U.S. and European agriculture subsidies are necessary to protect domestic farmers from cheap foreign

1
U.S. and European agriculture subsidies are
necessary to protect domestic farmers from cheap
foreign farmers

• Presentation by
• Ellen Shultz Rachel Harrison

2
Outline

• Definitions
• Background
• Subsidy History in the US/Europe
• World Trade Organization
• Benefits of Subsidies
• Examples
• Dairy Industry Example
• Oilseeds
• Conclusion

3
Definitions

• Agricultural Subsidy
• A governmental subsidy paid to farmers to
  supplement their income, help manage the supply
  of agricultural commodities, and bolster the
  supply of such commodities on international
  markets
• Multifunctional Agriculture
• A term used to draw attention to the other
  positive goods that agriculture produces beyond
  food and fiber

4
Background
5
Background

• Nearly all industrial countries have provided
  subsidies to their farmers
• Traditionally subsidies were linked to current
  prices and production
• US legislation starting in 1933 to create farm
  subsidies. Current legislation ends in 2007
• EC started looking at subsidies in the 60s and
  implemented in the 70s and have been updating
  policies.

6
Subsidy History in the US

• 1933 - First Agricultural Adjustment Act
• Alleviate over-production and low prices brought
  on by Great Depression
• 1965 - Food and Agriculture Act
• Direct income support to boost market orientation
  and align world and domestic prices
• 1996 - Federal Agriculture Improvement and Reform
  (FAIR)
• Introduced PFCs
• Safety net clause
• 2002 - Farm Security and Rural Investment Act
• Made safety net clause from FAIR the norm
• Re-introduced a counter-cyclical based support
• Set to expire in 2007

7
Payments to Farmers
8
Subsidy History in Europe

• Common Agriculture Policy
• (devised in 60s and fully implemented in 70s)
• Create a single market for Agriculture within the
  European Community
• Preferential treatment to E.C. goods
• Levies on imports/export subsidies
• Maintain level price (determined by agriculture
  ministers)
• Through purchase/sale by government agencies
• Prices were too high for the market to bear
• By 1984, 70 percent of EU budget spent on
  Agriculture

9
Subsidy History in Europe

• MacSharry Reforms (1992)
• Market support reduced
• Direct grants implemented
• Set-aside
• Single Payment Scheme (1999)
• Individual Countries to determine whether
  historical or flat rate
• Not linked to current farm production
• Maintain land in good agricultural conditions
• Free to decide production in response to demand

10
World Trade Organization

• World Meetings
• Uraguay Round 1986-1994
• Most trade Agreements made here
• Now in Doha
• Trade Agreements
• Europe
• FTA, FTZ
• US
• NAFTA, FTAA
• Create the rules for trade
• Set the standard for quality
• Open markets in both directions

11
Benefits of Subsidies

• Protect small farmers
• Due to increased competition, many agricultural
  producers across a range of goods have seen a
  loss in revenue directly caused by competing
  imports.
• USDA Trade Adjustment Aid Program disbursed
  11.5 million in 2004 out of a need to support
  wounding agriculture producers.
• Commodity Subsidy Amount Average
  Payment
• Salmon 6,121,670 paid to 2,541
  recipients 2,409
• Shrimp 4,635,640 paid to 1,197
  recipients 3,872
• Catfish 491,480 paid to 189 recipients 2,600
• Blueberries 207,659 paid to 89
  recipients 2,333
• Lychee nuts 68,806 paid to 11 recipients 6,255

12
Benefits of Subsidies

• Help Infant Industries grow
• In 1976 the Magnuson Act was passed in the
  United States expanding its fishery jurisdiction
  from 12 to 200 miles from shore. As part of the
  Capital Construction Fund (CCF), fishing vessels
  were allowed as a tax benefit to place up to 100
  of profits generated from fishing into an
  interest earning income tax exempt fund as long
  as the holder of the account agrees to replace
  his or her vessel, or to make major changes in
  the structure of the vessel, within 10 years.
  This program served a well defined social
  purpose it aided in the construction of American
  vessels when the social goal was to replace
  foreign fleets with American fleets.

13
Multifunctional Benefits of Subsidies

• Environmental Protection
• Prevention of over-production
• Farmers given subsidies to not produce.
• In order to keep natural resources from being
• over worked.
• Positive contributions to biodiversity
• Improve wildlife habitats
• avoiding negative impacts on water quality
• Bioenergy
• Cleaner burning fuels

14
Multifunctional Benefits of Subsidies

• Secures domestic availability of necessities to
  prevent dependence on foreign agriculture
• Turbulent Times call for precautious measures.
• Do not want to get into same situation as we are
  in with oil.
• Many foreign producers are in countries that have
  corrupt governments. Depending on nations that
  are so volatile would be unwise.

15
MultifunctionalBenefits of Subsidies

• Food Quality and Safety
• Organic production
• Labeling
• Animal welfare
• Humane treatment of livestock
• Adhere to or go above regulatory treatment
• Rural Viability
• Maintaining economic and social health in
  rural/small towns

16
World Dairy Market

• Competitive
• New Zealand,
• Australia, Japan
• Adaptive
• Globalization
• Innovative
• New technology
• Shifts in consumer demand

17
World Dairy Market
18
World Dairy Market

• Liberalization of Global policies?
• Eliminate Export Subsidies ?
• Trade Volume Decline ?
• Value of Remaining Trade Increase ?
• Increases in world market prices for dairy
  products.

19
Oilseed Market

• Market
• Soybeans, Sunflower seeds, cotton seed, flaxseed,
  and canola seed
• U.S. farmers use certified crop seeds controlled
  by private seed companies
• Crushed into meal and oil
• Product is considered largely homogeneous, price
  is overriding factor
• Demand
• 1997-2001 foreign markets consumed about 40 of
  U.S. oilseed output
• Demand is affected by population growth, food
  preferences and income growth domestically, in
  addition foreign exchange internationally.
• U.S. demand for oilseeds dropped by 28 during
  1997-2001 (Soybeans rose 7)
• Supply
• Physical production of oilseeds in U.S. rose 9
  but the value fell 27 in 2001
• 2001-2002 U.S. market share fell from 60 to
  43
• Brazil and Argentina expanded production

20
Oilseed Market

• Price
• U.S. Farm prices fell by 1/3 Soybeans from
  6.47 to 4.35 per bushel
• Sharp price cut because of world supply and
  demand
• Strong demand 1994-1998,
• Brazil and Argentina expanded production
• Able to produce lower no technology fee, lower
  price of land
• 1998-1999, weak Asian market led to much lower
  pricing
• Price of Production rose in U.S.
• Operating costs flat,
• Overhead costs for machinery and land up
• Cost of 6.04 per bushel harvest-period price
  4.30
• Effect
• Number of U.S. farmers fell by 7 percent
• Mostly small sized or family farmers

21
Conclusion

• Even though proper Economic theory would
• suggest that free and open markets are
• preferred, subsidies are necessary for the
• US and EU agriculture industry to stabilize
• domestic production and be competitive in
• the International market.

22
Sources

• http//www.fao.org/DOCREP/006/Y4647E/y4647e05.htm
• Amber Waves, The Economics of Food, Farming,
  Natural Resources, and Rural Americas, Amber
  Waves February 2003, Westscott Paul and Young, C.
  Edwin, www.ers.usda.gov/Amberwaves/Feb03/Features/
  FarmPayments.htm
• Monitoring Agri-trade Policy (MAP) No. 01-05,
  European Communities, March 2005,
  europa.eu.int/comm/agriculture/publi/map/index_en.
  htm
• Simplification of the Common Agriculture Policy,
  Fact Sheet, European Communities 2006,
  europa.eu.int
• www.euromove.org.uk/publications/expert/cap
• http//www.ewg.org/farm/tradeajustment.php
• http//www.ers.usda.gov/AmberWaves/Scripts/print.a
  sp?page/November05/Features/USDairy.htm
• http//www.fas.usda.gov/dlp/circular/2005/05-07dai
  ry/dairyprd.htmSummary
• Whole-farm Approaches to a Safety Net, Dismukes,
  Robert and Durst, Ron L., Economics Information
  Bulletin EIB15, June 2006 www.ers.usda.gov/publica
  tions/EIB15.pdf
• Multifunctional Agriculture in the International
  Context A Review, DeVries Brad, The Land
  Stewardship Project, October 2000,
  www.landstewardshipproject.org/mba/MFAReview.pdf