The Quest For Global Markets - Step 5

Basic Aspects of the Issue

The Basic Issue

An over production of agricultural products drives prices down. The four steps shown so far indicate the key aspects which have driven this over-production:

1. a commitment to excellence in education and research resulted in improvements in agriculture
2. the improvements in agriculture resulted in increased productivity and a shift from land and labor inputs to purchased inputs in agricultural production.
3. the drop in labor requirements in agriculture resulted in migration t the cities.
4. the new arrivals in the cities exacerbated industrial productivity, adding even more techniques for added agricultural productivity.

Now the question arises, what to do with the excess produce which is snowballing out of control, driving prices ever downward?

Foreign aid for the millions of starving and undernourished people in the world removed some of the surplus over the years , but even this had its limits,

• It does have ramifications in the donor country. Agricultural products which are given away have to be purchased initially from the producer, they not appear out of thin air. We would not even think of going into a store and cleaning off the shelves to collect free food for the hungry of the world. Yet, somehow, perhaps because we all have had gardens which we considered "free food", we think that food-aid is free. It is not. It is purchased with tax dollars, and that is what drives up the government deficit and debt.

• It is not always appreciated in the receiving country. Sometimes if help is needed, and is not available in a form that is appropriate, receiving countries have to accept what they are given. Straight donations are far more flexible than a dumping of excess produce into a market where it can often do much damage as well as not being appropriate in the first place.

In order to get the produce into markets abroad, excess produce is often subsidized. This is done by a variety of programs:

• Subsidies on transportation are given to inland production areas in order to equalize freight rates with areas closer to ports.
• Two price systems are sometimes used to maintain a high domestic price and a lower export price and the difference is paid to the farmers.

There are several problems in providing both export subsidies and the price supports programs mentioned earlier:

• all of the major producing countries are doing the same thing, but each country exports differing percentages of their produce. Europe exports a very low percentage, USA a mid range percentage and Canada about three quarters of its produce. Therefore it is difficult to have them compete for the same customers on the basis of price (they are undifferentiated products).

• Smaller countries like Canada can not possible afford to pay the huge amount of subsidies with such a small population and large amount of product to support.

• Europe is very particular about self-sufficiency since the disaster of the Second World War. That affects their export mentality, and what they are willing to trade-off in trade negotiations.

• crops are subject to natural disasters and this years customers may not be able to be serviced as they were in the past, resulting in a lost customer.

• Transnational companies have bought up vast amounts of farmland or have entered into contracts with farm producers in every climatic zone, so that "strawberries" can be produced in a steady stream year round. As everybody is using the "Pareto principle" that 80% of your revenue comes from 20% of your customers, the market end of the produce flow of "strawberries" tends to be into the rich countries. The return on the berries is insufficient for the producing countries to purchase he goods in trade they need to buy to feed their larger and poorer populations, and the arable land is used up on berries so they can no longer feed themselves. Food aid then just makes matters worse by perpetuating the situation, creating dependence or hopelessness, and driving domestic prices for the locally produced product downwards for the same reason that it did so back in the donor's country, destroying the fledgling industrial farms.

• The subsidy programs tend to go to the large farmers and not to the smaller farmers who need it more, owing once again to "entitlement" arguments.
• The competition is so strong that the various nations have started to form trading blocks within which to trade freely, but outside of which there are stiff economic barriers. These blocks vary in their objectives, the European block having a secondary agenda of preventing the recurrence of war on the continent, so they have a re-distribution system built into their activities which is missing in the North American system.

• There is a parallel development of a world trade system emerging alongside the trading block system. They are quite similar, and have at their base a "neo-liberal" philosophy (go for the dollars and marginalize those who cannot join in). These trade agreements are supposed to eliminate price supports and export subsidies in member countries but they do not seem to be effective in that area as yet.

• The international trade agreements can be overridden by the United States if a and when it wishes, which means when they feel that any trade deal goes against their best interests. They are the biggest player in the game , so what they want tends to prevail.

• Up until Sept 11th when the attack on the World Trade Center happened, it appeared that the economic trade agreements were driving the countries and the countries were taking a back seat to the economic activities of the multinationals. After the attack, the reality that nations are still the masters of their own homes came back into view. After the attack, people realized once again that there is more to life than housekeeping, and that, after all, is all that economics is. The tendency for economics to creep back into dominant position is always there however, and economic imperatives (with current zeitgeist of free trade) can once again start to drive the ship of state.

As if this fifth domino tipping over, or fifth step along the journey to our present rural reality were not enough, there is yet a sixth one - for at this point the "second" and "third" worlds want to join the "first" and partake of the good life on behalf of their people.

Aspects of Globalization

• Impact of Globalization on Agriculture
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Rural Development Institute Research Studies

Other Resources