Wheat farmers in the United States could be missing out on as much as $1 billion in revenue every year, according to a new study that looks at foreign ag subsidies.
U.S. Wheat Associates and the National Association of Wheat Growers unveiled the results of an econometric study Monday showing that in the past 10 years, China, India, Turkey and Brazil have increased subsidies for domestic wheat production to levels higher than their World Trade Organization agreements.
Higher subsidies directly impact the price U.S. farmers receive for their grain, says U.S. Wheat Associates President Alan Tracy.
"I believe we have shown through these studies that the old perceptions about farm support and trade are clearly wrong," he said Monday. "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.
Farm gate price increase possible
Agricultural economist Dr. Dermot Hayes and two of his colleagues at Iowa State University conducted the study. The goal was to determine what would happen to U.S. and global wheat production, trade and prices if domestic support in China, India, Turkey and Brazil were removed.
To accomplish this, Hayes and colleagues applied the price support and input subsidy data identified in a November 2014 study by DTB Associates to CARD-FAPRI econometric model.
Results showed that if all support were removed from all four countries, annual U.S. wheat production would increase by more than 53 million bushels, farm gate prices would increase by nearly $0.30 per bushel and U.S. wheat farmers would receive $947 million more in annual revenue
"The results confirm that if domestic support were removed wheat prices in the countries modeled would go down and farmers would plant less wheat, but domestic consumption would go up," Hayes said. "The lower supply would lead to higher global wheat prices, which tend to benefit wheat exporting countries including the United States."
The study also indicated that with such changes, wheat trade flows would shift and the four countries would increase net imports by nearly 10 million metric tons.
Hayes said the model estimated the United States would capture more than 20% of such an increase to export an additional 2.2 MMT compared to the model's baseline if there were no changes in domestic support in those countries.
Impacts of limiting support in each country
Hayes' team also used the model to predict the net effect that eliminating support in individual countries would have.
Those results indicated that domestic support for Chinese wheat production alone has the largest individual effect. If support there ended, Chinese imports would grow from nearly 2 MMT per year to more than 7.5 MMT per year. This would still be less than the 9 MMT annual tariff rate quota that China agreed to in its WTO accession commitments.
Hayes said the model showed that even with the predicted changes, China, India, and Turkey would continue to be at least 90% self-sufficient in wheat production.
Eliminating domestic support would have the least effect in Brazil where support levels are lower than the other countries.
Working with WTO
"Wheat prices have plummeted more than 30% 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 Brett Blankenship, president of the National Association of Wheat Growers.
Referring to current negotiations in the Doha round, Blankenship said, "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."
WTO records show that the United States has consistently met its commitments, never exceeding its Aggregate Measure of Support limit of $19.1 billion. But other country's proposals made as part of the Doha round would require the United States to cut its limit, while members with growing programs would not be expected to make similar contributions.
Deputy U.S. Trade Representative Michael Punke has called this a "mind-boggling imbalance," the wheat groups said.
The new study indicated that wheat farmers outside of the four countries analyzed would benefit by reducing domestic supports. Hayes said the model showed global wheat cash prices would increase by more than 4% and world net trade would increase by 5% if domestic support is removed in all four countries.
The study suggested that there would be benefits even from partial changes in price supports and input subsidies, although Hayes said the magnitude of the cash price and trade increase would depend on the size of the removal in each country.
"Since these subsidies are the acts of sovereign governments, our farmers cannot battle them alone. We are working with USTR and USDA to determine our next steps, including a possible WTO challenge," Tracy said.
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