July 26, 2002
Rio + 10 Series: Report Finds Fundamental Flaws in WTO's Agreement on Agriculture
by William Baue
An Institute for Agriculture and Trade Policy report argues that the Agreement on Agriculture fails
to account for agri-business' monopoly over global agricultural trade.
Agriculture, one of Kofi Annan's five focal points for the World Summit on Sustainable Development, recently has
not been an area of major concern to social investors, at least in the U.S. For example, in the
2002 proxy season, only eight of more than 150 shareowner resolutions concerning social issues
addressed agriculture. It is not that social investors are overlooking agricultural issues; they
simply cannot influence the predominant companies. A recent report critiquing the World Trade Organization (WTO) Agreement on
Agriculture (AoA) noted that five privately owned companies (Cargill, Continental, Louis Dreyfus,
Andre, and Bunge) control up to 90 percent of global grain trade.
is entitled Managing the Invisible Hand: Markets, Farmers and International Trade. It
argues that the AoA, which is the primary trade agreement governing global agricultural trade, is
"fundamentally flawed." While the AoA focuses on the distorting effects of national policy on
global agriculture markets, it essentially ignores the distorting influence exerted by
transnational agri-business over world agricultural markets, according to the report. Furthermore,
the report states that the vertical integration of these agri-businesses allows them to control the
entire agricultural cycle from seed to market, a fact overlooked by the AoA.
multilateral trade rules take account of the concentration of market power in transnational
agricultural trade, they cannot manage an open and fair trading system," writes the report's
author, Sophia Murphy. Ms. Murphy serves as director of the Trade and Agriculture Program at the
Minneapolis-based Institute for Agriculture and
Trade Policy (IATP).
The AoA is premised on standard economic theory, from Adam
Smith's notion of the "invisible hand" to David Ricardo's concept of comparative advantage. The
latter theory posits that balance in the world market is achieved by each country concentrating on
its most competitive products. However, the control of global agricultural markets by a few
companies essentially blocks supply and demand equilibration from taking place. Companies, not
markets, now control price, the report argues. The transnational nature of agri-business companies
erases the counterbalancing effects of competition among countries. And companies' vertical
integration seals off many of the transactions between the field and the store from market forces,
according to the report.
"Agricultural trade rules need to take into account the
rapidity of change in the whole agricultural sector, from seed production to food processing to
retailing," Ms. Murphy writes.
The report graphically illustrates how wheat prices have
remained constant over the past quarter century, while retail bread prices have risen threefold.
Vertically integrated companies such as Cargill capture all of the profit from this increasing
differential between the price of raw material and final product, as it owns all the intermediary
processes. Meanwhile, farmers continue to receive 1975-level prices for wheat while the AoA curbs
national subsidies in the name of controlling global market distortion.
The report cites
several other agri-business practices that distort global agricultural regulations. For example,
while international trade considerations significantly influence the agricultural regulations in
individual countries, most food remains close to home. Only a very small percentage of production
of wheat (17 percent), coarse grain (11 percent), and rice (6 percent) trades in the global
marketplace. The vast majority of agricultural products are consumed in the country where they are
These multiple modes of global agricultural market distortion by transnational
agri-business remain unaddressed by the AoA. Ms. Murphy identifies one potential reason for this
"The wealth and size of the transnational agribusiness[es] also make them
politically powerful," Ms. Murphy writes. "[A] former Cargill Vice-President, Dan Amstutz, drafted
the original text of the WTO Agreement on Agriculture while working at the United States Trade
Representative's office--and later returned to the grain trade."