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Financing Adaptation by Subsistence Farmers

As we noted in Chapter 1, climate change will have a greater impact on the viability of traditional plant varieties in developing countries in the tropics than in developed countries in temperate zones. This means that the need for GMO seeds will be greater in developing countries. However, a larger percentage of the population depends on agriculture in developing countries (50 percent in India, for example) and the poorest in developing countries depend on subsistence agriculture. Their poverty means that they rely on collecting seeds from traditional plant varieties to sow future crops. However, climate change will make these varieties increasingly untenable. As production in these varieties decline, developing countries will require greater access to GM varieties that can raise yields and adapt to climate change.

In theory, farmers in developing countries could adapt to a changing climate by purchasing GMO seeds. In many developing countries, especially in Latin America and the Middle East, the majority of the population has moved to urban areas. Nevertheless, in the rest of the developing countries, principally in Asia, the majority of the population is rural and poor. The world’s poor will live in rural areas for many decades to come.[1] There are 1.4 billion people living in extreme poverty (defined as those living on less than USD 1.25 per day), of which 70 percent live in rural areas. Half of the developing-country rural population farms 3 hectares or less of crop land.[2]

Would farmers with 3 hectares with less than USD 1.25 per day income be able to afford to cultivate a crop like genetically modified corn? Three hectares is equivalent to 8 acres. One acre needs 20 lbs of seeds. Therefore, 8 acres will need 160 lbs of seeds. We know that 40 lbs of seeds cost USD 125.[3] Therefore, 8 acres will need USD 500 worth of seeds. However, genetically modified seeds need a fertilizer and herbicides. The cost of such inputs would be at least USD 1,400. Therefore, the total cost of inputs would be at least USD 2,000 per year for such farmers. Per capita income of such farmers is USD 450 a year. Thus, even with a family of four, an income of USD 1,800 would still be below what these farmers will be able to afford even if they plough their entire income into farming. What this calculation demonstrates is that it is impossible for such farmers to be availing themselves of genetically modified corn. The story is similar for other major crops like rice or wheat.

Suppose that some agency is willing to loan the farmer all of these input costs. Would it then be possible for the same farmer to generate profits? The answer is yes. The output of an acre of genetically modified corn is 100 bushels per acre.[4] In 8 acres of land, a farmer would be able to produce 800 bushels. The global price of a bushel of corn averaged at least USD 7 per bushel during 2006-2010. Hence the total value of the output of the farmer with 8 acres of land would be USD 5,600. Even with a total input cost of USD 2,500 (seeds plus fertilizer and herbicides costs USD 2,000) the farmer would be able to generate a profit of USD 2,900 per year.

This calculation does not take into account the risk faced by the farmer. For example, there is risk of crop failure (due to floods, severe drought, or other natural calamities). In addition, there is a risk of low market prices as the price of agricultural products fluctuates. Nevertheless, this calculation shows that with proper available credit, it is possible for a poor farmer to mitigate the risk of severe weather that genetically modified crops can withstand. However, it requires the availability of credit.

The WTO Agreement on Agriculture prohibits subsidies to domestic producers in excess of each Member’s commitment levels.[5] However, agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members are exempt from domestic support reduction commit- ments.[6] Least-developed country Members are not required to undertake any reduction commitments.[7] These exemptions should suffice to permit financing to subsistence farmers to acquire GM seeds, fertilizer, and pesticides. However, if these subsidies are made contingent upon the use of domestic over imported goods, they could violate the SCM Agreement.[8]

In addition to the foregoing exemptions, WTO Members can claim exemptions from the reduction commitments for domestic support measures under Annex 2.[9] Annex 2 measures must have no, or at most minimal, trade-distorting effects or effects on production. Accordingly, these measures must conform to three basic criteria: (1) the support must be provided through a publicly-funded government program not involving transfers from consumers; (2) the support must not have the effect of providing price support to producers; and (3) the support must meet the policy-specific criteria and conditions set out in Annex 2 according to the category of support.[10] There are two categories that are relevant to climate-change related domestic agricultural support payments: natural disasters and environmental programs.

Governments can make payments for relief from natural disasters that have occurred or are occurring. The term “natural disaster” is not defined, but includes disease outbreaks, pest infestations, nuclear accidents, and war on the territory of the Member concerned.[11] Climate change and its effects are likely to qualify as natural disasters that have occurred or are occurring. Eligibility for payments is subject to two requirements: (1) prior formal recognition by government authorities that a natural or like disaster has occurred or is occurring; and (2) a production loss which exceeds 30 percent of the average of production in the preceding three- year period or a three-year average based on the preceding five-year period, excluding the highest and the lowest entry.[12] In addition, the payments must be applied, following a disaster, only in respect of losses of income, livestock, land, or other production factors due to the natural disaster in question and, during a disaster, to prevent further losses of this nature.[13] Payments must not compensate for more than the total cost of replacing such losses and must not require or specify the type or quantity of future production.[14] Where a producer receives in the same year payments under this category and under the category of income insurance and income safety-net programs, the total of such payments must be less than 100 percent of the producer’s total loss.[15]

Payments under environmental programs are subject to fewer requirements. Eligibility for payments must be determined as part of a clearly-defined government environmental or conservation program and be dependent on the fulfillment of specific conditions under the government program, including conditions related to production methods or inputs.[16] In addition, the amount of payment must be limited to the extra costs or loss of income involved in complying with the government program.[17] In contrast to the category of natural disasters, which would allow support in response to the effects of climate change, the focus in the category of environmental programs is on support to comply with environmental requirements. Thus, the first category is relevant for adaptation measures, while the second is relevant for mitigation measures. Once again, if these subsidies are made contingent upon the use of domestic over imported goods, they could violate the SCM Agreement.[8]

  • [1] Martin Ravallion, Shaohua Chen, and Prem Sangraula, “New Evidence on the Urbanization ofGlobal Poverty” (2007) Working Paper 4199, World Bank, Washington, DC (accessed March 15, 2013).
  • [2] International Fund for Agricultural Development, “New Realities, New Challenges: NewOpportunities for Tomorrow’s Generation” Rural Poverty Report (2011) 47 (accessed March 15, 2013).
  • [3] Sam McNeill, “Control Seed Costs to Manage Profits” (accessed December 15, 2012).
  • [4] Commodity Costs and Returns, United States Department of Agriculture, document availableat (accessed April 6, 2013).
  • [5] Agreement on Agriculture art. 3.2.
  • [6] Agreement on Agriculture art. 6.2.
  • [7] Agreement on Agriculture art. 15.2.
  • [8] SCM Agreement art. 3.1(b); Appellate Body Report, United States—Subsidies on Upland Cotton(US—Upland Cotton), WT/DS176/AB/R, adopted March 21, 2005, para. 550.
  • [9] Agreement on Agriculture art. 6.1, Annex 2 para. 1.
  • [10] Agreement on Agriculture Annex 2 para. 1.
  • [11] Agreement on Agriculture Annex 2 para. 8.
  • [12] Agreement on Agriculture Annex 2 para. 8(a).
  • [13] Agreement on Agriculture Annex 2 para. 8(b) and (d).
  • [14] Agreement on Agriculture Annex 2 para. 8(c).
  • [15] Agreement on Agriculture Annex 2 para. 8(e).
  • [16] Agreement on Agriculture Annex 2 para. 12(a).
  • [17] Agreement on Agriculture Annex 2 para. 12(b).
  • [18] SCM Agreement art. 3.1(b); Appellate Body Report, United States—Subsidies on Upland Cotton(US—Upland Cotton), WT/DS176/AB/R, adopted March 21, 2005, para. 550.
 
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