Lost in the agricultural
Lost in the agricultural
global free-trade maze
NOTHING is so beautiful in its ideal and so confusing in its implementation as global free trade. And as events of the past month have shown, agricultural free trade – with worldwide farm subsidies approaching $1bn/day (£690m/day) in 2002 – may be the most confounding labyrinth of all.
Since late February, US government officials have condemned the Canadian Wheat Boards "dumping" of wheat and barley into the US, howled about Chinas tough stand on imported GM grain, griped about Chiles slow acceptance of US meat and poultry, sulked over Russias ban on American poultry imports and barked at Mexico for its stiff refusal to allow US maize sweetener south of the border.
Perhaps to show that it can play rough on the trade front, too, America then slapped an 8-30% tariff on imported steel and hit Canada with a heavy 29% tariff on that countrys $6bn/year (£4.2bn/year) lumber exports to the US. Canada responded by hitting US tomato exports with a 70% tariff.
Throughout the mud-slinging, President George Bush kept his cowboy hat lily-white in speeches about the virtues of free trade while travelling to Japan, South Korea, China, Mexico, Ecuador and Peru. This President, like most before him, preaches free trade to the worlds sinners, but looks past his own sins if it means 5000 more votes in Ohio or North Dakota.
To most American farmers, ag exports are the Holy Grail. Most can cite maize or wheat or soya export data like the birthdates of their children and all believe exports will lead them out of the low-price ditch into which Freedom to Farm has taken them.
According to data just released from the American Corn Growers Association, however, its a forlorn hope. Since 1979, annual US maize exports have climbed over 50m tonnes only once, wheat exports appear permanently stuck at between 28m and 33m tonnes a year, and soyabean exports clank along at 19m to 24m tonnes a year.
Even when US commodity prices are lower than dirt – as in the past four years – grain exports fail to rise. The failure, though, does not stop Congress and main farm groups from advocating farm programmes they hope will increase ag exports.
Freedom to Farm was just such a programme. According to Daryll Ray of the University of Tennessees Ag Policy Analysis Center, when Freedom to Farm was drafted in 1995 analysts predicted US maize exports would rise from 50m tonnes a year in 1996 to 67m tonnes by 2004. It never happened.
The mistaken forecast was made for other major programme crops like soyabeans and wheat, also. The compounded error pushed Freedom to Farms forecasted cost nearly 100% higher, or more than $30bn (£21bn) over-budget, in six short years, figures Mr Ray.
Export advocates may be making the same mistake in 2002. Both the Senate and House have proposed Farm Bills that assume increasing exports will lift crop prices high enough to limit government support payments. For example, in its Farm Bill budget estimate, Congress predicts maize exports will rise from 50m tonnes in 2001 to – here we go again – 67m by 2011. And they may.
But if grain exports remain in their present 1998-2002 ditch over the 10-year life of the 2002 Farm Bill, Mr Ray paints a frightening picture: The House bill will cost $220bn (£153bn); the Senate bill, $236bn (£164bn). Thats $50bn (£35bn) and $60bn (£42bn), respectively, over current estimates of $170-$176bn (£118-£122bn).
And thats the good news, says the Tennessee economist. If yearly maize exports droop to their 1980-2001 annual average and wheat exports remain stuck at 28m tonnes/year, the 10-year cost of the House Farm Bill soars to $258bn (£180bn) or $88bn (£61bn) over its estimated cost. The Senate bill is even more costly – $273bn (£190bn) over 10 years or nearly $100bn (£69bn) more than the current prediction.
As massive as those payments could be, the extra billions would be paid to farmers because the money is tied to programmes not limited by either Farm Bill proposal. In other words, if farm prices remain in the dumper and farm programme payments climb to the stratosphere, the extra cash flows – by law.
Unless they are capped, of course, as some in Congress now propose. Given Mr Rays projections, the caps would be the only limit to farm programme spending under either bill.
Mr Ray isnt alone in his costly conclusions. John Dittrich, a Nebraska farmer who also serves as a policy analyst to the American Corn Growers, used his own computer spreadsheets to do similar cost comparisons of the competing bills. They show either Farm Bill proposal will be very expensive if exports remain stagnant.
"If American ending stocks for programme crops (like maize, soyabeans, wheat, barley and cotton) remain in the same range or higher as they have for the last several years (10% for maize, 7% for soyabeans) then the average annual cost of these farm bills could be around $32bn/year (£22bn/year). I think Congress has underestimated both bills cost by more than $10bn/year (£7bn/year)."
Moreover, adds Mr Dittrich: "These bills maintain, and then add to, the distress in farm country which means these distresses will accumulate." This suggests more and bigger American farmer bailouts in the future.