American wheat groups partly blame a 30 percent drop in wheat prices on subsidies in China, India, Turkey and Brazil
A trend toward excessive subsidies in developing countries is disrupting world wheat trade and depressing prices, according to a study commissioned by two U.S. wheat groups.
The study, conducted by agricultural economists at Iowa State University, states that subsidies in China, India, Turkey and Brazil are costing U.S. wheat farmers nearly US $1 billion a year in lost revenue.
Study author Dermot Hayes estimates Canadian farmers, who typically grow about half as much wheat as their U.S. counterparts, are being penalized to the tune of $500 million a year.
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U.S. Wheat Associates and the National Association of Wheat Growers, which sponsored the study, said it shows that it is the advanced developing countries that are distorting world wheat prices, rather than developed countries, as was once the case.
“Wheat prices have plummeted more than 30 percent since last year, a significant portion of which is due to these countries’ market distorting policies, which send the wrong signals to their farmers,” NAWG president Brett Blankenship said in a news release.
The groups said the galling part is that the subsidies in the four developing countries far exceed their World Trade Organization commitments.
Hayes said growers in those countries receive input subsidies to make their fertilizer, seed and equipment more affordable as well as high floor prices for their wheat.
China is the biggest culprit, paying its farmers $10.45 per bushel for wheat.
“They are stimulating domestic production and they’re dampening domestic consumption because the wheat consumer in China has to pay that $10.45. They’re not seeing the benefits of $5 wheat,” said Hayes.
China and India have built up huge government-owned stockpiles of wheat.
China and India claim they are using WTO compliant subsidies that do not distort international markets, but Hayes said his study proves otherwise.
The model shows removing all support from the four countries would result in a marked decrease in their domestic wheat production and a 10 million tonne increase in annual imports.
U.S. wheat production would increase by more than 1.4 million tonnes per year and farmgate prices would rise by 30 cents per bushel, resulting in additional $947 million in annual revenue for wheat growers in that country.
The report estimates that eliminating the subsidies would increase world wheat prices by 4.26 percent.
Hayes said the report was based on 2013-14 market conditions. The price distortion would be much higher today because world wheat prices have plummeted but the subsidies have not.
Growers in China, India, Turkey and Brazil are being shielded from the price drop, which is leading to overproduction in those countries.
“Somebody has to respond to the oversupply, so it’s pushing the burden of that response onto countries like Canada and the U.S.,” he said.
“All of the adjustment is being borne by Canada, the U.S. and Australia.”
Hayes said the U.S. wheat industry wants to work with other major exporters such as Canada and Australia to pressure developing nations into reducing their subsidies.
Cereals Canada is definitely on side.
“There is no question that (foreign subsidies) have an impact on Canadian farmers as well,” said president Cam Dahl.
He said there’s no doubt that the amount of trade-distorting wheat subsidies have increased.
“If you look around the world, we’re seeing this creep-back of the use of production distorting subsidies,” said Dahl. “We need to holistically reinvigorate the WTO process to address these issues.”
Dahl would like to see other countries adopt the subsidy system used in Canada, which is a non-trade distorting, whole farm, insurance-based system.
Hayes said the Office of the United States Trade Representative is too busy negotiating free trade agreements to ensure that countries are living up to their WTO obligations.
“It’s a painful process to go through the WTO and it takes years,” he said.
However, U.S. wheat groups are so fed up that they are pushing the U.S. government to get involved.
“We are working with USTR and USDA (U.S. Department of Agriculture) to determine our next steps, including a possible WTO challenge,” USW president Alan Tracy said in a news release.
sean.pratt@producer.com
