WASHINGTON, Sept. 14, 2015 – Excessive subsidizing by China, Brazil and other advanced developing countries is harming U.S. and world wheat farmers and could cost U.S. growers nearly $1 billion in revenue every year, according to a study commissioned by U.S. Wheat Associates (USW).
The study, led by Iowa State University agricultural economist Dermot Hayes, shows that these countries, including India and Turkey, have dramatically increased their support for domestic wheat production over the last decade to levels far exceeding World Trade Organization agreements (WTO, with a detrimental effect on global wheat trade.
“I believe we have shown through these studies that the old perceptions about farm support and trade are clearly wrong,” USW President Alan Tracy said in a release. “Today, it is the farm subsidies in a few advanced developing countries, not developed country policies, which disrupt normal trade flows and distort world wheat prices. These rapidly growing subsidies cause direct, serious and now measurable impacts on the prices that U.S. farmers receive for their grain.”
The researchers determined that if all support were removed from all four countries, U.S. annual wheat production would increase by more than 53 million bushels (current production is just over 2 billion bushels), farm gate prices would increase by nearly 30 cents a bushel, and U.S. wheat farmers would receive $947 million more in annual revenue. The price support and input date was identified in a November 2014 study by DTB Associates.
According to USW and the National Association of Wheat Growers (NAWG), the results show that if domestic support were removed, wheat prices in the countries examined would go down and farmers would plant less of the grain, but domestic consumption would go up.
“The lower supply would lead to higher global wheat prices, which tend to benefit wheat exporting countries including the United States,” Hayes said.
The study also suggested that with increased consumption, the four countries would boost net imports by nearly 10 million metric tons. Hayes said the model estimated the U.S. would capture more than 20 percent of such an increase to export an additional 2.2 million tons, compared to the model’s baseline if there were no changes in domestic support in those countries.
The study also compares future scenarios to data from a market situation in which wheat cash prices were significantly higher than they are now. For example, in addition to Chinese government input subsidies coupled to wheat production, the 2014 DTB study in 2014 showed Chinese farmers have government minimum support prices of more than $10 per bushel.
“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,” said NAWG President Brett Blankenship. “This hurts American family farms like mine even more.” Blankenship grows soft white wheat near Washtucna, Washington.
Referring to current negotiations in the Doha round of world trade talks, Blankenship added, “It is totally unacceptable to tolerate demands from countries who are in violation of their WTO commitments, who continue with these huge levels of support while demanding concessions from the United States. The American wheat farmer will not give away any more.”
The wheat groups pointed out that WTO records show that the U.S. has consistently met its WTO commitments, never exceeding its agreed-to Aggregate Measure of Support limit of $19.1 billion. But other country’s proposals made as part of the Doha round would require the U.S. to drastically cut its limit, while members with growing programs would not be expected to make meaningful contributions. Deputy U.S. Trade Representative Michael Punke has called this a “mind-boggling imbalance” that supports the U.S. position that it is critical to put facts on the table for a frank discussion about real world agricultural production and trade.