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PRESIDENT’S MESSAGE
The WTO Symposium for Civil Society offers an exceptional platform to discuss the
situation of agricultural producers and to highlight the experience and creative ideas
of farmers globally.
The theme of the International Forum sponsored by the CFA is, “Agricultural Policies
and Farm Income Crisis in the WTO Context.” Within this theme we will:
• take a critical look at current agricultural policies, which have triggered an
unprecedented income decline in many countries;
• present alternatives to solve current problems related to the WTO negotiations.
Ten years after the creation of the WTO initial steps toward liberalizing trade in
agricultural commodities has not resulted in success. Subsidies are approaching
record highs, world commodity prices have dropped to historic lows, and primary
producers are experiencing one of the worst income crises in agriculture. This forum
presents a unique opportunity to debate these important issues.
The program will introduce alternatives for primary producers around the world,
focusing within the context of the WTO negotiations. During periods of need, farmers
have been strong enough to come together to discuss attainable solutions to
agricultural problems. This forum is the environment that will generate solutions for
primary producers.
I therefore invite representatives of governments, agricultural organizations and civil
society in general to join us in acknowledging the seriousness of the situation and
discuss solutions to primary agriculture’s problems.
Bob Friesen
Session sur l’agriculture, Genève, le 21 avril 2005 - Page 1
Page 2- Session sur l’agriculture, Genève, le 21 avril 2005
SCHEDULE
15:00 - Word of welcome
Mr. Don Stephenson, Ambassador and Canadian Permanent Representative
to the United Nations and the WTO.
Page 5
15:10 - Opening
Mr. Bob Friesen, President, Canadian Federation of Agriculture
Page 7
15:35 - Critiques of agricultural policy and finding new directions
Doctor Daryll E. Ray, Agricultural Policy Analysis Center, University of Tennessee,
United States.
Page 15
16:00 - Defining necessary conditions for agricultural policy reform
favourable for agricultural producers
Panel participants:
- Mr. Ndiogou Fall, President, Réseau des organisations paysannes
et de producteurs agricoles d’Afrique de l’Ouest (ROPA), Sénégal;
Page 29
- Mr. Dave Frederickson, President, National Farmers Union - US;
Page 31
- Ms. Kari Redse Haskjold, Vice-President, Norwegian Farmers Union, Norway;
Page 35
- Mr. Allan Burgess, Chair of the Trade Committee, National Farmers’
Federation of Australia
Page 43
- Mr. Laurent Pellerin, 1st Vice-President, Canadian Federation of Agriculture
and President of l’Union des producteurs agricoles (UPA).
Page 45
17:05 - A model of effective agricultural policy: Management of Production
Mr. Daniel-Mercier Gouin, professor, Faculty of Agriculture and Food Sciences,
Université Laval, Québec, Canada.
Page 53
17:30 - Direct government payments: A form of border protection?
M. Peter Clark, president of Grey, Shih and Associates, Limited, Canada.
Page 67
17:55 - Final words
N.B.: A question period will follow each conference.
15:00 - Word of welcome
Don Stephenson
Ambassador and Canadian Permanent Representative to the United Nations and the
WTO.
Mr. Donald Stephenson joined the Canadian federal Public Service in 1981 and
served at the Department of Communications in the Arts Policy Division, the Cultural
Initiatives Program, and as Cultural Policy Adviser to the Minister of Communications. He
subsequently served as Director of Executive Services and of Communications at Consumer and
Corporate Affairs; as Special Assistant to the Deputy Minister of Industry Canada; as Director
General, Economic Policy at Western Economic Diversification; as Director General, Cultural Industries at Heritage Canada; and, from September 2000 to October 2002, as Director General, Trade
Policy Bureau II at the Department of Foreign Affairs and International Trade. In 2002, he has served
as Assistant Secretary to the Cabinet, Economic and Regional Development Policy, Privy Council
Office.
Since 2004, Mr. Stephenson has succeed to the Honourable Sergio Marchi as Ambassador and
Permanent Representative of Canada to the Office of the United Nations and to the World Trade
Organization, in Geneva.
15:10 - Opening
Bob Friesen
President, Canadian Federation of Agriculture
Bob Friesen was elected President of the Canadian Federation of Agriculture in 1999.
Prior to his election, Bob served as CFAís 2nd Vice-President and Chair of the CFA
Trade Committee. During the last round of GATT negotiations, Bob was an active
proponent of the Canadian agriculture industry, representing producer interests at meetings in
Geneva. As the Manitoba Director to the Canadian Turkey Marketing Agency, Bob has had a seat on
the CTMA Executive Committee since 1993, serving as chair for four years as well as the
representative for poultry on the CFA Executive Committee. Since 1989, Bob has been a Director of
the Manitoba Turkey Producers’ Agency, serving as chair for two of those years. With his family, Bob
operates a turkey and hog farm in south eastern Manitoba.
Summary of Presentation
Through the past few years of the Doha Round negotiations, difficulty has arisen through establishing
a workable framework. In the summer of 2004, consensus was finally reached on a broad framework
that negotiators can work within. Of particular interest in the framework text are stipulations to have
an overall reduction in countries level of allowable support, the inclusion of a blue box provision,
reduction of de minimis and market access provisions. Although this is just the framework text, many
issues of concern arise from this text that must be addressed.
The primary area of concern involves the overall reduction of spending. Negotiators have indicated
an initial reduction of allowable spending by 20% upon signing of the agreement as a measure of good
faith. However, what level of reduction is needed to curtail current spending? Analyzing the
agricultural spending of the United States indicates a significant reduction in allowable spending is
needed to curb their historic spending habits. In 2001, the U.S. spent $21.4 billion on AMS and de
minimis, however their eligible spending limit is $48.8 billion. A 20% reduction in allowable
spending does nothing to the U.S. Treasury’s ability to provide trade injuring support to their
farmers. In fact, to lower actual spending by 10% (thus decrease spending to $19.3 billion) a
reduction of 60.5% in allowable spending is needed.
During the Uruguay Round of WTO negotiations countries were assure that efforts to lower spending
would be rewarded, thus the concept of de minimis was born. Through de minimis countries that
reduced their product specific and non-product specific support to below 5% of the respective value of
production would not be included in the amber spending provision. Consequently countries like
Canada implemented domestic policies to reduce spending to de minimis levels. The new framework
text asks for reductions in de minimis but then indicates blue box levels of 5% will be granted. The
Canadian Federation of Agriculture feels that countries should be given the option to choose 5% in
blue box or de minimis or a combination of the two, but never exceeding 5% of the value of production. This would ensure countries that took the initiative to lower spending would not get penalized.
Market access has been and will continue to be a large part of the Doha agenda. Tariff rate quotas
(TRQ’s) and single stage tariffs continue to be the main tools countries use to limit their imports.
Certain products require adequate levels of protection to ensure their specific commodities have some
level of price certainty. The concept of reducing single stage tariffs by a percentage does not provide
any level of increased market access. As well, reducing in-quota and over-quota tariffs does not allow
for any “free” trade. Both of these areas are being negotiated, however farmers must be assured that
this round of talk’s result in a fair level of market access.
The Canadian Federation of Agriculture believes that increased market access can be achieved while
providing a certain level of protection for sensitive products. This concept uses a 5% sleeve of free
trade for all commodities. With this initiative each commodity must ensure that up to 5% of their
domestic consumption would be allowed as tariff free imports. This “sleeve” of imports would be
allowed with no in-quota tariff, thus resulting in a level of free trade for all commodities. Currently
the stance countries are taking with respect to market access is to just lower tariffs (single stage or inquota and over-quota), but this will provide no increased market access. Countries must consider this
option that allows for a fair level of free trade.
Many countries, especially developing countries, are seeking great trade liberalization in this Doha
Round of talks. Examining the current framework of overall spending reductions, limiting certain
spending and increasing market access, the benefits are not as bountiful as initially portrayed.
Primary producers must understand that they can have influence in this round and must stand up for
a fair and equitable approach to trade liberalization.
2005 WTO Symposium
Bob Friesen
President
Canadian Federation of Agriculture
April 21st, Geneva, Switzerland
Issues of Concern
Overall Reduction
United States
2001 Actual Spending
Billions USD
$14,4
$7,0
$21,4
Total AMS
Total de minimis
Total 2001 Actual Spending
Allowable Spending (based on 2001 figures)
AMS
De minimis - product specific & non-product specific
Blue Box
Total Allowable Spending
$19,1
$19,8
$9,9
$48,8
New Allowable Spending after 20% downpayment
$39,0
56.1% overall reduction (brings spending to 2001 level)
$21,4
60.5% overall reduction (brings 10% below 2001 spending)
$19,3
78.1% overall reduction (brings spending to half of 2001 level)
$10,7
April 21st, 2005
2
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
Product Specific Support
1999 Notification Levels
Commodity
Sugar/Sugar Beets
Canola
Soybeans
Milk/Dairy
Oats
Wheat
Support as a % of VOP Actual Support in Millions of US$
United States
Canada
United States
Canada *
de minimis
de minimis
56.3%
$1 207.3
de minimis
36.7% de minimis
$ 39.1
23.4%
6.4%
$2 856.1
$28.3
19.9%
13.6%
$4 660.1
$365.2
17.4%
9.3%
$30.5
$12.1
de minimis
16.8% de minimis
$973.9
Total Product Specific Support
$16 862.3
$629.8
* using an exchange rate of $0.67 (using 1999 average rate)
United States - 22 commodities with an average level of support = 27.8% of VOP
Canada - 7 commodities with an average level of support = 9.6% of VOP
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
3
1
Issues of Concern
De minimis and Blue Box

Should have the option to choose one or the
other, or a combination of them.
The total support of the combination should
not exceed 5% of the VOP.
April 21st, 2005
4
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
Export Competition

Export Promotion, Food Aid, Export Credit

Negotiating future use of monopoly powers

Government Guarantees
April 21st, 2005
5
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
Market Access - Single Stage Tariffs
Tariff
Flow of product
stopped by tariff
NO Minimum Access
Requirement
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
6
2
Issues of Concern
Single Stage Tariff
Example: 200%
Flow of product
limited due to tariff
NO Minimum Access
Requirement
April 21st, 2005
7
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
With a 50% reduction in
single stage tariff… still face
a 100% tariff wall… result
no increased access!
Flow of product
limited due to tariff
NO Minimum Access
Requirement
April 21st, 2005
8
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
Market Access - CFA “real” TRQ access
Over-Quota Tariffs
Flow of product with no In-Quota Tariff
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
5% Minimum
Access
Requirement
9
3
Issues of Concern
Market Access - Ineffective TRQ
Over-Quota Tariff
In-Quota
Tariff
Flow of product
provides no real access
TRQ
Volume
April 21st, 2005
10
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
In-Quota tariff charged
to allow limited flow of
product
Over-Quota Tariff
In-Quota
Tariff
TRQ
Volume
April 21st, 2005
11
CFA - WTO Symposium
Geneva, Switzerland
Issues of Concern
In-Quota tariff charged
to allow limited flow of
product
In-Quota
Tariff
Reduction of OverQuota Tariff results in
no increase in
market access
TRQ
Volume
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
12
4
Issues of Concern
Market Access - CFA “real” TRQ access
Over-Quota Tariffs
Flow of product with no In-Quota Tariff
April 21st, 2005
5% Minimum
Access
Requirement
CFA - WTO Symposium
Geneva, Switzerland
13
1. Myth Busting
2. CFA Bottom Line for
framework text
3. Process
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
14
Conclusion

CFA’s commitment
is to help achieve a
successful WTO
agreement for the
collective benefit of
Canadian agriculture
April 21st, 2005
CFA - WTO Symposium
Geneva, Switzerland
15
5
15:35 - Critiques of agricultural policy and
finding new directions
Doctor Daryll E. Ray
Agricultural Policy Analysis Center, University of Tennessee, United States
Professor of Agricultural Economics at The University of Tennessee. Previously on the
Oklahoma State University faculty (20 years), he received his B.S. and Ph.D. from
Iowa State University. Since assuming the Blasingame Chair of Excellence in Agricultural Policy in
1991 at UT, Daryll Ray has established the Agricultural Policy Analysis Center (APAC). In addition
to the U.S. Department of Agriculture, the Center works with numerous agencies, including the U.S.
Department of Energy, Tennessee Valley Authority, Environmental Protection Agency, Oak Ridge
National Laboratory, as well as numerous farm and commodity organizations. Dr. Ray has authored
more than 250 publications and articles.
Much of the worldwide price and income problems experienced by farmers can be traced to policy
changes, especially agricultural policy changes in the US. In the past, the US has had several
mechanisms to help manage excess agricultural productive capacity. Beginning with the 1985 Farm
Bill, the effectiveness of those mechanisms was gradually eroded through the mid-1990s and then
completely eliminated in the 1996 Farm Bill.
The US was very optimistic about future growth in grain exports. Also, there were those who felt that
agriculture would adjust production, in response to price shocks, so self-correction could take place
without government intervention. Neither of those expectations has proved to be correct. Both were
unrealistic expectations given the unique characteristics of food and agriculture. The economic
response and political response to issues relating to food and agriculture are much different than they
are for other sectors.
Policy for agriculture must take those characteristics specifically into account or it is destined to fail
to meet its objectives. The presentation discusses agricultural and food characteristics that
contributed to the failure of the current US policy. In addition, the presentation summarizes several
directions US policy could take in the future, presumably beginning with the 2007 Farm Bill. Among
the alternatives are reinstituting some of the supply management mechanisms that traditionally were a
part of US farm policy, more collaboration between farm and energy policy, and almost certainly the
eventual need for multinational cooperation to stabilize world agricultural production and prices.
Critique of Agricultural Policy
and Finding New Directions
Daryll E. Ray
University of Tennessee
Agricultural Policy Analysis Center
WT0 Public Symposium
Geneva
Thursday April 21, 2005
APAC
Agriculture: In a PolicyPolicy-Caused
Economic Crisis
• Commodity prices plummeted in US
• Lower US prices triggered low prices in
international ag commodity markets
• Accusations of US dumping
• Countries in the South unable to
neutralize impacts of low prices
APAC
In the U.S.—
U.S.—historically—
historically—there have been Two
Major Components of Farm\
Farm\Commodity Policy
• Policy of Plenty: Ongoing public support to
expand agricultural productive capacity through
research, extension and other means
• Policy to Manage Plenty: Mechanisms to
manage productive capacity and to compensate
farmers for consumers’ accrued benefits of
productivity gains
APAC
1
We Have Dropped the
“Managing Plenty” Part
In the past farm policies included:
• Floor price
• Supply management tools
• Price stabilization
Over the years and especially since 1996:
• All three were eliminated because of expectations—
expectations that:
• Exports would drive agricultural growth and
prosperity, besides that…
• If markets are allowed to be allowed to work
agriculture will do just fine
APAC
The Realities
• Crop exports did not deliver—will not deliver
• For crop agriculture, timely free- market selfcorrection is a fantasy
• Excess capacity is crop agriculture’s future
peppered with periods of production-shortfalls
• Carrying water for agribusinesses typically
works against farmers’ best interests
• Current farm programs are not sustainable
APAC
China Net Corn Trade
Comparison between 1996 FAPRI projections and PS&D actual
Mil. Bu.
Corn Imports
1000
750
500
1996 FAPRI Projections
of Net Corn Trade
250
Corn Exports
0
-250
-500
-750
PS&D Actual Net Corn
Trade with 2004 Projection
1994
1996
1998
2000
2002
2004
2006
APAC
2
Corn Baseline Projections
U.S. Exports: A comparison of 1995 FAPRI projections
and PS&D actual
Mil. Bu.
2900
2700
FAPRI 12-1995 Projection
2500
1979 Record
2,402 Mil. Bu
2300
2100
1900
Actual
1700
1500
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
APAC
Exports Did Not Deliver
1.6
1.4
US Domestic Demand
1.2
US Population
1
0.8
0.6
US Exports
0.4
0.2
1961
*Adjusted for grain exported in meat
1965
1969
1973
1977
1981
1985
1989
1993
1997
2001
Index of US Population, US Demand for 8 Crops and US Exports* of 8 Crops
1979=1.0
• Exports down to flat for last two decades
• Domestic demand increases steadily
• Since 1979, exports have NOT been the driving force in US crop markets
APAC
The Realities
APAC
3
Acreage Response to
Lower Prices?
Index (1996=100)
120
Four Crop Acreage
100
Four Crop Price Adjusted for
Coupled and Decoupled Payments
80
60
Four Crop Price Adjusted
for Coupled Payments
Four Crop Price
40
1996
1997
1998
1999
2000
Since 1996
• Aggregate US corn, wheat, soybean, and cotton acreage changed little
• While “prices” (take your pick) dropped by 40, 30 or 22%
APAC
Acreage Response to
Lower Prices?
Index (1996=100)
120
Four Crop Acreage
100
80
60
Four Crop Price
40
1996
1997
1998
1999
2000
2001
2002
2003
Since 1996 “Freedom to Farm”
• Aggregate US corn, wheat, soybean, and cotton acreage changed little
despite a wide fluctuation in price
APAC
Canada: Farmland Planted
Million Acres
70
60
Other Oilseeds
50
Other Grains
Canola
40
Barley
30
20
Wheat
10
0
1981
•
•
•
1986
1991
1996
2001
Canada reduced subsidies in 1990s
Eliminated grain transportation subsidies in 1995
Crop mix changed, total acreage remained flat
APAC
4
Australia: Farmland Planted
60
Million Acres
50
Oilseeds
40
Coarse
Grains
30
20
Wheat
10
0
1981-85
APAC
1986-90
1991-95
1996-00
2001-02
• Australia dramatically reduced wool subsidies in 1991
• Acreage shifted from pasture to crops
• All the while, prices declined
Agriculture Has Chronic Price and Income
Problems Because It Does Not SelfSelf-Correct Quickly
The Logic is Straight Forward
• Technology expands output faster than
population and exports expand demand
• Market failure: lower prices do not solve the
problem
• Little self-correction on the demand side
– People will pay almost anything when food is short
– Low prices do not induce people to eat more
• Little self-correction on the supply side
– Farmers tend to produce on all their acreage
– Few alternate uses for most cropland
APAC
The Realities
APAC
5
Worldwide Excess Capacity Will Be
The LongLong-run Problem
• Dramatic yield increases in other
countries
– Cargill, Monsanto, John Deere, etc., etc., etc.
• Acreage once in production will be
brought back in
– Russia, Ukraine and others
• New Acreage
– Brazil
– China
APAC
The Realities
APAC
What Agribusinesses Want
• Volume (paid flat per bushel rate)
• Low Prices (low cost of ingredients)
• Price instability (superior information
systems provide profit opportunities)
• Reduced regulation of production and
marketing practices (seller-to and buyerfrom beware)
• More market power over competitors
and their customers/suppliers (Want
everyone at a competitive disadvantage)
APAC
6
The Realities
• WTO does not consider characteristics of Ag
APAC
Personal View
• The whole WTO process shows a
complete lack of understanding that food
and agriculture are DIFFERENT
– Economic response is DIFFERENT
• Aggregate agricultural markets do not readily
self-correct
– Political response is DIFFERENT
• Food security and other social objectives often
trump all other considerations in the case of food
and agriculture
APAC
Possible Directions
• Stay the Course
• Intensify the Free Market Prescription
• Switch to green payments
• Bring back some traditional farm policy
instruments
• More coordination of energy and farm policy
• Enlist multinational cooperation to control
supply
APAC
7
Stay the Course
• More of the same
• Can expect:
– Continued low prices: $2 corn; $3 wheat $5
soybeans
– Continued scheduled large government
payments in US and developed world
– Continued accusations of dumping
– Continued benefits to livestock, importers and
agribusinesses
APAC
Intensify Free Markets in
Developed Countries
25
Percent
20
15
10
5
0
t
oa
ilk
G
M
&
p
ee
Sh
Po
y
tr
ul
rk
Po
ef
Be
at
he
e
ic
R
W
n
or
C
In 2020, worldwide
• Corn price increases by less than 3% over baseline
• Wheat price increases by less than 1% over baseline
• Rice price increases by less than 2% over baseline
APAC
IFPRI IMPACT
Switch to Green Payments
• Decoupled and WTO proof
• Payments are payments (to some extent)
• Ignores the root causes of farm price
and income problems
APAC
8
A More “Managed”
Alternative means of managing crop
production could be considered
– Adding to existing CRP acreage
– Creating a shorter-term CRP-like program
– Reinstituting:
• Annual Set-asides
• Inventory/price support program
APAC
Merge Ag and Energy Policy
• Biofuels recycle atmospheric, not fossil,
carbon
• Look at crops not in food equation and not
exportable
• Switchgrass
–
–
–
–
–
–
Perennial
Reduced inputs
Multi-year setaside
Burned in boilers for electricity
Converted to ethanol
Less costly than present ag programs
APAC
Multinational Cooperation
• Henry A. Wallace was right and Earl
Butz was wrong – excess capacity, not
scarcity, will continue to be the future
of agriculture
• Presently the US can still affect prices
with supply management
• Sometime in the future this will take
multinational cooperation
APAC
9
Corn Price: US and Argentina
Dollars per Metric Ton
200
Argentina
Corn Price
U.S. Corn Price
150
100
50
0
1975 1978 1981 1984 1987 1990 1993 1996 1999
APAC
Multinational Cooperation
• Henry A. Wallace was right and Earl
Butz was wrong – excess capacity, not
scarcity, will continue to be the future
of agriculture
• Presently the US can still affect prices
with supply management
• Sometime in the future this will take
multinational cooperation
APAC
Thank You
Agricultural Policy Analysis Center
The University of Tennessee
310 Morgan Hall
2621 Morgan Circle
Knoxville, TN 37996-4519
www.agpolicy.org
APAC
10
Comparative Advantage Theory
vs. Realities of the Real World
“China attaches great importance to
agricultural development and
increasing the income of farmers.”
“It is inconceivable that a country of
1.3 billion people will rely on others
to feed themselves,”
Zhou Ming Chen, Chairman of the China National Cereals Oils
and Foodstuffs Import and Export Corp.
Washington D.C.
February 17, 2004
APAC
"Faced with the choice of changing one's mind
and proving one doesn't need to do so, ... we
get busy on the proof."
John Kenneth Galbraith
APAC
11
16:00 - Defining necessary conditions for agricultural
policy reform favourable for agricultural
producers (PANEL)
Ndiogou Fall
President of the Réseau des organisations paysannes et de producteurs agricoles
d’Afrique de l’Ouest (ROPPA), Senegal (Network of farmers’ organizations and
agricultural producers of West Africa)
Born in Senegal in 1955, Ndiogou Fall is a farmer who operates a small farm (10 ha)
located in Senegal’s groundnut basin, in the region of Thies. In addition to growing peanuts and
timothy grass, he raises a few cows and sheep with the help of his family. With a background in
agriculture, he has worked at the Office National pour la Commercialisation et l’Appui au Développement (ONCAD) until its dissolution in 1981. He then became an operator and became involved with
others in Senegal’s peasant farmers’ movement. Involved in the creation of his village’s group, he
became responsible for the Training Department of the FONGS (Fédération des ONG Sénégalaises)
for 5 years, after which he served as general secretary and finally president of the FONGS to this day.
Mr. Fall participated in the creation of the CNCR (Conseil National de Concertation des Ruraux) with
Mamadou Cissokho. He became president of the Réseau des organisations paysannes et de producteurs agricoles d’Afrique de l’Ouest (ROPPA) in 2002. He has greatly contributed to the organization
of the grassroots movement in Senegal, at the base of important changes in relations between farmers
and the State as well as in the definition of West Africa’s agricultural policies.
Dave Frederickson
President, National Farmers Union - US
David J. Frederickson was elected president of the National Farmers Union in 2002.
Prior to his election to the national office, Frederickson served for 11 years as
president of the Minnesota Farmers Union. In both capacities, Frederickson has used
the understanding he gained as a fourth-generation family farmer and state legislator to represent
rural communities and the people who live there. Frederickson grew up on a family farm in the
western Minnesota community of Murdock. He earned a bachelor’s degree in Education from St.
Cloud State University and taught special education for eight years before he returned in 1974 to
operate his family’s farm. From 1986 to 1992, Frederickson served in the Minnesota Senate.
During his six-year tenure as a state senator, Frederickson served as vice-chairperson of the Taxes and
Tax Laws Committee and vice-chairperson of the Agriculture and Rural Development Committee and
was chairperson of its Rural Development Subcommittee. In addition, he served on the Education
Committee, its Education Funding Division and the Governmental Operations Committee. Because of
Frederickson’s efforts to pass legislation designed to promote new markets for agricultural products,
ethanol has become a primary rural development tool in Minnesota.
Frederickson has served as a member of the U.S. Agency for International Development’s Food
Security Advisory Committee and was appointed by U.S. Secretary of Agriculture Dan Glickman to
the U.S. Department of Agriculture’s Advisory Committee on Agricultural Biotechnology. He also
serves on the executive committee of the International Federation of Agricultural Producers.
It is truly a pleasure for the National Farmers Union (NFU) to participate in this important event, and
to have an opportunity to discuss agriculture trade issues. The following points summarize our
presentation.
Interaction of T
oday
’s W
orld Agricultural PPolicies
olicies
Today
oday’s
World
• Commodity prices plummeted worldwide
• Accusations of dumping
• Many countries unable to neutralize impacts of low prices
Policy at a Crossroads
With the decreased rate of improvement in social measures and the collapse in farm prices:
• The current policy trio of de-regulation, trade liberalization and privatization is ineffective,
contentious and uncooperative
• Alternative: Desperately need to identify elements of a stable, sustainable and cooperative world
policy for food and agriculture
Food/Ag PPolicy
olicy Should Address:
• Reasonable returns for the producers
• Food and Nutrition Security
• Multifunction of Agriculture
Managing Agriculture is Different
• Agricultural output generally increases faster than effective demand
• Low farm prices result
• Other industries self-correct when prices are low
• Consumers buy more
• Producers produce less—supply management occurs
• Not in agriculture
• Cropland area changes too slowly in response to lower prices
• Consumers do not go to 5 meals a day as food prices decline
Managing Plenty and The Role of FFarm
arm PPolicy
olicy
In the past farm policies included
• Floor price
• Supply management tools
• Price stabilization
Recent international policy trends
• Eliminated all three
• Set prices free to fall well below cost of production
• Provided revenue supplements to compensate when prices are low
Current T
rade Agenda Is Not the Answer
Trade
Farm prices and incomes are not self-correcting when prices drop because:
• Supply does not respond enough to low prices (has not; does not; will not)
• Demand does not respond enough to low prices (has not; does not; will not)
What FFood
ood and Agricultural PPolices
olices are Needed?
Policies that:
• Improve economic sustainability for producers
• Recognize the need for cooperative solutions
• Preserve the autonomy of each country to determine its food and agricultural policies
• Address Food Security and global hunger issues
Why a Global Commitment to Balance Supply and Demand?
• Significant additional productive capacity is being brought online in several countries around the
world
• Technological advances now increase yields worldwide
• Politically impossible for a nation to do unilaterally
Why Do W
ood/F
arm PPolicy?
olicy?
Wee Need a New FFood/F
ood/Farm
• Farmers must join together to stop the race to the bottom in commodity prices
• Structure of agricultural marketplace pits farmers against one another
• Government cost of policies
• 800 million people lack adequate nutrition
Advantages of a FFood/F
ood/F
olicy based on FFood
ood Security and Sovereignty
ood/Farm
arm PPolicy
• Balance supply and demand to ensure profitable producer returns
• Establish conditions less conducive to market concentration
• Reflect national priorities including social objectives and sovereignty—Reduce intervention costs
• Reduce/eliminate global hunger
• Guarantee food security for all
• Eliminate dumping and trade distortions
• Enable cooperative management of excess capacity
We need a complete review of who benefits from “free trade”, and what are the costs of continuing to
pursue these policies. We are offering a concept that ‘thinks outside the box” but addresses the
needs of the world’s needy, our growing consumption of energy; protecting the environment, and
providing economic opportunity to farmers, ranchers and our rural communities thru out the world.
Kari Redse Haskjold
Vice-President, Norwegian Farmers Union, Norway
Kari Redse Håskjold is the second vice president of The Norwegian Farmers‘ Union.
She is also a member of the executive committee of IFAP, International Federation of
Agricultural Producers. With her family, Kari runs the family farm in the western parts
of Norway. Over the years she has taken particular interest in international trade- and developing
issues, food culture and food safety issues, resulting among other things in her being one of the
founders of the Norwegian Food Festival and sitting in the board of the Norwegian food labelling
group.
The most basic condition for agricultural reforms must be that every country should have the right to
produce food for its own consumption, also after the reform. Agricultural producers work under a
multitude of different conditions around the world, securing a multitude of tasks in their society.
Although it is necessary to regulate international trade, national governments need sufficient flexibility
to form an agricultural policy that suits their country. One size does not fit all! A great majority of the
farmers in the world produce only for the local market. Rules made to regulate agricultural trade must
not have such a form that they undermine the 90% of agricultural production destined for the
domestic markets. Therefore we need different rules for products destined for the domestic market
and products aimed for export. Each country must also have the right to maintain a sufficient border
protection to continue a sustainable production for the domestic market. Only then the multitude of
vibrant family farming can survive also in less competitive agricultural areas of the world.
Necessary conditions for agricultural
policy reforms favourable for
agricultural producers
Presentation by Kari Redse
Håskjold, vice president of the
Norwegian Farmers`Union, at the
NGO Symposium in Geneva April
21, 2005
Vi får Norge til å gro!
Necessary conditions?
• Is it possible to find conditions that are
favourable to all farmers?
• If so, what are the necessary principals for
coexistence of different forms of agriculture?
• Implications for a new WTO agreement
Multitude of conditions for
agriculture
• Climate and topography
– Norway: 3% of the land area arable land EU: 26%
– Wheat yield: 50% in Norway, compared to Holland
• Farm size
– Norway: 15 ha, 15 cows.
US: 200 ha, 80 cows
• Cost level
– Dairy: Production costs are six to seven times higher in
Norway, compared with the most cost-efficient
producers
• Import-oriented or export-oriented?
– Norway: 50% self sufficiency degree
1
Still common challenges for
farmers
• Sufficient income level to make a living
within the conditions of the home country
– Falling market prices (see next slide)
– Declining levels of support to compensate for
insufficient price levels
– Increasing competition
Declining prices 1960-2000 (FAO)
Even danish pig farmers struggle…
2003
Net result
2002
-218’
2001
41’
2000
739’
1999
379’
-139
2
Agricultural export – a way out?
(FAO)
Coexistence of different kinds of
agriculture – what is needed?
• Every country should have the right to produce
food for its own consumption: 90% for national
markets today
• National governments must have a leeway to
form agricultural policy that fits their country –
one size does not fit all
• Securing production and thereby NTCs, also in
less favourable areas:
– Food security, environment, cultural landscape,
settlement of the countryside+
Coexistence of different kinds of
agriculture – what is needed?
• More reflections upon consequences of
increasing free trade in agr goods
– W-Europe and N-America: More than 50% of the trade,
Africa 4%
– Coffee producer gets 0,02% of the final price, despite
free trade
– Global warming
3
Rules for coexistence
• No tariff capping
– Hit only a few countries who already import a lot (G10:
4% of the population, 13% of the food imports)
• Only modest cuts in tariffs and quota expansions
– Necessary to keep up a production of food and NTCs
also in less productive areas, and to give preferences to
developing countries
• Different rules for production for the local market
and production for export
– Split amber and blue box
Rules for coexistence
• Maintain a certain level of amber and blue
support for local markets
– In the long run, production will only take place if it is
profitable at the farm level, i.e. if farm production
revenues cover production costs
– Extensive detailed targeting difficult and expensive,
especially in areas where the agricultural sector
consists of a large number of small-sized farmers
Survive on green box only?
Production costs and revenues of a dairy reference farm in Norway, comparing the present situation with a "world-market-only"
scenario in which all blue and amber box support, including tariff protection, has been replaced by green box support
Revenues and costs (1998) on a dairy farm with 23 cows in Eastern Norway (2.5 man years )
Revenues and costs (1998) on a dairy farm with 23 cows in Eastern Norway (2.5 man years )
While total production costs would decrease slightly under a "world-market-only" scenario, mainly due to reduced fodder
prices, this reduction is far from sufficient to offset the elimination of production-related policy measures that would occur under
this scenario
4
Tariff capping at 100%consequences
Norway
EU
US
Av.tariff
O-tariff lines Tariffs >100%
124%
23%
44,2 %
19,5 %
27%
0,9 %
5,5 %
28%
0%
5
Allan Burgess
Chair of the Australia’s National Farmers’ Federation Trade Committee, a member of
the Cairns Group Farm Leaders Forum and President of Australian Dairy Farmers.
Allan Burgess is a dairy farmer from Shepparton, in the Australian state of Victoria,
where his family milk 1000 cows on two farms. As Chairman of the National Farmers’
Federation Trade Committee, Allan has been heavily involved in representing Australian agriculture
with the recent US Free Trade Agreement negotiations, the ongoing World Trade Organisation
negotiations and many bilateral discussions. Allan has represented Australian farmers at the International Federation of Agricultural Producers for a number of years.
The Doha Development Round was launched over three years ago in 2001. In Doha all Ministers
agreed to a comprehensive mandate on agriculture.
Ministers committed them selves to “…comprehensive negotiations aimed at:
substantial improvements in market access; reductions of, with a view to phasing out, all forms of
export subsidies; and substantial reductions in trade-distorting domestic support.”
Ministers have reaffirmed their commitment to the Doha mandate on many occasions and the
Framework Agreement, agreed in Geneva in July 2004, lays out a pathway forward for the mandate
to be delivered.
The recent Cairns Group Farm Leaders meeting held in Cartagena, Colombia underlined the
determination of Cairns Group Farm Leaders to see world trade in agricultural products
fundamentally reformed. But, Cairns Group Farmers are worried that progress in the Round has
been frustratingly slow to date and that unless the agriculture negotiations can move forward the
entire round will be put in jeopardy.
We believe, 2005 will be a critical year for the WTO negotiations which will culminate with the 6th
Ministerial Conference in Hong Kong in December and we want Ministers to agree on comprehensive
modalities in Hong Kong that will deliver on the Doha mandate.
Cairns Group farmers seek a world where an equitable and enforceable rules-based trading system in
agriculture creates opportunities for developed countries, developing countries and all farmers to
benefit from a sustainable agriculture sector. In addition economic benefits should be enjoyed across
the broader economies of all members, contributing to the socio-economic development and political
stability.
Cairns Group farmers strongly believe the Doha Round of negotiations is a key opportunity for
governments to stop the on-going problem of support and protectionism.
Cairns Group farmers believe that success in the Doha Round will only be achieved if all WTO
members are prepared to adopt bold and ambitious goals for agricultural trade reform that includes
quickly phasing out export subsidies on all products, cutting tariffs in a way that will lead to real
market access improvements on all products and, agreeing to meaningful subsidy reductions that
deliver real cuts to actual spending on trade distorting subsidies.
WTO member countries should not waste the unique opportunity that exists in 2005 - it is time for
fundamental reform of agriculture.
Laurent Pellerin
1st Vice-President, Canadian Federation of Agriculture and President of l’Union des
producteurs agricoles (UPA)
In 1985, Mr. Pellerin is elected President of the Fédération des producteurs de porcs,
affiliated with the Union des producteurs agricoles (UPA). He presided over the
organization for more than eight years. In addition to his commitment within the
Confederation of the l’UPA, being a member of the Executive Committee over these years, he became
Vice-President of the Canadian Pork Council in 1986. Since December 1993, Mr. Pellerin is
President of the UPA, an agricultural group with close to 45,000 members. Since 1972, Laurent
Pellerin and his family have been pork farmers in Québec.
The contribution which follows first serves to supply the context in which agriculture and the
agroindustry evolve today. We can observe that the opening up of agricultural markets has speeded up
the concentration of the retail and processing sectors. This concentration had negative impacts on the
agricultural sector, the main one being a reduction in the prices of agricultural commodities which has
caused one of the worst income crises in modern agriculture.
To remove ourselves from this deadlock, we must acknowledge that if opening up the markets was
beneficial for some (processing firms – input suppliers - retailers), this was not the case for the
farmers and peasants of the planet. It was wrong of the Uruguay Round to ignore the specifics of the
agricultural sector and to want to equate the rules of the trade of agricultural products with those of
the trade of industrial products. To recover from the current crisis, we must first reconsider the
specifics of agriculture in the negotiations currently taking place at the WTO. We must then look to
organize the global trade of agricultural products rather than broadening it, by allowing farmers and
peasants to have a legislative framework which is conducive to the organization of the marketing of
their product. This presentation ends with the following question: in the field of agriculture, must one
not first think of developing the local market before the international market in order to one day,
achieve a more responsible and equitable world economic order?
The winning conditions of a reform of agricultural policies
which are favourable to farm producers
by Laurent Pellerin
Executive Vice-President of the FCA
and President of the
Union des producteurs agricoles
Geneva, April 2005
A context
Impacts
Solutions
Acceleration of the agrifood system’s
concentration at all levels, resulting in
negative impacts on the agricultural
sector
Deterioration of farmers’ and peasants’
conditions
A reform of agricultural policies which are
favourable to farmers and peasants in
the framework of WTO negotiations
2
The concentration
• The opening up of markets in the field of
agriculture has resulted in a concentration at
all levels of the chain:
– Production,
– Processing,
– Food Distribution.
3
1
The concentration
• In the US, 4 companies control 80% of the
bovine slaughtering and 60% of the chicken
processing business.
• In North America, 4 companies control 69% of
the seed-corn market.
• 90% of Québec’s 7 million inhabitants buy their
food from 3 major distributors.
4
The concentration
• In Canada, despite an increase in revenues,
the number of farms has decreased by close to
half in 25 years.
• It is internationalizing and becoming global.
• It increases the imbalance of forces between
family farms and corporations which revolve
around them, both downstream and upstream.
5
The concentration
• There are multiple repercussions:
– Input is becoming more and more expensive.
Index establishing price producers paid their input
and price obtained for their production (1990 – 1992 = 100)
140
120
100
80
Pricepayé
paid
Prix
Price
obtained
Prix
reçu
60
40
1975 1980 1985 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Source : Agricultural Statistics Board. NASS, USDA
6
2
Processors that are increasing their profits
Comparison of the ‘Profit before tax/assets’ ratio of Canadian
and American food processors
United
States
7
The concentration
• There are multiple repercussions:
– The net income of farmers stagnates or too often
deteriorates, despite the increase in exemptions.
Comparaison
de l'évolution
exportations
agroalimentaires
et du and
revenu
net
desincome
fermes au
Comparison
of thedes
evolution
of agro-food
exports
the
net
Canada,
1979 - 2004
of farmers
30
Milliards de dollars
25
20
15
Exportations
agroalimentaires
canadiennes
Canadian agro-food
exports
Revenu agricole net
Net farm income
10
5
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
0
Sources: Statistique Canada. Industrie Canada. MAPAQ.
8
Profits to retailers are doubled
Comparison of the ‘Profit before tax/assets’ ratio of Canadian and American
food retailers
United
States
9
3
The concentration
• In the field of agriculture, freer trade and the
opening up of markets do not create wealth for
farmers and peasants.
– The constraints are even greater for producers.
10
More specifically, what are the winning conditions
which are favourable to agricultural producers?
Winning conditions
• Still today, it seems absurd to us that feeding
people should be subjected to the same rules
as any other type of trade.
12
4
Winning conditions (cont’d)
• Why should agriculture benefit from an
exemption?
– High funding and low profitability of capital.
– Disproportion of the power relationship between
buyers and sellers.
– Climate variations and live material.
– Food safety.
– Occupation of the territory.
13
• That farmers and peasants have at their disposal the tools that
will allow them to unite and organize their marketing effort.
– Balance the dominant market position between buyers
and sellers.
• Develop the local market before the global market.
– Recognize a country’s right to feed its people.
– Acknowledge the right to have a national agriculture
through the recognition of sensitive items and special
enterprises.
– Take advantage of requirements (environmental issues)
which would bring us to produce locally.
• Rules which ensure that the government’s financial capacity
cannot be a comparative advantage.
14
• Those who wish to export need to:
– Be transparent.
– Be beyond reproach when it comes to subsidies.
Look to organize the global trade of agricultural products
rather than broadening it
15
5
Conclusion
• These are the conditions we must respect if we
one day want to achieve a more effective, but
also a more responsible and equitable world
economic order.
16
6
17:05 - A model of effective agricultural policy:
Management of Production
Daniel-Mercier Gouin
Professor, Faculty of Agriculture and Food Sciences of Université Laval, Québec,
Canada
Daniel-Mercier Gouin has a Ph.D. in Development Economics. He specializes in the
economic analysis of the agroindustry sector, the analysis of the agricultural policy and in collective
marketing. Since 1988, Mr. Gouin has been teaching at the Département d’économie agroalimentaire
et des sciences de la consommation (Department of agroindustry economics and consumption sciences ) of Université Laval in Québec. Since 1999, he is the Director of the Groupe de recherche en
économie et politique agricoles (GREPA) and, since 2004, has been appointed Chaire en analyse de
la politique agricole et de la mise en marché collective (Chair, agriculture policy and collective marketing) of Université Laval.
In the context of market openness and of questioning the State’s intervention tools in agriculture, the
regulatory mode of the dairy industry through supply management as it is applied in Canada is
challenged. The research report from which this conference is drawn is interested in analyzing the
various regulatory modes of the dairy industry which could be implemented, and to discuss their
respective pros and cons.
Following a comparative performance analysis of the regulatory systems in the main dairy economies
of developed countries, the author concludes that Canada’s supply management system is that which
best stabilizes producer prices to a level which is generally superior to that of other countries.
Paradoxically, it is in those countries with supply management - Canada, France and the Netherlands that retail prices have increased the least over the observation period, much to the benefit of the
national consumers of milk products. As for budgetary costs per tonne of milk produced, they are the
lowest in Canada, next to New Zealand, despite the fact that milk producers’ incomes are best
protected, at no major relative costs to the consumers.
Furthermore, the possibility that free trade could suffice to regulate the dairy industry is discussed.
This discussion is placed in the larger context of the economic specificity of the agricultural sector
which historically has justified the support of the State in the field of agriculture and which still
justifies it today, more especially in the dairy industry.
In conclusion, the author questions the finality of challenging supply management in Canada’s dairy
industry. His analysis leads him to conclude that supply management in the dairy industry is still a
relevant regulatory mode, at a minimum in the Canadian context and in the way it is enforced.
Supply Management in the Dairy
Sector,
Still an Appropriate Regulation
Model
by
DanielDaniel-M. Gouin
Presentation Outline
1. Problematic and objectives
2. Dairy sector regulation models
3. Comparative economic performance of
the regulation models
4. Free trade as a regulation system
5. Conclusion
Problematic
Q
Supply management is being challenged
Despite the Uruguay Round, border
protection remains high
Q With dairy market regulation,
regulation, the
interventionist approach is in order
Q
1
Objectives
Q
To analyze various dairy sector
regulation models
To discuss their respective advantages
and disadvantages
Q Countries under study
Q
Canada
European Union
Australia
United States
(France, Netherlands)
Netherlands)
New Zealand
Dairy Sector Regulation Models
Q
The Canadian Dairy Policy
• Quota established based on demand
• Producers responsible for surpluses
• Target price established based on costs of
production
• Producer subsidy eliminated in 2002
Regulation Models
Q
U.S. dairy policy
• Milk Marketing Orders
9
Price discrimination and equalization but no
quota
• Direct subsidy since 2002
9
US$1.8 billion from Oct. 2002 to Jan. 2004
• Subsidized exports
9
Dairy Export Incentive Program
2
Regulation Models
Q
Europe
• Since 1984
9 A quota from the perspective of
controlling budget costs
9 Export subsidies
9 Price support reduction compensated
by direct subsidies
Regulation Models
Q
Deregulation in New Zealand
• A sector facing the world market
6.00
US$ / tonne
NZ$ / kg of total solids
5.00
2500
2000
World Market
1500
4.00
New Zealand
3.00
1000
500
2.00
0
1.00
81
83
85
87
89
91
93
95
97
99
01
Regulation Models
Q
Deregulation in New Zealand
• but … an export monopoly
9
9
formerly the New Zealand Dairy Board
now the Fonterra Cooperative
3
Regulation Models
Q
A new dairy policy in Australia since
2000
• Elimination of fluid milk quotas
• Elimination of industrial milk income
support
• An eighteight-year transitional direct subsidy
program financed through a consumption tax
of 11 cents a litre
Comparative Performance
Performance of Dairy
Sector Regulation Systems
Producer prices
Consumer prices
Margins
Budget costs
Producer Prices (current monetary units)
170
160
150
140
130
Canada
120
110
100
United States
90
80
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
(index 100 = 1981)
4
Producer Prices (constant monetary units)
130
120
110
100
90
Canada
80
70
60
50
United States
40
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
(index 100 = 1981)
130
120
Netherlands
110
100
France
90
Canada
80
70
60
50
United States
40
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
(index 100 = 1981)
130
120
110
100
90
Canada
80
70
60
New Zealand
50
Australia
40
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02
(index 100 = 1981)
5
Change in producer prices
$CAN/hl*
60
50
40
30
20
10
0
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
$CAN/hl*
60
50
40
30
20
10
0
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
$CAN/hl*
60
50
40
30
20
10
0
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
6
Change in consumer prices
Constant $
110
105
100
95
90
85
80
75
70
81
83
85
87
89
91
Canada
Netherlands
93
95
United States
Australia
97
99
01
France
New Zealand
(index 100 = 1981)
Constant $
110
105
100
95
90
85
80
75
70
81
83
85
87
89
91
Canada
Netherlands
93
95
United States
Australia
97
99
01
France
New Zealand
(index 100 = 1981)
Constant $
110
105
100
95
90
85
80
75
70
81
83
85
87
Canada
Netherlands
89
91
93
United States
Australia
95
97
99
01
France
New Zealand
(index 100 = 1981)
7
Cost variance for a basket of retail dairy products
between Canada and the United States, in CAN$
50%
40%
30%
20%
10%
Nov. 03
Dec. 02
May. 03
Nov. 01
May. 02
Nov. 00
May. 01
-20%
May. 00
Jun. 99
Nov. 99
Jun. 98
Nov. 98
Jan. 98
Jun. 97
Jul. 96
Jan. 97
Mar. 91
0%
-10%
Change in the Aggregate
Aggregate Margin of
Processing and Distribution
Distribution
Difference between Consumer Price Index
and Producer Price Index
Current $
140
120
100
80
60
40
20
0
-20
-40
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
Change in the Aggregate Margin of
Distribution
Difference between Consumer Price Index
Current $
140
120
100
80
60
40
20
0
-20
-40
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
8
Change in the Aggregate Margin of
Distribution
Difference between Consumer Price Index and
Current $
140
120
100
80
60
40
20
0
-20
-40
81
83
85
87
89
91
93
95
97
99
Canada
United States
France
Netherlands
Australia
New Zealand
01
Q
The profitability of dairy processing
• not necessarily better in countries where
margins increase the most
Q
Why?
• Collective marketing reduces transaction
costs
Reduced transportation costs
Supply guarantees
9 Standardized marketing conditions
9
9
Change in Budget Costs of Dairy
Sector Regulation
Direct payments and export subsidies
in CAN$ / tonne of milk produced
60.0
CAN$ / tonne
50.0
40.0
30.0
20.0
10.0
0.0
1995
Canada
1996
1997
United States
1998
1999
European Union
2000
Australia
2001
2002
New Zealand
9
Sector Regulation
60.0
CAN$ / tonne
50.0
40.0
30.0
20.0
10.0
0.0
1995
1996
Canada
1997
1998
United States
1999
European Union
2000
2001
Australia
2002
New Zealand
Sector Regulation
60.0
CAN$ / tonne
50.0
40.0
30.0
20.0
10.0
0.0
1995
1996
Canada
1997
United States
1998
1999
European Union
2000
Australia
2001
2002
New Zealand
Alternate regulation scenarios
The
The myth of free trade
“Theoretically speaking, a marble can stay
in equilibrium on the tip of a pencil.
Practically speaking, though, a marble never
stays in equilibrium on the tip of a pencil
for very long” (Boussard
(Boussard 2001)
10
The economic specificity of agriculture
Q
The characteristics of the demand
• The demand’s inelasticity with regard to
prices and income
• A strong concentration of buyers
The economic specificity of agriculture
Q
The caracteristics of the offer
• The cyclical or “ chaotic ” variations in
production
• The rapidly changing technology
• The competitive structure of the
production sector
• The low mobility of resources
• A strong proportion of fixed costs
Conclusion
Producer prices
• Higher and more stable in Canada
Consumer prices
• Increase more slowly in supplysupply-managed countries
Processing and distribution margin
• Increases more slowly in supplysupply-managed countries
Budget cost
• Lowest in New Zealand, followed by Canada
11
Conclusion
Challenging supply management
For what purpose?
For whose benefit?
12
17:30 - Direct government payments:
A form of border protection?
Peter Clark
President of Grey, Shih and Associates, Limited, Canada
Peter Clark is President of Grey, Clark, Shih and Associates, Limited, an economic
trade consultancy formed in 1979, specializing in international trade and public affairs.
After graduating from St. Patrick’s College of the University of Ottawa in 1965, Mr. Clark joined the
Government of Canada where he worked primarily in the Department of Finance on a wide range of
trade policy issues. In 1972 he was seconded to the Department of External Affairs as Counsellor at
the Canadian Permanent Mission to the United Nations (Geneva) where he was Canadian Liaison to
the GATT, Chairman of the GATT Standing Committee on Budget, Finance and Administration and
was a member or head of most Canadian delegations to GATT from 1972-75. Mr. Clark is one of
Canada’s most active international trade practitioners. His clients, in Canada and around the world,
include governments, corporations and trade associations. He is active in NAFTA and WTO dispute
settlement both as Counsel and as an Arbitrator.
This study updates and expands upon the previous studies of support to U.S. agriculture, with special
emphasis on dairy farming and processing, prepared by the firm Grey, Clark and Shih (GCS) in 1990
and 1998. This analysis is more comprehensive because there is now more publicly available information on state programs and estimated benefits provided at the state and local level for subsidized
irrigation water are included. All support provided directly and indirectly to agricultural production
and processing in the USA, from inputs at the farm or ranch level to the point of sale to retailers was
reviewed. However, while the complete range of specific measures was reviewed, not all benefits
flowing from these programs were included in the calculations of benefits, either because GCS did not
have adequate information to estimate particular program benefits or because benefits were
considered too remote from dairy.
Total Suppor
roduction
Supportt to U.S. Dairy P
Production
GCS estimates that the total support to U.S. dairy production provided through U.S. Federal, State
and local programs in FY 2003 was $18.48 per hectolitre or $8.11 per hundredweight (cwt).
Expressed in Canadian dollars,1 this support was $25.90CAD per hectolitre in 2003.
Federal
State/Local
Total
Summar
Summaryy of 2003 U.S. Subsidies to Dair
Dairyy
Per cwt
Per hl (100 l)
US$
CAD$
US$
CAD$
6.21
8.71
14.15
19.83
1.90
2.66
4.33
6.07
8.11
11.37
18.48
25.90
Canada
USA
Farm Gate Dair
rices (2003)
Dairyy P
Prices
Per cwt
Per hl (100 l)
US$
CAD$
US$
CAD$
19.17
26.86
43.90
61.52
12.86
18.02
29.30
41.06
The study finds that in 2003:
• Total value of U.S. Federal Government subsidies and support to agriculture is the aggregate of the
USDA program levels, irrigation infrastructure support and the biomass energy incentive is
U.S.$113,523,800,000.
• Total value of state and local government support, including irrigation water subsidies is
U.S.$24,806,191,561.
• Total federal financial support to dairy production is U.S. $10,578,907,216.
• Total value of support to dairy production provided by state and local governments is U.S.
$3,237,374,346.
In order to understand the dynamics and pervasive influence of undisciplined domestic support, we
have compared it to costs of production and the farm gate prices for milk in the USA.
U.S. cost of production for milk2 was:
2002
$18.87 cwt
2003
$19.22 cwt
U.S. revenue per cwt for milk was:
2002
$12.47 cwt
2003
$12.86 cwt
_____________
1
2
using the Bank of Canada average exchange rate for 2003
Source for all 2002-2003 U.S. data asnalyzed her is www.ers.usda.gov/Data/CostsandReturns/data/current/c-milk.xls
The estimated $8.11/cwt support to U.S. dairy production in 2003 was equivalent to 42.2% of cost
of production.
These subsides nearly double the shortfall in revenue from the marketplace. They allow U.S.
producers to sell below their fully absorbed cost of production, insulating them from the need to earn
a profit from the market and from international price pressures. Supplemented by Dairy Export
Incentive Program (DEIP) benefits this support facilitates exports.
Clearly, it is Government support and not market forces which influence production decisions and
farm income in the USA. This analysis suggests that, the amount of support that U.S. producers
receive from government amount $US 2.00 per kg for butter. The question then becomes, what would
be the additional tariff needed if U.S. dairy farmers were to receive all their returns from the market,
as do their Canadian counterparts? GCS attempts to estimate this in the following table:
Estimated ad valorem tariff equivalent of payments received by U.S. dairy producers
U.S. Butter
US $/kg
U.S. Tariff
Estimated direct payments
Equivalent tariff required
without direct payments
1.54/kg
2.00/kg
3.24/kg
Level of Protection in ad valorem terms
Assuming a world price Assuming a world price
of $1 US/kg
of $2 US/kg
(August 2002)
(2005)
154%
77%
200%
100%
354%
177%
As illustrated in this table an additional tariff of between 100 and 200% for butter would be required
to achieve a level of tariff that would allow U.S. producer get all of their returns from the marketplace
rather than through subsidies. In order to make comparisons with Canadian butter, the specific tariffs
were converted to ad valorem tariffs. The Canadian tariff for butter is 298% and falls close to midway between the estimated levels of tariffs that would be required by the U.S. to ensure producers
obtain 100% of their income from the market place.
GCS also completed a similar analysis with cotton and rice and a number of other products,
concluding that subsidies allow for a country to have lower tariffs.
Conclusions
This study suggests that:
1. The single undertaking or “one size fits all” approach, urged by the biggest subsidizer, is far from
suitable for all countries.
2. Wealthier countries can through generous subsidies and other forms of support insulate their farm
sectors from market access liberalization.
3. There are interlinkages between subsidies and tariff /tariff quota which cannot be ignored. Failure
to take these linkages into account will result in perpetuating and exacerbating imbalances in the
WTO rules and conditions of competition relating to agricultural trade.
4. The use of green or de minimis domestic support tends to be very production and trade distorting.