A few years ago, when I was a student, our campus received visiting officials from the United States. Related to the trade department (I forget whether directly or indirectly), they spent a class explaining to us, engagingly and unapologetically, how their job was not to meet the international trade requirements nor to encourage global trade - but to make the lot of US-based businesses better. They enumerated how unfavorable trade promises were handled sometimes - ignored by finding loopholes and followed in letter rather than spirit, or simply not followed until the counter-party country lodged a case and won their complaint at the assigned international court.
All very sensible for them. But rather unfair for the developing countries who had not the legions of lawyers to understand and design trade treaties nor the greenback to defend their case in law. So it was no surprise for me, or any observer who's been seeing the WTO roll-out, that after putting up with all the hoodwinking and smartassing for years, developing nations such as India put their foot down in negotiations. Address the subsidies in agriculture in Western nations, they insisted, or we will have nothing to discuss.
As of now, the agricultural subsidies are still on. Clearly, US and Europe feel it is too important to be done away with.
I suppose the president of Malawi, overlooking a country racked by year-after-year of famine, and at the mercy of Western nations who were bullying it into reducing agricultural subsidy, must have noticed the anomaly.
After the 2005 harvest, the worst in a decade, Bingu wa Mutharika, Malawi’s newly elected president, decided to follow what the West practiced, not what it preached.
[source: New York Times, 2 Dec 2007]
Mutharika, in short, reinstated and deepened fertilizer subsidy in Malawi. The US did not support this subsidy and the World Bank had spent the last 20 years pushing Malawi to eliminate these subsidies altogether. So you have to admire the man's galls and gumption for going ahead with what he did in the face of its biggest donors. Luckily for him, the gambit worked.
Added to the economic move was a good rainfall last year. The result: bumper crops that have suddenly and swiftly ended the famine years.
...this year, a nation that has perennially extended a begging bowl to the world is instead feeding its hungry neighbors. It is selling more corn to the World Food Program of the United Nations than any other country in southern Africa and is exporting hundreds of thousands of tons of corn to Zimbabwe.
The problem with Malawi's agricultural all along has been its poor soil. The only way its poor farmers can afford fertiliser is through subsidy. Without it, they fall into a debt trap. It is really that simple.
But advocates of free market insisted that Malawi must embrace free markets. They believed, as is the current fashion, that giving subsidies to farmers would be counter-productive.
The United States, for instance shipped $147 million worth of American food to Malawi as emergency relief since 2002, but only $53 million to help Malawi grow its own food. It gave no aid for the fertiliser subsidy program (except in helping pay for its evaluation) reports New York Times.
Hopefully, the experience of Malawi will make them reassess their aid plans for the rest of Africa.
disclaimer: this post is not my blanket love for subsidies. rather, it is a reminder to blanket-lovers of free market that subsidies have a valuable place in economics
