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Reaction to Canada’s Move on Corn

I. Canadian Corn Issue
II. Johanns: Trade, Equity and Budget Issues
III. Doha: “The Political Chemistry is Beginning to Work”
IV. EU Farm Policy
V. Senate Ag Committee Hearing on Energy

I. Canadian Corn Issue

The Canadian Government’s requested consultations with the United States at the World Trade Organization (WTO) regarding subsidies provided to U.S. corn growers continues to percolate in recent press reports.

Canada has Concerns About U.S. Corn Subsidies (Photo by U.S.D.A.)

Yesterday, an editorial published in the Edmonton Journal, indicated that, “To be sure, Canada’s concerns, even if ultimately backed by a favourable tribunal ruling, are as unlikely to outweigh U.S. domestic political considerations on corn as they were on softwood lumber.

“But the move is still a useful intervention as the new Democratic majorities in the U.S. Congress — a group possibly even more protectionist than its Republican predecessors — prepare to consider renewing and possibly enriching the country’s farm bill.”

The editorial added that, “The uncharitable will complain the current effort is driven only by politics: that it is more congenial to join battle with Democrats in Washington than with [Prime Minister John Harper’s] Republican soulmates; that it is an effort to mollify those segments of the farm community who aren’t keen on the Conservative government’s weakening of the Wheat Board and it’s acceptance of an inadequate softwood settlement; that it is an attempt to counteract the popular impression that Harper’s team is too cosy with George Bush’s Washington.”

(Incidentally, regarding the statement, “The uncharitable will complain the current effort is driven only by politics,” recall House Agriculture Committee Chairman Collin Peterson’s reaction to the corn filing, “[I] think this is probably more politics than anything.”)

The Edmonton Journal concluded by noting that, “Especially to a Conservative government keen on free markets, it must be difficult to keep a straight face when Washington argues that all those subsidies don’t affect commodity prices with which Canadians must compete.”

Chris Clayton of DTN documented U.S. reaction to the corn filing in a report filed yesterday (link requires subscription).

Mr. Clatyon noted that, “American Farm Bureau Federation President Bob Stallman said he couldn’t explain why Canada decided to file a trade action against U.S. corn subsidies at a time when the market has lessened the demand for program payments.

“‘That’s why the timing of the Canadian action is really strange,’ said Stallman, who was wrapping up the annual Farm Bureau convention Wednesday in Salt Lake City.”

The DTN article added that, “Subsidies paid out for corn will be lower in the U.S. because higher corn prices have wiped out loan-deficiency payments and counter-cyclical payments. The higher prices also mean it costs Canadian livestock producers more to buy feed from the U.S. Lower grain prices drive up the subsidy payments but keep the market prices lower for livestock producers.

“‘The livestock people in Canada are being impacted negatively by those higher prices,’ Stallman said. ‘And yet, somehow we are being charged that we are undercutting their corn producers by subsidizing our corn production. There’s just something that doesn’t make a lot of sense from watching what the Canadians are doing right now.’”

ABC Rural (Australia) reported yesterday that, “Now Washington farm trade consultant Paul Drazek says the Canadians have turned to the WTO in a case similar to the successful Brazil case against US cotton subsidies.

“‘I think it’s pretty clear that the Canadians are looking at the results of the cotton case and saying, ‘well, we can apply the same sorts of arguments that were made by Brazil on US cotton to US corn,’’ Mr Drazek said.

“Mr Drazek argues it might be hard for Canada to prove the US is hurting world corn prices, as subsidies plummet on soaring ethanol demand and high prices at home.

“But he says Canada could still make a strong case that few if any subsidise corn the way the US does.”

Eoin Callan, writing in Tuesday’s Financial Times, reported that, “The dispute singles out payments to American corn farmers but also challenges the total level of US agricultural subsidies.

“The case filed in Geneva on Monday appeared to be the most significant legal challenge to the structure of US agricultural subsidies since a landmark WTO ruling in 2005 condemned ‘trade-distorting’ aid to American cotton farmers.”

The FT article added that, “The legal challenge underscores a separate appeal to the farm lobby by the Bush administration to accept reform of crop subsidies to make them WTO compliant.

“Mike Johanns, US agriculture secretary, told a gathering of US farm groups on Monday that it was in their own interests to come into line with WTO rules.

“The Bush administration has long feared that Brazil’s victory on cotton would invite legal challenges to supports for a range of farm commodities such as rice and soyabeans.”

II. Johanns: Trade, Equity and Budget Issues

In his remarks on Monday to the American Farm Bureau, Secretary Johanns discussed a wide variety of topics, and among other issues, made specific comments on trade, subsidy allocation “equity” issues, and upcoming budget estimates.

On trade, Sec. Johanns noted that, “Also on the international front, we want to ensure that our programs are better able to withstand challenge. When the WTO ruled that part of our cotton program is inconsistent with our trade commitments, it established that broader programs are open to challenge.

“Just this morning we heard a troubling announcement from Canada. They are requesting WTO consultations related to our domestic support programs for corn. This is another of several challenges that are concerning us and concerning our producers.

“As you know, Brazil is not satisfied that we’ve complied with the WTO ruling. Despite having eliminated the Step II program along with other changes, we are engaged in another proceeding related to our marketing loan and our countercyclical programs.

“Now, ladies and gentlemen, I want to assure you that we will continue to aggressively defend these programs, but there is no denying that we are being challenged on the world stage.”

Moving to the issue of farm payment allocations and “equity,” Secretary Johanns stated that, “I believe the next Farm Bill can do a better job of more evenly distributing support…For instance, we can better assist non-subsidized producers through research, conservation, and rural development, and market development.”

And on the budget, Sec. Johanns indicated that, “Last year your membership voiced its support for renewal of the 2002 Farm Bill. We now know that a simple extension of the ’02 Farm Bill, with today’s stronger program crop markets, would translate into much lower projected spending. In fact, there are probably a number of estimates floating around about what the baseline funding is going to be for agriculture, but I don’t think there’s anyone out there that isn’t projecting that it’s going to drop. Some have argued it might drop as much as $20 billion from when the 2002 Farm Bill was developed.”

Sec. Johanns went on to say that, “Good policy must take into account much more than dollar count. It must be tailored to provide strong support that is relevant to current trends and forward-looking for the future growth.”

House Ag Committee Chairman Collin Peterson also addressed the Farm Bureau on Monday, and according to this summary, he explained that, “[T]he 2002 farm bill worked pretty well, and that direct payments and the Loan Deficiency Program probably would continue. He added that he would like to see a new farm bill that looks ‘a lot like what we have now.’

“However, Peterson did propose a few changes. For example, he said that the farm bill should include some kind of permanent disaster program.”

Dan Looker, writing yesterday at the Agriculture.com webpage, provided this recap of the speeches by Sec. Johanns, Chairman Peterson and the Farm Bureau’s position on the 2007 Farm Bill: “The nation’s largest general interest farm organization dropped its call from last year to extend the 2002 farm bill until a new World Trade Organization agreement is reached. With Congress expected to write a new farm bill this year, it now calls for ‘extending the concepts’ of the 2002 law.”

Mr. Looker noted that, “Earlier this week, House Agriculture Committee chairman Collin Peterson spoke to Farm Bureau members, suggesting that he’s not considering a major overhaul of farm programs. Ag Secretary Mike Johanns also spoke to the group, voicing support for a farm bill that’s more equitable and that does more for produce farmers and ranchers who don’t benefit directly from commodity programs.

“When asked which approach Farm Bureau members favor, Farm Bureau president Bob Stallman told reporters, ‘If I had to make an assessment right now, it’s that we’re probably closer to the concepts of Collin Peterson.’

“Stallman said he heard Johanns’ speech as a call for more dramatic change.

“‘Frankly, that is not what our delegates are saying,’ he said.”

III. Doha: “The Political Chemistry is Beginning to Work”

The Canadian corn filing, in conjunction with current domestic policy debate are both occurring as the Doha round of W.T.O. trade talks are beginning to show signs of meaningful movement. As FarmPolicy noted yesterday, Doha may yet play a large role in the formulation of the 2007 Farm Bill.

Financial Times writer Alan Beattie reported yesterday that, “Details of any deal to reconcile the US and European Union positions remain elusive, but Pascal Lamy, director-general of the WTO, said the determination expressed this week by US president George W. Bush and José Manuel Barroso, president of the European Commission, was a marked advance.

“Similar expressions of enthusiasm from Mr Bush and other heads of government during the Group of Eight summit in St Petersburg last summer were not followed by concessions at the negotiating table, and the Doha talks were suspended in July amid bitter transatlantic recriminations.

“But Mr Lamy said prospects were better. ‘The signs we are seeing now are qualitatively different from what we heard last year,’ he told the Financial Times. ‘The political chemistry is beginning to work.’”

However, Mr. Beattie added that, “Dave Salmonsen, trade lobbyist for the American Farm Bureau, said the mood music sounded better, but the US farm community had not been consulted on any further offers of reductions in tariffs by the EU or subsidies by the US. ‘There is no difference from where we were in July,’ he said. ‘We need to see a lot more market access from the Europeans in return for reductions in domestic support.’”

And near the conclusion of his FT article, Mr. Beattie noted that, “France, which has organised a group of 14 EU member states opposing more cuts in European farm protection, reiterated its position that the US would be unlikely to make the cuts in subsidies required.

“One official from a sceptical EU nation questioned Washington’s willingness to cut farm subsidies further. ‘We find it very hard to understand on what basis [EU trade commissioner Peter] Mandelson is so optimistic,’ the official said. ‘There is great doubt the US administration can put its money where its mouth is.’”

To view a short and very interesting video interview with W.T.O. Director General Lamy, which was conducted by the FT’s Alan Beattie, just click here.

Associated Press writer Martin Crutsinger reported yesterday that, “U.S. Trade Representative Susan Schwab will meet with the head of the World Trade Organization on Friday in a further effort to revive stalled global trade talks.

“Schwab will fly to Geneva for discussions with WTO Director General Pascal Lamy on ways to revive the Doha Round of trade talks, which have been suspended since last July.

“‘This is an opportunity to continue the conversations she has been having with trade ministers from around the world,’ Sean Spicer, Schwab’s chief spokesman, said Wednesday.

“‘By meeting with Lamy, they can discuss where there have been areas of progress and ideas for a way forward,’ Spicer said. ‘To some degree, it is a brain storming opportunity.’”

IV. EU Farm Policy

The agricultural attaché for the EU, Jean-Marc Trarieux, also addressed the Farm Bureau convention on Monday. According to a summary of the remarks, “The agricultural attaché for the European Union today outlined efforts by the EU to reform its Common Agricultural Policy (CAP) and told farmers attending the American Farm Bureau Federation’s 88th annual meeting that EU member states would be watching closely as the United States develops its new farm bill.

“‘In short, we have moved away from product price supports and toward direct support to farmers,’ said Jean-Marc Trarieux.

“The European Union, which is made up of 27 member states with a total of about 13 million farmers, decoupled its direct farm payments from production in 2003. Although total payments to farmers in Europe have continued to increase since the CAP reform, funds have shifted from price supports to rural development, environmental protection and programs designed to improve the sustainability of rural economies, Trarieux said.

“This shift was prompted, in part, by pressure from the World Trade Organization for developed countries to reduce or eliminate price supports and export subsidies, which are considered trade-distorting.”

For more on EU farm policy reform efforts see this Economic Research Service publication, “CAP Reform of 2003-04.”


Andrew Bounds, reported in Tuesday’s Financial Times that, “France has reacted angrily to suggestions that Brussels favours cutting European Union farm subsidies, warning that attempts to agree cuts to agricultural support with the US in order to revive world trade talks could come unstuck.

“Dominique Bussereau, France’s farm minister, last week sent a furious letter to Mariann Fischer Boel, the EU’s farm commissioner, saying farmers were shocked by an interview she gave to the Financial Times.

“Ms Fischer Boel said the €45bn- ($59bn, £30bn) a-year common agricultural policy faced substantial cuts after 2013 and farmers might need additional incomes to stay in business.

“In his letter, Mr Bussereau called her suggestion ‘an insult to the social model to which European citizens are profoundly and legitimately attached’”.

The FT article noted later that, “Mrs Fischer Boel replied with an equally robust letter. ‘It is no insult to the future of agriculture to say right now that the amount of funding dedicated to [it] will probably not remain at the current level. It would be irresponsible not to make preparations for this,’ she wrote.”

In a related article, Martin Arnold reported in today’s Financial Times that, “French farmers, seen by many as the pampered beneficiaries of generous European subsidies, have been getting poorer since the late 1990s, despite the fact that they are increasingly taking second jobs outside farming to boost their income.

“The drop in French farmers’ incomes, revealed in a report today by Insee, the state statistics agency, contrasts with the recent European Union trend of rising incomes for the average farmer in the bloc.

“The trend of French farmers getting steadily worse off compared with their fellow citizens and their European peers explains why they are increasingly agitated about the prospect of further reform to Europe’s common agricultural policy (CAP) next year.”

V. Senate Ag Committee Hearing on Energy

Joseph Morton, writing in today’s Omaha World Herald, reported that, “They may not sound like traditional farm bill fodder: the ominous threat of climate change from greenhouse gases and the dangers of American dependence on foreign oil.

“But those were the issues Sen. Tom Harkin, D-Iowa, chose to highlight at his first hearing as chairman of the Senate Agriculture Committee.

“Harkin, who will have a central role in crafting the farm bill expected to pass this year, said he dedicated the hearing to national energy security to ‘plant the flag’ for his top priorities.

“The new farm bill should be different than those in the past, aimed at moving the country’s agricultural sector toward becoming a major producer of energy in addition to food and fiber, Harkin said.

“A slate of experts lined up at Wednesday’s hearing to discuss the potential of biofuels.”

To view opening statements from witnesses who appeared before the committee yesterday, just click here.

For a specific look at the testimony of U.S.D.A. Chief Economist, Dr. Keith Collins, see this summary by Stu Ellis, which was posted this morning at the farm gate blog (University of Illinois).

-Keith Good