World has window of opportunity to prevent major food trade war
A glut of food is pushing the world into the first stages of a trade war. Skirmishes have occurred in the past 18 months over such products as citrus, pasta, corn, and pork. The conflict will widen, according to a report released here last week, unless governments take advantage of a unique opportunity in the next six months to reform their farm programs.
``It generally is the worst crisis in world agriculture since the Great Depression,'' says Geoff Miller, author of the report and secretary of Australia's Department of Primary Industry. ``It is going to get a lot worse if nothing is done about it.''
Bob Wisner of Iowa State University says the world is already in a trade war over food. ``And the danger is that this could drag on for some time.''
The core problem is that some of the largest food-exporting and importing nations are caught in a ``Catch-22.'' The growing glut pushes down prices, which pressures countries to protect their farmers through price supports. Unfortunately, Mr. Miller says, the supports encourage those farmers to continue overproducing, which further depresses prices. The result: farm policies that are seriously out of touch with economic reality.
While rice surpluses grow, for example, Japanese producers are paid more than eight times the world price and continue to overproduce. Sugar growers get 17 times the world price for sugar.
In the European Community, dairy farmers have paid more for imported feed for their dairy cows than what their milk would have brought on the world market. The EC's butter surplus is so large that it eventually deteriorates into butter oil, bringing a fraction of what farmers were paid to produce the butter in the first place.
A different dairy pricing program in the United States costs taxpayers and consumers an added $26,000 per farmer, according to the report. Trying to quickly reduce its dairy, cotton, and rice surpluses, the US this year has committed itself to subsidize at least 100 farms with $1 million and more a piece.
While other countries are also guilty of distorted farm policies, these three entities - Japan, the EC, and the US - bear the biggest responsibility for running up the surpluses and depressing world prices, the report says. In this decade, surpluses of wheat have risen 69 percent while prices have fallen by nearly half. World sugar stocks are up 45 percent while prices have plummeted by 86 percent. The growing butter mountain has cut prices in half.
While not optimistic about the prospects, Miller says the US, EC, and Japan have an opportunity in the next several months to begin bold reforms of farm programs. With its midterm elections just completed, the US Congress can enact reforms until about June, when new programs are announced.
After West German elections in January, the EC has until about April to begin changes, Miller says, when the Council of Ministers completes its farm program decisions. Japan makes significant decisions on livestock in March and on rice later in the year.
Many agriculture officials are skeptical that real reform will begin in so short a time. ``No one expects short-term improvement,'' says Peter Myers, US deputy secretary of agriculture. ``Down the road we feel very optimistic about what we can do if other countries will cooperate in reducing subsidies.''
For reform to be successful, Miller adds, the US, Japan, and West German governments will have to reach some kind of international accord to pare farm subsidies. The glut has been large enough to attract international attention this year: first, at the Tokyo Summit meeting of the seven major industrialized nations, and second, at the ministerial meeting of the General Agreement on Tariffs and Trade in Uruguay.
But domestic political forces loom in the way of real agricultural reform. Even under the free-trade Reagan administration, for example, the US continues a protectionist sugar policy that is squeezing out imports while maintaining high domestic prices. According to one estimate, US consumers paid an extra $3.7 billion last year to buy US sugar, while sugar on the world market was selling at one-fifth of the US price.
US producers contend that because many countries subsidize sugar production, it's unfair that the US cut its subsidies. ``For the United States to do that, while no one else is moving in that direction, is asking a little much of our industry,'' huffs William Motes, an economic consultant to the industry.
``All of these costs might be tolerable if they were solving the problem, but they're not,'' Miller counters.
In fact, they're making the problem worse. The solution, he adds, is to mix temporary supply-control measures with programs that support farmers but that don't distort production patterns.
One such program is in Australia, where direct government assistance is given to farmers either to help them through hard times or out of farming altogether.