SASKATOON – A bushel of wheat could be worth an extra dollar by the end of the decade thanks to the new world trade deal, says the Canadian Wheat Board.
Export subsidies paid by the U.S. under the Export Enhancement Program should drop to around $25 to $30 a tonne by the time the deal is fully implemented in six years, said Harvey Brooks, the board’s director of corporate policy.
And those subsidies will likely be concentrated in a few major markets, freeing up other markets for commercial competition, he told a conference on world farm trade in the post-GATT era.
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Depending on such things as trade volumes, exchange rates and changes in commercial prices, Canadian wheat prices could benefit by roughly $30 to $36 a tonne.
“In the shorter run it’s still going to be tough the next few years,” he said, with intense competition based on export subsidies. “But it will be positive in the longer run.”
U.S. subsidies are averaging around $48 a tonne this year and peaked at $65 on a sale to China in January, a figure described by Brooks as “absolutely phenomenal.” In other markets they’re in the range of $10 to $15.
The spending reductions called for in the new General Agreement on Tariffs and Trade should force the Americans to be more selective in their use of EEP, Brooks said, directing it to what they consider their most important markets and pulling it out of others.
“There’s no question it’s going to help us in countries where they’re using subsidies in a modest way,” he said.
Now, about half of the 100 million tonnes of wheat traded in world markets each year is heavily subsidized (about 20 million tonnes from the U.S., 20 million tonnes from Europe and 10 million tonnes from other exporters like Saudi Arabia, Sweden and Austria).
Limits on subsidized volumes contained in the GATT should reduce that to about 25 percent by the end of the decade. With an additional 25 million tonnes trading on a commercial basis, that’s bound to mean higher prices.
Brazilian market uncertain
Brooks said it’s too soon to judge exactly how the GATT will affect world wheat trade. For example, there is a lot of uncertainty about access to the big Brazilian wheat market.
This year Brazil will import about 5.6 million tonnes of wheat, including about two million from Canada. But in its offer for market access under the new trade deal, Brazil has proposed taking just 750,000 tonnes tariff-free and levying a 55 percent tariff on additional volumes. Argentina would have full tariff-free access after 1995.
Whether the Brazilians actually implement those restrictions remains to be seen, Brooks said, adding the wheat board is watching the situation carefully.
