Agriculture: reading the entrails

What determines the attitude that any government takes towards the negotiation of global agricultural market liberalization? You might as well ask: “what affects the pricing of equities in the stock market?”. At any given point in the talks, the fundamentals—inthis case changes in the competitiveness of agricultural production—may have less impact than sentiment; changes in the perception of competitiveness.

Take, for example, Japan. Following the Koizumi cabinet reshuffle, and the replacement of the un-reconstructed former Agriculture Minister (Iwanaga), there seems to have been some sort of change in the atmosphere, although no change in fundamentals of this tiny (< 1% of GDP) sector of the Japanese economy.

“Newly appointed farm minister Shoichi Nakagawa says Japan needs to make compromises where it can to contribute to progress in market-opening talks under the World Trade Organization.”(The Japan Times Online)

This attitude contrasts with that of France, which remains ready to throw up the barricades against the impacts of ‘globalization’ on French agriculture. But guess which economy leads world agricultural trade? Europe. That leading position is not due mostly to export subsidies at all. Only dairy, among the major export products of the EU, continues to receive substantial export subsidies and even in dairy, sales of the most valuable products (e.g. cheese) are unsubsidized now in many markets.

More alarming, still, is the story of USA commodity groups’ work to entrench massive taxpayer funded support in the next Farm Bill (2007). Bob Thompson’s paper on “The U.S. Farm Bill and the Doha Negotiations“ (.pdf file from the IPCthanks to Ben Muse for the pointer) points out that there is a massive jump in the USDA’s projected payments under the current Farm Bill between 2004 and 2005. He argues that this funding, combined with a persistent ‘export pessimism’ on the part of U.S. commodity producers, is a bad augury for the 2007 Farm Bill—and for the Doha round.

I agree Thompson on both counts. United States commodity groups are gloomy about their export prospects in soy (Brazilian competition), dairy (problems on price competitiveness due in large part to support structures), beef (BSE problems), and some grains (exchange rates). But, look again at the chart. The USA has an outstanding agricultural export record and plenty of opportunity to expand shares of Asian and Middle-East markets, particularly for processed food products, if it can maintain price-competitive commodity supply.

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