The concern over global warming and climate change has suddenly become the main topic of discussion at all international fora. A panacea seems to have been found in the biofuels (bioethanol and biodiesel), and US is leading this particular charge. Food crops like corn, sugarcane, sugar beet, soybeans, rapeseed and palm oil are presently being used as feedstock for biofuels. And the support-incentive schemes adopted usually combine generous subsidies for domestic generation (via tax credits) and tariff protection against imports, in particular into the US.
This has had two effects. Increased demand of food crops for fuel has increased the domestic demand for these crops, which while reducing the net subsidies that these countries are paying their farmers (in 2006, US taxpayers paid farmers around USD 11.9 billion to make up for low market prices as opposed to 14-18 billion in 2004-05), is also increasing prices in those countries dependent on imported food. The tortilla unrest in Mexico earlier this year is but a mere preview of things to come. The FAO has recently calculated that despite bumper harvests in 2007, the poorest countries will see their cereal import bill increase by one quarter in the current season alone due the biofuels demand.
Notwithstanding how the price and supply scenario plays out in years to come, this raises a concern from the perspective of the currently stalled Doha Round of WTO Negotiations. It needs to be recalled that the current impasse is mainly on account of the stalemate in agriculture, in particular the developed country intransigence on reduction targets for agricultural subsidies.
The issue pertains to the treatment of subsidies on the agricultural products used as feedstock for generation of biofuels. And the concern is that given that new industrial uses of agricultural produce have been found and are being encouraged, ought the developed country subsidies going into these agricultural crops dedicated for biofuel generation continue to be discussed under Agreement on Agriculture (AoA)? If not, what should their treatment ideally be, and is there a need for reviewing the caps of agricultural subsidies under AoA, especially those under green box?It is notable that while the US is negotiating for the development of stronger WTO rules that will rein in the use of industrial subsidies, in the light of the ongoing agriculture negotiations, the proposed new subsidy rules are not intended to apply to the agriculture sector. A question that begs to be answered is whether the industrial use of agricultural crops should merit different treatment (from other food crops) insofar as certain particularly trade-distorting subsidies on these crops are concerned.