From Loan to Subsidy in the Blink of an Eye

December 17, 2014
Months after receiving preferential government loans, farmers in India soon will be allowed to walk away from their debts without repayment of either principal or interest, according to a Dec. 9 article by Bloomberg.
 
The outlet explained how some in the India agricultural community are using the free money to expand at a time when many global commodity markets are awash in a glut of subsidized surplus. Bloomberg specifically mentioned plans to waive $5.6 billion in agricultural loans, which comes on the heels of a similar $11.4 billion loan forgiveness program in 2008.
 
Subsidizing sugar is nothing new for India, which has combined the no-pay-back loans with controversial export subsidies, government market mandates, and cane mill bailouts to pull ahead in a three-way sugar subsidy race with Brazil and Thailand.
 
Unfortunately, these nations’ race to subsidy supremacy has gutted global sugar prices and harmed farmers in many developing nations as a result.
 
Of course, it’s not just India and it’s not just sugar involved in loan-to-subsidy schemes and other hard-to-follow government programs.
 
Unlike the United States, which has a transparent Farm Bill process and clearly defines its agricultural policies, many foreign countries rely heavily on indirect subsidies that often go unreported to support agricultural producers.  
 
DTB Associates, a DC-based trade consultancy, first reported on the rapid growth of foreign farm programs back in 2011.  Their report detailed programs in India, Thailand, Brazil, and China, and showed those countries to be in direct violation of agreed-upon WTO subsidy limits.
 
And since 2011, the situation has only deteriorated. Thailand, for example, created an unprecedented market mess with its recent policy decisions.
 
In an attempt to win political favor with powerful rice farmers, the Thai government started a massive stockpiling program and purchased rice from growers at a 50% premium. Now, the government has way too much rice on its hands and it is offering preferential loans (which may be forgiven) and one-time cash payments to farmers in exchange for not marketing this year’s harvest.
 
Thailand is also offering incentives, including access to state land, for rice farmers to convert to sugar production in hopes that lower production will ease the market depression caused by Thailand’s failed stockpiling policy.
 
China, too, has massive stockpiling programs to artificially manipulate markets. Such stockpiling, which is notorious in cotton circles, extends to other crops as well.
 
And Brazil is eyeing higher ethanol usage mandates to complement the recent announcements of $2 billion in loans, $620 million in state investments, and a $480 million bailout package to bolster its struggling sugar-ethanol sector.  
 
With this kind of subsidy escalation and no end in sight, it makes you wonder why anyone would listen to the likes of Brazil, India, Thailand, China, or any of their backers when they attack U.S. farmers and the 2014 Farm Bill.