AT the centre of the story behind this winter’s depressed grain prices are the byzantine subsidy budgets of the world’s two agricultural super powers – the United States and the European Union.
For the past four years, world commercial demand for cereals and feed grains has been stagnant, in part because of economic troubles in Asia. Yet cereal production in those two countries has increased 18 percent.
Canadian production has fallen by more than seven percent and wheat acreage is at a 19-year low.
“We have to ask why European Union wheat production since 1993-94 has gone from 84 million tonnes to 103 when world demand has remained relatively flat,” Canadian Wheat Board chief commissioner Lorne Hehn mused at a recent Parliament Hill hearing.
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He blames the “complex array of domestic and export programs” which isolate European production and planting decisions from world market conditions.
The core program is a “grain area payment” which this year is worth $175 (Cdn) per acre whether a crop is planted or not. For durum, it is $368 per acre.
Once a crop is taken off, European farmers are guaranteed $205 Canadian per tonne, no matter what the world price. If that produces excess grain, it is stored and the E.U. has export subsidies to ease it into the market.
American programs are not as rich, but still are substantial.
“The U.S. farmer continues to enjoy the benefit of two very distinct programs that offer substantive government support as well,” said Hehn.
“To supplement those two programs, president Clinton recently also announced a very generously funded disaster assistance program.”
Those two “distinct programs” are production flexibility contracts and loan programs. Added to the $6 billion (U.S.) in emergency aid, total U.S. support to farmers this year is $24.5 billion (Cdn).
The wheat sector’s portion of that is $6.9 billion, according to CWB analysts.
A rating system for government support developed by the Paris-based Organization for Economic Co-operation and Development values 1997 government support for wheat farmers in Canada at $15 per tonne compared to $72 in the U.S. and $116 in the E.U. The American number would be substantially higher this year.
The result for three years has been growing production and now a price-depressing surplus in commercial markets.
It is subsidy fuelled and that leads some Canadian politicians to talk about Canadian farmers being victims of another “subsidy war.”
Ottawa trade consultant and former federal wheat bureaucrat Bill Miner said that is not exactly correct.
Both the U.S. and E.U. are within trade rules with their subsidy levels and they are not in a tit-for-tat subsidy escalation confrontation as they were in the early 1990s, he said.
“There is no doubt that subsidies play a role in this over-supply but I do not see this as a subsidy trade war as we had before,” said Miner.
“I do not think we are seeing subsidy escalation as retaliation, as we did during the trade war.”
