governments and international organizations around the world clearly need to address -- in both the long-term as well immediately. Replicating the distorting U.S. and European policies that transfer billions in taxpayer and consumer dollars to a handful of farmers in hopes that a little bit will trickle down to hungry people is not the way to go.
When I was writing my book, Delivering on Doha: Farm Trade and the Poor, I came across a 2004 poll showing that Americans, including in farm states, support subsidies only for small farmers and only in bad years. Last week, another poll by the Program on International Policy Attitudes at the University of Maryland was released showing that attitudes haven’t changed. The reality, as I discussed in my book, is that the top 20 percent of recipients receive 80 percent of all payments. Moreover, this information is easily available on the internet in a database maintained by the Environmental Working Group.
Despite the views of a majority of their constituents, and a major lobbying campaign by many faith-based and development NGOs, including Bread for the World, Congress passed a farm bill last year that increased subsidies for farmers and allowed farm families earning up to $2.5 million to continue receiving payments. President Obama bravely recommended trimming back payments for the largest farm operations and was rebuffed by Congress. Presidential leadership is certainly useful, but progress in cutting farm subsidies depends on those constituents letting their representatives know loudly and clearly that they think those funds would be better spent on schools, roads, and healthcare for all.
In the midst of the current economic crisis, recovery at home will naturally be the focus of the new president, but the United States cannot prosper if the rest of the world lags behind. Nor can Americans be safe in a world where economic instability turns fragile states into failed states that harbor terrorists, drug traffickers, or communicable diseases. It is crucial in responding to the situation that the United States avoids beggar-thy-neighbor policies, such as new trade barriers, that ultimately leave everyone worse off. Beyond just saying no to new protectionism, the new administration has an opportunity to send a clear signal that that it is serious about trade for development.
In a new policy memo (opens a new window) sent to President-elect Obama, key members of his trade, economic and foreign policy teams, and congressional leaders, I recommend that the United States act as quickly as possible to fully open the American market to the goods of the poorest and most vulnerable countries. These are countries that are being hammered by a financial and economic tsunami that they had no role in creating. The Millennium Development Goals call on the rich countries to provide “duty-free, quota-free” access for all least-developed countries and U.S. negotiators already committed in 2005, as part of the Doha Round of multilateral trade negotiations, to provide such access on 97 percent of products from these countries.
The policy memo suggests expanding on these commitments in ways that can make a world of difference to poor people in these countries, at virtually no cost to U.S. jobs. It calls for the United States to provide access for all products from a somewhat broader list of the poorest and most vulnerable countries, and to do so without waiting for the completion of the Doha Round. It also proposes making this new and improved preferences program permanent, so that investors are not deterred by uncertainty about its status.
For the third time in recent months, Russia, supported by China, blocked United Nations action to put additional pressure on Bashir Assad and help end the violence in Syria. A UN Security Council resolution is the preferred way to go. But if that is not possible, preemptive contract sanctions can tighten the squeeze on Assad without the cooperation of Russia and China. Owen Barder and I explain how the US, UK and others could use preemptive contract sanctions in Syria here and here (and in the video below) and offer a draft declaration showing how it could be done here.
Under the African Growth and Opportunity Act, eligible countries can export apparel to the United States duty-free, using fabric and other inputs from wherever it is produced most cost-effectively, as long as the fabric is cut and sewn in the African beneficiary country. Under the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act, as I discussed in a post earlier this week, most Haitian apparel exports must incorporate American materials to be eligible for duty-free treatment. If American yarn and fabric were the most cost-effective option for Haitian producers, then this provision would not be necessary. That, in turn, suggests that Haiti’s exports are not as competitive as they would be if producers were free to choose where they sourced their materials, and that means fewer exports and fewer jobs created.
Senators Ron Wyden (D-OR) and Bill Nelson (D-FL) recently introduced legislation to improve opportunities for Haiti to export to the United States. Their efforts are certainly welcome and many of the items in the bill have great merit, especially the proposals to quickly extend the Caribbean Basin Trade Partnership Act, which would otherwise expire later this year, and to provide technical assistance so that Haitian exports aren’t blocked by cumbersome customs regulations (subscription required). But, so far, the proposals being floated do not adequately address the fundamental problem created by the convoluted rules of origin. Surely in the midst of this great tragedy, the U.S. contribution to Haiti’s long-term recovery should match the incredible generosity shown in providing short-term relief.
A presentation by Kim Elliott at the International Commodity Conference held in Washington D.C. on October 28. It was part of the panel on good governance and commodity development.
Access the full comentary (PDF)
Trade ministers are currently gathered at the World Trade Organization in Geneva to give one last push to delivering a Doha Round trade agreement before it is put on the shelf indefinitely. As it has been from the beginning, agriculture remains a key stumbling block (see my book, Delivering on Doha). US Trade Representative Susan Schwab started the week by offering to lower the overall ceiling for trade-distorting US farm subsidies from $22 billion to $15 billion. But the offer has been derided as meaningless by Indian, Brazilian, and other developing country negotiators because US subsidy payments are currently well below that ceiling as a result of the recent surge in commodity prices. (USDA projects payments in two of the three trade-distorting categories (excluding de minimis) will be less than $2 billion in this fiscal year.)
But the point of reform is to restrain how much the US government can subsidize farmers when prices fall. As shown in the chart, if prices fall back to levels regularly seen in the first half of the decade, the US offer would constrain subsidy payments, at least for the most trade-distorting forms of support reflected in the lines labeled AMS. The previous US offer would not, however, have put significant constraints on the other two, somewhat less-distorting, categories of subsidies -- the blue box and non-product-specific de minimis, but an additional $2 billion will have to come out of those categories, providing some discipline on them. (The other $5 billion is a symbolic cut that will most likely come out of the product-specific de minimis category, which is little used by the United States.)
In sum, it is true but largely beside the point that the US offer would not lead to cuts in current subsidy payments. It is also true that the recent farm bill is out of step with the proposal and, if the agreement is approved, US farm policy will have to change.
After years of delay, three U.S. trade agreements are finally down to the wire. President Obama has sent Congress legislation to implement long-delayed free trade agreements with Colombia, Korea, and Panama. Congress is expected to vote on all three agreements, and an extension of the Trade Adjustment Assistance program for workers displaced due to trade, on or about October 12, on the eve of a visit to the United States by South Korean President Lee Myung Bak.
I have never been a fan of preferential trade agreements, particularly between large, rich countries and smaller, poorer ones for reasons described here, and elements of these specific agreements are troubling, but I have to say, IT’S ABOUT TIME! The agreement with Colombia was signed in November 2006, with Panama in March 2007, and with Korea in June 2007. Since then, those countries have changed laws or practices, or agreed to modifications to the agreements to address issues raised by Congress or the Obama administration.
While I still have concerns about some provisions of these agreements, all three countries are partners and allies with democratically-elected governments that negotiated with the United States in good faith and want to see these agreements implemented. Colombia’s decision to try to ensure access to the U.S. market by negotiating a free trade agreement was vindicated this year, when Congress failed to renew an Andean trade preference program that previously gave Colombia duty-free market access for many of its key exports. It is important for Washington’s negotiating credibility and for its reputation as a reliable partner and ally to implement these agreements.
I also hope that once this old business is cleared up, U.S. trade policy will gain forward momentum, and in ways that better serve both American interests and those of poorer developing countries, as called for in a recent Council on Foreign Relations bipartisan task force discussed in this blog post by task force member and CGD President Nancy Birdsall.
Such a strategy, as Nancy also notes, would include strengthening the multilateral system—even if that means recognizing the futility of pretending the Doha Round can succeed and moving on—and improving market access for the poorest countries. While it is unrealistic to think that negotiations on a Trans-Pacific Partnership, (which would stitch together existing U.S. agreements with several countries and add several more) will not continue, perhaps having to negotiate with eight other countries will at least temper American bullying of its erstwhile partners (for example on stronger intellectual property protections).
In early 2009 Randall Soderquist and I found broad, cross-sectoral and bipartisan support for multilateralism and for more effectively using trade to promote development, when he coordinated a letter to President Obama and congressional leaders from 17 business, NGO, and faith-based groups in the midst of the financial crisis. That there is still broad support for such an agenda is underscored by the fact that the CFR report called for situating U.S. trade policy within a strengthened multilateral, rules-based system, and that Jim Owen, CEO of Caterpillar, and Laura Tyson, a former economic adviser to President Clinton, signed on to Nancy’s addendum to the CFR report calling for specific actions to ensure that American trade policy is development-friendly (see her post for details). And, as Nancy emphasizes in her blog, U.S. market openings must be accompanied by domestic programs, with TAA as a first step, that ensure the benefits of globalization are spread more broadly, and that people’s concerns about trade are addressed.
So while I’m not a big fan of preferential trade agreements, I’m hoping that they pass and that with these behind us we can finally move ahead with more sensible, pro-development U.S trade policy in the 21st century.