November 19, 2001

By Brian Doidge, Market Analyst, Ridgetown College, University of Guelph

U.S. & World
In the November issue, we discussed two factors that will help direct corn pricing in the near and long term: the October USDA report, and the House of Representatives’ version of the 2002 U.S. Farm Bill. In mid-November, two more things emerged that added more structure to the future for grains and oilseeds: the Senate Sub-committee for Agriculture’s version of the 2002 U.S. Farm Bill, and an announcement of an agreement to commence the ‘Doha’ Round of WTO talks on trade liberalization. While both of these two later items are preliminary (i.e., the Senate still has to debate and pass the proposals before the whole Congress works out details before furtherance to President Bush; the Doha pronouncement was nothing more than an agreement to talk further), they are important signposts for future direction.

On Wednesday, November 14, an agreement was reached in Doha, Qatar to begin discussions on the next round of world trade liberalization measures. The ‘Doha’ Round, the first under the WTO, is scheduled to have a broad framework of an agreement completed by March 31, 2003, and the Round concluded by 2005. Ambitious, to say the least, considering the previous ‘Uruguay’ Round under the GATT took 7 years. Bureaucrats, politicians, and ‘hangers-on’ alike were eager to claim the pronouncement a raving, ‘exciting’, even ‘historic’, success. Mind you, this was only an agreement to continue talking, but that didn’t seem to prevent spin doctors of every stripe and nation from touting their prowess at successfully negotiating the agreement. Australia (total elimination of export subsidies) liked what they saw, as did France (not in this lifetime, and by the way, state trading agencies such as the Australian or Canadian Wheat Boards must go). The U.S. (eliminate the CWB and EU export subsidies, but let’s not talk about clarity or meaningful limits on domestic subsidization) claimed a ‘historic’ opening of markets. The EU (eliminate U.S. export credits, bring sanity to U.S. domestic supports, but we will now subsidize our farmers in the name of multifunctionality for things they do other than produce food) claimed it had successfully protected its right to ‘discuss’ export subsidies rather than ‘eliminate’ them.

All cynicism aside, the EU was successful in getting environmental considerations introduced as a bona fide factor in these trade discussions. This is cause for major concern. It would permit the ‘precautionary principle’ to be used to justify non-tariff barriers such as restrictive food labeling and traceability rules. Not to worry. Canada’s chief negotiator, International Trade Minister Pierre Pettigrew, said he was “confident that the vocabulary adopted over environment was extremely diligent ...”. Knowing that, I can sleep better now. Canada’s Minister of Agriculture claimed that this agreement will allow Canada to pursue its main objectives, which include the substantial reduction or elimination of domestic subsidies. What this tells me is that Ottawa will use these talks as an excuse to continue ignoring the desperate financial situation of Ontario and Canadian grain and oilseed producers for years to come, a situation caused by subsidies in the U.S.

What about the U.S.? Different story. On Thursday, November 15, the very day after these pronouncements by our Ag Minister, the Senate Sub-committee for Agriculture passed its version of proposals for the 2002 U.S. Farm Bill that will set the framework for U.S. ag policy through 2011. The Senate sided with the House’s determination to support agriculture to the maximum. As mentioned last issue, the House fine print says that U.S. ag expenditures may be adjusted so that they do not exceed allowable limits negotiated under WTO, “but in no case are less than such allowable levels”. By comparison, Canada spent only 16.9% of its allowable cap in the latest report period. Senate proposals would spend US$174 billion over the next ten years, $5 billion more than the House proposal and 92% more than the decade just ended! Both the House and Senate versions continue to direct the bulk of subsidies to U.S. grain and oilseed farmers. The Bush administration and the USDA itself are on record as saying that U.S. subsidies “raise total acreage planted”, encourage overproduction, drive up land rents, “while lowering crop prices.” A virtual doubling of U.S. subsidies over the next decade promises more of the same. In fact, both the House and Senate versions introduce yet another new support program, and this one permits growers to receive two support payments on the same bushel. As Senate Ag Sub-committee Chairman Harkin said, “we’re not going to make any sharp turns. We have to keep our farmers going.”

Amazing that the very day after our Ag Minister claims success in his drive to eliminate export and domestic subsidies, the U.S. proposes to double their support to agriculture.

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