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It is no secret that
the United States, like most other developed economies,
provides large subsidies to its farming sector. It is
also no secret that these subsidies have not really
been reduced after WTO was formed, and that despite
the GATT Agreement on Agriculture, farm subsidies in
most of the OECD countries are now back to pre-GATT
levels.
What has been a relatively well-kept secret, however,
is that these subsidies have not really benefited farmers
so much as they have contributed to greater profits
of the giant corporations that now control the distribution
and marketing of food products. This is marked in the
US, which is particularly striking because the US economy
is widely cited as one with relatively low marketing
margins among developed countries.
At first glance, this appears hard to accept. After
all, expenditure on food in the US has been rising at
a significant rate over the past decade. And this has
been combined with subsidies of various types which
have circumvented the GATT restrictions by using "Green
Box", restructuring and other provisions to provide
subsidies which are now as high as a proportion of the
final value of output as they were in the late 1980s.
The paradox can be explained in terms of the widening
margins going to marketing and distribution. The share
of this in total value added in the total food expenditure
in the US has gone up dramatically sine 1980. This can
be gleaned from Chart 1, which shows index numbers of
total food spending and farm receipts in the US, in
terms of current US dollars. As evident from the Chart,
while total food spending has ballooned, farm receipts
have barely risen even in current price terms, and the
gap between them has increased most strikingly over
the 1990s.
Chart
1 >> Click
to Enlarge
Obviously,
this is even more marked in terms of real values. In
constant price terms (that, calculated at 1982-1984
real US dollars) between 1970 and 1999, consumer food
spending increased by 30 per cent, the marketing bill
rose by 54 per cent, and farm value actually declined
by 21 per cent. Much of this process was due to specific
trends of the 1990s. US consumers spent $618.4 billion
on food in 1999 (excluding imports and seafood), up
37 percent from the amount spent in 1990.
Between 1990 and 1999,
marketing costs rose 45 percent and accounted for most
of the 37-percent rise in domestic consumer food spending.
In comparison, the farm value of food purchases climbed
only 13 percent between 1990 and 1999.
The
higher marketing costs not only raised consumer food
expenditures, but also increased the share of expenditures
attributable to marketing. In 1999, marketing costs
accounted for 80 percent of total consumer food spending,
with farm value accounting for the remaining 20 percent.
In comparison, the marketing bill accounted for 76 percent
of 1990 consumer expenditures and farm value 24 percent.
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