Mennonite
Central
Committee

Globalization and Agriculture

By Linford Martin, MCC El Salvador
March, 2003

To put into perspective the statistics, policies, politics and problems of globalization and free trade agreements as they relate to agriculture, I’d like to tell a story. This story happened in the community of La Florida, El Salvador, a cooperative of 25 families where my family and I are living and working.

The sound of a chainsaw began early in the morning. It is not an uncommon sound, but as it continued throughout the day I began to realize that there was some serious cutting going on. The following day I headed down the path towards the work site where we were building a rainwater storage tank for one of the families of the La Florida cooperative. This route took me through one of my favorite spots in the community, a short ridge which juts southward towards the Pacific Ocean before dropping off sharply into the valley below. As one reaches the edge of the plot of shade grown coffee and before bursting into the bright sun of a bean and corn fields, one couldn’t help but be impressed by the huge tree that stood as a sentinel over the grand vista. It had never failed to draw my eyes upward, with a 4-ft. diameter trunk that spreads up and outward into a canopy some 60-70 ft. across, shading the coffee plants below. But that morning, to my shock and amazement, the huge trunk stood limb-less in the bright sun. Several men were digging the soil away from the buttress roots so they could cut a few feet lower and they said they would have the trunk on the ground by evening. I walked on with a heavy heart.

A few days later I found out who was responsible for cutting the tree and the reason he had made that choice. The cooperatively farmed coffee land had been divided among the members and each member given the responsibility to keep their portion weeded and fertilized. The older man, who was responsible for the plot where the tree was cut down, was not able to complete all the work himself and needed to hire some help. He saw the tree as his only source of the needed cash -he received roughly $170 for it.

The cooperative members have not been paid for their labor in the coffee for the past three years, because all proceeds have gone to pay off their dept. The collapse of the world coffee market means they are receiving less than half the income of previous years. Taking a broader view, "…the official price for a pound of coffee crashed from a high of $6 in 1977 to a 100- year low of 42 cents last year." (Alexandra Seno, News Week)

The collapse of world coffee prices

The cause of the collapse of world coffee prices is simply over production, but the story behind this over production is not simple. In 1962 the United Nations founded the International Coffee Organization (ICO) to help stabilize world coffee prices. The Cuban missile crisis happened that same year and people in the US government warned that communism would spread rapidly across Latin America if coffee prices were not stabilized. The US became and remained a strong supporter of the ICO until the fall of communism. In 1989 the US left the ICO, thus depriving the organization of much of its clout to enforce quotas. Without the quotas, world coffee supply currently exceeds demand by 1.2 billion pounds—even with an increase in global consumption.

Much of this increase in production is coming out of Vietnam which used to barter coffee with the former Soviet Union, but in the free-market has increased its production from less than 1 million bags per year to 13 million, becoming the world’s second largest producer. Yet many Vietnamese coffee producers are also harmed. According to Oxfam America, "In the Dak Lak province of Vietnam . . . the income that coffee farmers receive is as little as 60 percent of the cost of production and has resulted in widespread malnutrition."

Subsidies cushion economic north

The current executive director of the ICO, Nestor Osorio, said, "This is an example [of a market] where globalization has failed…" (News Week). On the other hand, I would venture a guess that the boards of directors of the four corporations that dominate international coffee purchases—Sara Lee, Procter & Gamble, Kraft, and Nestle take the view that the current coffee market is an example of the success of globalization. In their view, increased competition has lowered prices and will weed out the less efficient producers. Nestle, in their annual report on coffee-trading performance for 2000, stated that "trading profits increased…and margins improved thanks to favorable commodity prices."(Envio)

Whether you view globalization of free trade in agriculture as a success or a failure depends very much on where you fall in the chain between field and consumer. Much of the profit in this chain goes to the agribusiness corporations in control of the transport and processing of agricultural products, as well as the inputs of seeds, fertilizer, etc. This is true for producers in the developed nations (economic north) and the developing nations (economic south) who both receive only a small percentage of the price the consumer pays.

The huge difference is, if you are a producer in the economic north, you may be struggling with low commodity prices but they do not have the same crushing effect as they do on your neighbors to the south. "The developed world pays out more than $300 billion a year in farm subsidies, seven times what it gives in development aid" (New York Times, Dec. 1, 2002). Subsidies like this allow US farmers to sell their corn on the world market at 20 percent below the actual cost of production.

The cost of removing trade barriers

At the same time, the countries of the economic north have been pressuring governments in the south to liberalize their economies, removing trade barriers. For example, the World Trade Organization’s (WTO) 1995 Agreement on Agriculture (AoA) comes down hard on measures such as tariffs that are simple, cheap and used by the poor countries. On the other hand it goes easy on measures such as subsidies to farmers, which rich countries use and poor countries cannot afford. Subsidies in the nations of the economic south are less than 5% of their agricultural production while the US subsidizes up to 25-30% (26% in 2000) of its production. The 2002 US farm bill, rather than working at lowering these subsidies, raised them by up to $180 billion over the next ten years (New York Times Dec. 1, 2002). Before this new increase, Europe was the worst offender with subsidies of "nearly half the EU’s total budget", and has agreed to extend and increase the size of Europe’s Common Agricultural Policy. (Miller and Mitchener, Wall Street Journal)

As the subsidized agricultural products are sold on the world market at prices below the cost production, referred to as dumping, they cause world prices to collapse to the same level. With one in four of the world’s population living off the land—70% of this group lives in the least developed nations- this has a devastating affect on the poor, mostly subsistence farmers.

In-kind food aid and dumping

Another way of dumping is giving in-kind donations as food aid. One might think this is a great way to deal with food surpluses, but it has the same affect as the subsidized food, decreasing the ability of local farmers to produce for the local market. Long term aid of this kind has the affect of changing the food preferences of a population and further decreasing the market for local products. The US is the worst offender of in-kind food aid. The USAID’s own website states: "The principal beneficiary of America’s foreign-assistance programs has always been the US. Close to 80 per cent of the USAID contracts go directly to American firms. Foreign-assistance programs have helped create major markets for agricultural goods." The dependence on the US for grains that these policies cause leaves already vulnerable nations even more vulnerable to the fluctuations of world prices. For example, in 1996 when shortages due to a decline in US production caused world prices to double, some countries experienced 75% increase in food import bills between 1995 and 1996 (Foreign Policy in Focus website).

Inequity

The playing field in the globalization game is not level. Timothy Radcliffe OP, in his Pope John Paul Memorial Lecture described the world market like this: "[The market] is designed to serve the interests of the wealthy. The pitch tips towards the poorer nation’s goal (subsidies in the case of agriculture), and the goalkeeper is bribed (political and economic elite of the poor nations who control imports and exports), and the referee is a member of the winning side (WTO), and the rich nations cheer as goal after goal is slammed in" (CAFOD website, parentheses are mine).

As a further illustration of this inequity, "the July 1999 edition of the Corporate Europe Observer pointed out that 13 companies, including General Motors and Monsanto, lobbied governments to include intellectual property rights (IPRs) in the Uruguay Round of trade talks. In those talks, 96 of the 111 members of the US delegation negotiating on IPRs were from the private sector. Mean while, half of the poorest countries at the WTO can’t afford to have a single representative at its headquarters in Geneva" (Envio Dec. 2002). According to the same article, the US maintains a permanent negotiating team in Geneva of around 250 and flies in experts as needed. At the WTO headquarters there are, on the average, 12 meetings per working day. What happens if your country can’t afford even one negotiator? In addition, the negotiator on agriculture for the US in the Uruguay Round of free-trade negotiations was the former vice president of Cargill, a US company that controls 60% of the world’s trade in cereal grains. It is pretty obvious who has the advantage, the nations of the north and the transnational corporations with which they have close ties.

In the Western Hemisphere, the current round of free-trade negotiations known as Free Trade Area of the Americas (FTAA) is modeled after the North American Free Trade Agreement (NAFTA) between Canada, United States, and Mexico. The goal is to complete the negotiations by 2005. In order to get a feel for what FTAA will be like under the current model, one needs to examine the last seven years of NAFTA. Although many of the economic indicators show increases in trade and economic growth, Canadian Catholic Bishops note: "all three countries display alarming and growing gaps between rich and poor in their societies, with life becoming more difficult and uncertain for a majority of citizens, while a much smaller number of investors, managers and professionals have become increasingly wealthy" (envio Aug. 2002). The bishops also warn that the new agreement may seriously erode the power of citizens and their elected governments, leaving more and more power in the hands of transnational corporations and trade tribunals which operate in secret. Do the rest of the Americas really want this? Indications show a growing resistance with farmers and workers protesting and with the election of Brazil’s new populist president, Lula da Silva.

Responding to globalization forces

In light of all the inequities, how does a community like the one in the above story respond to the situation they find themselves in? Some people have likened globalization to a passing train, if you don’t jump on board you will be left behind. I’m not sure reality is that black and white. There is still hope that citizens of the economic south will be able convince their governments not to give away their mandate to govern for the common good and insist that some "cars" such as unfair subsidies be removed from the current globalization train. Also other "cars" such as better access for poor countries to trade negotiations, basic worker rights, and the right of governments to retain regulatory power on their trade and set environmental standards might be added to the train. Citizens of the economic north will also need to become more vigilant to what is happening in these negotiations and pressure their governments for fairer trade rules for their brothers and sisters in the economic south.

What happens if one chooses not to get on the train? If a community realizes that globalization has little if any thing to offer them, their other choice is survival. In the case of the community of La Florida, survival is the mode they are in. They have a sizable debt and they are struggling to keep up the payments. They have decided to switch their coffee to organic, hoping to cash in on the organic, fair-trade market that at present is at least double the world market price. Many are working hard to reduce their dependence on expensive commercial agriculture inputs in favor of organic fertilizers and indigenous seeds, also increasing their crop diversification by planting more fruit trees. They are constructing soil and water retention barriers and practicing minimum tillage. These efforts will not lift them out of poverty, but hopefully will bring some security and dignity to their lives.

Sources

Canadian Catholic Bishops. "Trading Away the Future" envio Aug. 2002 (envio is the monthly magazine of analysis on Central America published by the UNIVERSIDAD CENTROAMERICANA, Managua, Nicaragua)

Greenfield, Gerard. "World Coffee Crisis: Is Vietnam to Blame?" envio May 2002

DiGiacomo, Gigi. Institute for Agriculture and Trade, www.fpif.org/vol1/agri 1996 (Foreign Policy in Focus website)

Miller, Scott and Mitchener, Brandon. "EU Farm-Subsidy Plan May Help WTO Talks" The Wall Street Journal 23 Jan. 2003

Radcliffe, Timothy ,OP. "Pope John Paul Memorial Lecture" cafod.org.uk/events/popepaullecture2002report (Catholic Agency for Overseas Development website)

Seno, Alexandra. "Trouble Brewing" News Week 16 Dec. 2002

The Catholic Agency For Overseas Development (CAFOD). "World Trade Rules: Rabbit and Tiger in the Same Cage" envio Dec 2002

"The Hypocrisy of Farm Subsidies" New York Times 1 Dec. 2002 Comments and Suggestions for MCC Program

MCC has historically worked with marginalized people including the agricultural sector. My suggestion is that we continue to support them in the following ways:

• Helping them to gain access to land/legal title to land.
• Soil and water conservation
• Small scale water projects
• Sustainable farming methods
• Promotion of food security—storage and diversification of crops
• Small scale credit
• Technical assistance in gathering information
• Advocate for more just agricultural policies—lowering subsidies and disconnecting them from production levels.
• On this last item, a full-time position should be created which would involve researching US agriculture policy, FTAA negotiations, and WTO Agreement on Agriculture negotiations, etc. I think the issues are complex enough that it is difficult to stay on top of things. The position might look for someone with economics or journalism background with a goal of presenting the issues in layman’s terms—educating the constituency and the volunteers working in agriculture. Also working as farm policy advocate, possibly through the Washington DC office.
• The farm subsidies could be a delicate issue with the farming constituency because it would profoundly affect them as well. Also MCC should strongly question the shipping of any North American grain overseas as food aid.