Smaller World, Bigger Subsidies

Smaller World, Bigger Subsidies

By Kevin Price, VP Government Affairs

As the world becomes more interconnected through the Internet, social media, international travel and 24 hour news reports, one might assume international trade distortions are also being reduced to allow for this freer flow of people and information. The reverse is true, especially in agriculture. This was the subject of a recent hearing before the U.S. House agriculture committee. As reported in Agri-Pulse, the foreign subsidies are massive:

The biggest concern is China, which accounted for 34 percent of the $492 billion in global agricultural subsidies in 2012, according to the Organization for Economic Cooperation and Development, compared to 7 percent for the United States. Farm spending by China and Brazil, which amounted to less than half of U.S. agricultural support in 2001, now exceeds American spending by several fold, according to Texas Tech University economist Darren Hudson.

“Developing country support is growing exponentially,” Hudson told the panel.

China is providing as much as $109 billion a year in support for corn, wheat and rice alone though price supports and other programs, while India provides as much as $48 billion for those commodities, according to a study by DTB Associates, a Washington consulting firm.

The report goes on:

China as well as India and Mexico also have higher price guarantees for corn, according to Hudson. China's is $10.11 a bushel, compared to the $3.70 U.S. reference price under the new Price Loss Program. India's price guarantee is $5.70 a bushel; Mexico's is $7.20.

It’s not just happening in grains. A few years ago the American Sugar Alliance (ASA) – the public policy umbrella group in Washington, DC representing U.S. sugarbeet and sugar cane growers and processors, including American Crystal – began cataloguing what’s really going on in sugar. What we found was equally shocking. Check out this website: What it shows is a lengthy and growing list of subsidies from all over the sugar producing world highlighting action taken by foreign governments to support their sugar industries. Here are a few examples: India’s sugar mills recently benefited from $940 million in interest-free loans from banks. That’s on top of export subsidies, new import taxes and debt forgiveness. Thailand, who is dramatically increasing its production and exports even in the face of falling world sugar prices, is also dramatically increasing its subsidies, now up to $1.3 billion per year. And the granddaddy of them all, Brazil, continues to support its sugar industry to the tune of $2.5 billion per year.

This epidemic of foreign subsidies is not without consequence here in the U.S. When foreign countries subsidize their industries it encourages production and, in many cases, expands exports that distort international trade. For sugar this has long been the reason for keeping U.S. sugar policy in place. But for it and other commodities it highlights the importance of the Farm Bill and the need to stay vigilant in defending U.S. agriculture. It would be one thing if the world were moving toward freer trade, reduced subsidies, and a level playing field, we could move toward less government involvement here at home. But that’s not the case; the opposite is. In sugar, the ASA has said if other sugar producing countries were to eliminate their subsidies we’d encourage our government to do the same because we are very efficient producers. With the current trend toward more foreign subsidies, not fewer, this concept is probably a long way off. In the meantime we’re going to continue to expose those who distort trade so U.S. producers are not unfairly sacrificed at some fictitious alter of free trade.