TRADE: by Colin TeeseNews Weekly
The fate of Australian agriculture under globalisation
, October 28, 2006
, a former deputy-director of the Department of Trade, recently addressed the Australian Innovative Farming Conference sponsored by the Nuffield Farming Scholars Association. The conference focus was on "Globalisation and its impact on Australian farming". The following is an edited version of his paper.Australia has chosen to allow its domestic agricultural policy to be driven by international trade policy.
Don't let anyone tell you that this change is a consequence of globalisation and that our government has no control over it. The choice was ours, and our farmers are paying a terrible price for what amounts to a policy about face.
Globalisation describes a process whereby individual national economies are able to enjoy the benefit of new technologies, especially in the areas of transport and communications. This spread of the benefits of new technology allows them to more closely relate to the rest of the world.Ideology
Unfortunately, the idea was picked up by those who wanted it to serve an ideological end. It also became known as the "Washington consensus", reflecting the views of the International Monetary Fund (IMF), the World Bank and the U.S. Treasury. Its purpose was to totally corporatise economic life in the name of efficiency. Every economic activity is required to survive independently as a profit centre in its own right. No provision can be made for activities which contribute to broader economic activities, or to social or community objectives and thereby contribute only indirectly to efficiency. Behind all of this stands the somewhat utopian idea that fully deregulated market economies can deliver the best outcomes for society.
Some went further, insisting that this kind of globalisation would usher in the end of the nation state, which has been the way our world has chosen to organise itself, at least since the industrial revolution.
Strange isn't it, the socialists and communists were saying the same thing ninety years ago. It is no more realistic now than it was then.
Globalisation is nothing new.
At the beginning of the last century, the belief was that globalisation (closer economic integration of the world's economies) would generate its own version of prosperity and political stability. For a while that looked likely, then came the rise of fascism, communism and rabid nationalism. The consequences of those developments plagued most of our planet for the rest of the 20th century.
Nevertheless, closer integration of the world's economies through technological advances, properly handled, can bring good. What corrupts it is the idea that prosperity flows spontaneously from the operation of free unregulated corporatism. This, many have been encouraged to believe - incorrectly - is the natural partner of globalisation.
If globalisation is about free markets, then it is bad news for agriculture. The economic text books tell us that free markets only work in a genuine market place, where a large number of independent sellers face a large number of buyers with no one group or individual on either side having the power to set prices.
Certainly that is never so in the market place for agricultural products, either domestically or in international trade. Farmers are price takers.
This fact of economic life explain why farmers have been caught in a perpetual price squeeze since the end of feudalism.
Nevertheless, it is an uncomfortable fact which current economic orthodoxy feels obliged to ignore, particularly in Australia.Gratuitous advice
Farmers will hear plenty of gratuitous advice from their own farm organisations who should know better. Get bigger, embrace change, become more efficient. All this misses the point. Market imperfections - domestically and internationally - will ensure that the cost/price squeeze overrides size, change and efficiency.
Most of the world's developed economies, including Australia, recognised this more than 60 years ago. Each found its own way of protecting its farmers from the consequences of these realities. Australia put in place a whole series of marketing boards for its various traded agricultural products. At the same time it joined with other agricultural trading nations, in the newly created General Agreement on Tariffs and Trade (GATT), to advance the negotiation of various commodity agreements aimed at stabilising agricultural commodity prices.
The push for globalisation put an end to those cooperative international efforts. Free market pressure led to the end of the marketing boards. We know that push was driven by the United States, with Europe and Japan firmly behind them, though the latter two always appeared less willing to proceed so freely down the free market track.
To the big players the push made sense. Agriculture aside, trade liberalisation for goods had gone about as far as it could go. What they wanted was access to the closed markets for the burgeoning trade in services.Failure or services
The problem was, and still is, that much of this trade was locked up in developing countries. Working through the normal negotiating practices in the GATT/WTO meant bargaining for concessions on services based on the idea of reciprocal and mutually beneficial exchanges. But the big powers had nothing worthwhile to offer in return for concessions on services. To get something which they were not in a position to pay for, the big economies had to find a way around the normal negotiating straitjacket. They went for and failed to get a special agreement on services.
It was never their intention that agriculture would be on the table. The GATT had from the start provided special rules for agricultural trade. Subsidies were permitted as a form of protection for domestic agriculture. The U.S., Europe and Japan all used them.
In each case the reasons differed slightly. The United States supported its farm sector for two reasons: first its consumers did not want to pay the full economic cost of food production; second, for products like grain they had surpluses which had to find export markets. Further, subsidies for US cotton producers, which are enormous, have been continued as a legacy of the civil war.
Europe had suffered blockades and food shortages in two world wars. It was committed to food self-sufficiency, regardless of cost. As for Japan, its politically influential and hopelessly high cost agricultural producers demanded protection against imports.
Up to the time that the impact of European integration began to affect world agricultural trade, there was not much pressure for these subsidy programs to be discontinued.
Australia was the first member country to push for agricultural trade liberalisation in the GATT, in company with other major food exporters. The target was less the U.S. and Japan, than Europe. That suited Australia, because we had lost the vitally important British market to EEC producers when Britain joined the EEC.
When the Uruguay Round of trade negotiations began in the late 1980's - which led to the transformation of the GATT into the World Trade Organisation - globalisation had taken hold, for reasons unconnected with agricultural trade. The new ideology demanded free trade apply as much to agriculture as elsewhere, at least that part of it rooted in Australia did.
Most of the rest of the developed world had a relaxed, pragmatic approach about this commitment to free trade. It was something to be aimed for as far as practical, that is to say without harming sensitive industries at home, especially as it applied to agriculture.
Pragmatically, free trade made most sense to the major developed countries only in so far as it applied to access to markets, such as services, where they could not afford to pay for such concessions in the ordinary way of reciprocal and mutually beneficial exchanges.
Unfortunately, Australia was not, and still is not, able to play this game. From the time of the Whitlam unilateral tariff reductions, economic ideology has driven our policies. We decided to cut tariffs outside the normal negotiating framework. We actually gave up industrial tariffs without asking for anything in return. Thus when it came to ask for a better deal for our farm exports we had nothing to offer.
The only course open to us was to demand that the EU, along with Japan and the U.S., reduce their subsidies on farm production and export as part of a commitment to the free trade ideal. But we had no bargaining currency and therefore no leverage.
To make headway we must rely on the goodwill of other countries, and we have not seen much of that. To some extent the present negotiating round is stalled on agriculture. But it is also true that the developing countries are not going to move on services without something worthwhile in return.
Meanwhile the big trading powers have found a way around the problem. They have begun negotiating bi-lateral agreements, one country at a time. These work because it is easier to contain concessions bilaterally than it is in the WTO. Although none of them are saying so, bilateral agreements suit them better. As is now certainly the case, if they can no longer dominate multilateral agencies like the WTO, it is better to negotiate outside of them.
Meanwhile, we have opened up our market for agricultural produce, including processed products, to the entire world without getting anything in return. Our local farm sector and its partners in food processing are now under permanent threat from cheap imports. And because we have squandered our negotiating leverage we can't put pressure on the U.S. and Europe to reduce their subsidy policies.
It can be said that our policy approach to globalisation has seriously undermined the stability of Australian agriculture. And it will require a major turn around in policy and strategy for that stability and prosperity to be restored.
Meanwhile it remains for us to watch, impotently, while imports gradually increase their share of our domestic market for agricultural products.