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New proposal on WTO agricultural subsidies reform welcomed

A proposal by the Cairns Group of major agriculture exporting countries for further reforms to the rules around WTO agricultural subsidies is being welcomed by the Dairy Companies Association of New Zealand (DCANZ). The proposal, announced by the Cairns Group in Davos today, would cap and at least halve all forms of trade and production distorting agricultural subsidy entitlements by 2030.

“The need for further reform of domestic support rules has long been a key trade concern for unsubsidised dairy producers and exporters who bear a disproportionate cost associated with the distortions they cause in agricultural markets” says DCANZ Chairman Malcolm Bailey.

Subsidies mask price signals to subsidised producers, preventing an efficient response to price signals and suppressing global market prices. The FAO has estimated this price suppression in dairy markets to be between 10-60% depending on the product involved.

Such an initiative could also have environmental benefits. OECD studies have also shown that trade and production distorting agricultural subsidies cause environmental harm as they encourage inefficient use of inputs or increased production in geographies with higher relative environmental footprints.

Current WTO rules allow some types of agricultural trade and production distorting subsidy entitlements to grow as the value of production grows. Globally these subsidy entitlements grew from USD $341 billion in 2001 to USD $772 billion in 2016, with most of the entitlements concentrated in just a handful of countries. Without new disciplines they could reach USD $2 trillion by 2030.

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“The broad global commitment that already exists for the UN Sustainable Development Goals should form a solid foundation enabling WTO membership to accept and move forward with the Cairns Group proposal” says Bailey.

“The Sustainable Development Goals include correcting and preventing trade restrictions and distortions in world agricultural markets as a key action to assist in ending hunger”.

It is important that capping and halving trade and production distorting agricultural subsidies occurs both in aggregate across all agricultural production and at a product specific level. In the absence of product-specific caps there is a risk that the current pattern of subsidy concentration for certain products, like dairy, continuing.

“An absence of product-specific caps could mean outcomes that fall short of their intent” says Bailey. “We encourage all WTO Members to further consider the benefits of product-specific outcomes, as an essential means of delivering increased certainty for farmers and the wider agriculture sector”.

A broad range of global dairy industry participants formally recognised the Sustainable Development Goals as ‘the overarching framework to guide actions towards sustainable development from an economic, social and environmental perspective’ in the 2016 Global Dairy Declaration of Rotterdam. DCANZ hopes this will translate into broad global industry support for this clear and sensible proposal to achieve a key implementing action of the Sustainable Development Goal to end hunger.

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