Summer 1995
DC: Have a Backup Plan Before Slashing Ag Spending
by Jerry Nordick, President of Minnesota Association of Wheat Growers
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
News item: On April 20, 1995, the Grain Management Committee of the European Union authorized a subsidy of about $1.50 per bushel on the export of 100,000 tons of oats. That's more than the oats itself is worth.
Wait a minute here. Isn't the new General Agreement on Tariffs and Trade (GATT) supposed to take care of trade shenanigans such as this?
Well, kind of. But while the GATT -- like an insurance policy -- may have its benefits, we must also be aware of the loopholes and fine print.
Indeed, big grain producers including the United States and countries in the European Union (EU) will be spending less on export subsidies over the next five years than before GATT.
But as the graph courtesy of the National Association of Wheat Growers points out, the EU outspent the U.S. by 6 to 1 in terms of export subsidies over the past five years. The EU will have this ratio advantage from the first through the sixth year of the new GATT, and beyond, assuming no policy changes.
Under GATT, no country agreed to eliminate grain subsidies; only reduce them. The amount of grain for export that can be subsidized must be reduced by 21 percent in six equal installments by the year 2000. As well, export subsidy expenditures must be reduced by 36 percent.
This means that countries can still subsidize up to 79 percent of wheat export shipments at up to two-thirds the pre-GATT subsidy payment price when the agreement is fully phased in.
But that reality isn't stopping rosy economic predictions about GATT. A USDA study estimates that under the multilateral agreement, U.S. ag exports are expected to increase by $1.6 to $4.7 billion by the year 2000, creating as many as 112,000 jobs, and increasing on-farm income by $1.3 billion.
And hold onto your seats, GATT is expected to boost U.S. wheat prices anywhere from 8 to 12 percent by the year 2005.
Similarly, a Washington, D.C. think-tank called the Heritage Foundation just recently estimated in a study that over a five-year-period, an assumed $27 billion reduction in federal farm spending would be offset by an equally assumed $35 billion gained from replanting idled acreage and greater export sales in a freer world market.
I am not against free trade; I am not for government-dependent farm income. But I do know that it would be irresponsible government policy to rest the stability of our nation's food supply and the incomes of over 2 million farm family businesses on the assumption that massive U.S. ag program cuts can be offset by the still pending freer global market.
Those who propose taking a wrecking ball to the farm program during this, the year of the new farm bill, have put forth no alternative plan for transition.
The Minnesota Association of Wheat Growers urges that if the farm program budget is to be reduced, there must first be an adequately funded "plan B."
A sound backup plan should help U.S. agriculture maintain an element of profitability under a transition to receding federal income support. As well, it should ensure that we don't shoot our own feet in the global ag marketplace by unilaterally sacrificing our export competitiveness.
Look at competing countries: The EU replaced GATT-required export subsidy reductions with other direct income policies to farmers. Besides the 6 to 1 advantage the EU has over the U.S. in terms of export subsidies, it also enjoys a 3 to 1 advantage over the U.S. in terms of its domestic support for agriculture.
And Canada will dismantle its longstanding grain rail subsidy on August 1, 1995, but will include direct income to growers in the transition.
All we ask for is a fair game plan, Washington, D.C. If there's to be farm program cuts, U.S. farmers deserve to know about a federal plan B.