Escalating farm subsidies in China, India, Turkey and Brazil cost U.S. wheat farmers nearly $1 billion in revenue every year, a new study by the wheat industry shows.
Those four countries have dramatically increased subsidies for wheat production over the past decade to levels that exceed their World Trade Organization agreements, argue the National Association of Wheat Growers (NAWG) and U.S. Wheat Associates.
If all four countries dropped their price support and input subsidies to a level that complied with their WTO commitments, U.S. wheat production would increase by more than 53 million bushels and farm-gate prices would rise by nearly 30 cents per bushel, the study argues.
“I believe we have shown through these studies that the old perceptions about farm support and trade are clearly wrong,” said U.S. Wheat Associates President Alan Tracy. “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 study was conducted by Iowa State University professor Dermot Hayes and two of his associates by applying data from a previous study on price supports and input subsidies to the CARD-FAPRI model. That model is used to project 10-year baseline estimates that are used by Congress to help determine farm policy. Hayes can change individual country’s policy parameters to gauge the effect those changes would have on global commodity prices.
While many studies have attempted to highlight how much money other countries spend to support farm prices, this is one of the first to show how foreign policy decisions affect prices in the U.S.
“I hope this study changes the conversation,” said U.S. Wheat Associates policy director Dalton Henry, adding that conversations about the total dollar value of foreign subsidies is difficult to wrap your head around. “This study shows that not only are they spending too much, but what they’re doing has a direct impact on growers’ bottom line and big impact on growers’ bottom line.”
He said they will be sharing the report with several USDA agencies as well as the office of the U.S. Trade Representative to determine the next step forward.
The study was conducted using 2014 prices, Henry said. Prices have fallen about 30% since then, and he said that’s one factor that leads him to think the study’s estimates of direct impact to farmers are conservative.
Hayes said the study shows that if current domestic support were removed in all four of those countries, farmers there would plant less but 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.”
China, India, Brazil and Turkey’s wheat imports would increase by nearly 10 million metric tons, and the U.S. would capture 2.2 mmt of that new business, or about 80.8 million bushels. It’s the equivalent of increasing U.S. wheat exports by 10%, Hayes said.
“If it’s costing us potentially 30 cents per bushel, or 10% of our potential export portfolio, those are real dollars and real losses,” said current NAWG president Brett Blankenship, who grows soft white wheat in Washington. “Let’s underscore that wheat is a very trade-dependent commodity. Across the U.S., we often say that 50% of our wheat is exported and 50% is used at home.”
Canada, the European Union and other wheat-exporting states would benefit if these countries brought their subsidy programs into compliance. Hayes also noted that it would also boost the price of corn and soybeans and likely result in greater competition for acres.
Blankenship said U.S. wheat acreage has fallen from more than 90 million acres in 1992 to just 56.5 ma. Lower acres means state checkoff funds receive fewer dollars, and that means less money for crop research and export market development.
“We are more than willing to compete farmer to farmer on the world stage,” Blankenship said. “But I can’t compete, as a farmer, with someone else’s national treasury.”