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Q&A: Farm funding row
Cotton picking
Cotton farmers in poor countries vie with subsidised US producers
The World Trade Organisation (WTO) has been bargaining hard, trying to agree new rules on how the world buys and sells its produce.

With Western nations under pressure to dismantle the subsidies paid to their farmers, BBC News Online looks at the contentious issue.

What are trade subsidies?

Trade subsidies are amounts of money paid to farmers for every unit they produce or export. They have the effect of making production cheaper. They therefore enable farmers to be more competitive, and tend to increase production. They are usually funded by the taxpayer, via national governments or trade associations, through mechanisms like Europe's Common Agricultural Policy (CAP).

Who benefits?

Farmers in the Western world are the biggest recipients of subsidies. Oxfam claims the US gives up to $3.9bn to its 25,000 cotton producers each year (which, it claims, is more than three times US foreign assistance to Africa).

Who loses?

Even many Western countries agree that their farmers' gain is poor-country farmers' loss. Western farmers over-produce for their own markets. The excess is "dumped" on poor countries at knock-down prices, against which local farmers cannot compete. Moreover, when the poor farmers try to export to the West, they are vying against subsidised agro-businesses. Britain's Trade Secretary, Patricia Hewitt, told the BBC that Europe must "pull down our appalling agricultural subsidies that distort trade and make it impossible for farmers in the developing world to make a living". She said doing so would lift "hundreds of millions out of poverty".

So is protectionism all bad?

For the farmers on the receiving end, certainly not. In its early years, the CAP established stability in the European markets in the post-war period, which some would say provided a platform for growth across the continent. Oxfam's trade campaign representative Amy Barry says poor countries should be allowed a "right to protect" their fledgling industries. "Rich countries didn't get where they are today without barriers to trade. It's unreasonable and highly destructive to expect developing countries to operate without protection against monolithic foreign industries," she says.

Is it going to change?

The WTO has been talking for some time about changing the present system. In its "Doha round" of talks it has been discussing limiting rich countries' use of subsidies. But for the WTO to move on anything, all 147 members have to agree. The tortuous progress of recent talks indicates that not everyone wants to change the current system. Oxfam's Amy Barry blames the US, but others say France is unwilling to give up the subsidies paid to its farmers. It said the latest proposals were "deeply unbalanced to the disadvantage of the EU".

What is the Common Agricultural Policy?

The CAP was instigated against the backdrop of food shortages and rationing after World War II, to stabilise European food markets while giving farmers a steady income and consumers low prices. Its reputation fell when over-production led to the infamous wine lakes and butter mountains. It remains one of the most contentious issues in European politics - in 2003, the EU set aside 48bn euros to help farmers, almost 49% of its annual expenditure.


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