Even in a year when U.S. farmers’ incomes are likely to be the second highest in 35 years, Obama’s modest budget proposals to cut US farm subsidies by about a quarter over the next decade is unlikely to win support from the Republican majority in Congress “The Obama administration’s proposed 2012 federal budget released today […]
“Following several weeks of consultations, the European Commission is expected to draw up a report on potential changes to the CAP in mid-summer. ” Extract from ICTSD EU Farm Commissioner Launches Debate on Subsidies
I bet there are no surprises.
The overall strategy for the Common Agricultural Policy beyond the next budget horizon (2013) is already evident in the chart. It shows that nominal expenditure in €billions
is being held nearly steady—or rising just slightly— despite the enlargement of the Union. But the value is falling in real terms (and as a proportion of GDP). This strategy plays to the cash illusion
of farmers (assuming they still have such illusions) while keeping the lid on their incentive to expand production, which only adds to public stock woes and diverts the budget into disposal expenses (export subsidies).
But At 0.4% of GDP, the CAP still represents sixty percent of all expenditure by the Union. So sixty-years on from its launch, the madness of this giant re-distribution machine continues.
The more ‘varigated’ distribution of the funds diplayed in the chart—illustrating ‘CAP reform’—is a bit of furphy. The ‘coupled’ and ‘de-coupled’ payments direct to farms and the ‘rural development’ expenditure are nearly fungible sources of income for farmers. They all pay to keep farmers in a business where world market prices tell them they should not be (or would tell them were it not for the import barriers).
It’s ironic that the Commission has entitled this public consultation as “2013, Your Ideas Matter…”. Because ideas have long been junk where the CAP is concerned; only interests have any force.
Ford Australia made just over a quarter (60,000) of all the cars made in Australia last year and less than one-fifth of all the new cars+light trucks registered in Australia in 2009 (a total of 302,400: see the ABS Motor Vehicle Census)
Ford is not going to be a profit center for its global parent any time soon.
‘As soon as choices have to be made, Ford is the next Mitsubishi,’ said John Wormald, principal of international consultant Autopolis, referring to the Japanese company’s decision to shut down its Adelaide factory two years ago.
Mr Wormald, who is in Australia to advise the Victorian government, said the replacement for the Falcon, due in about five years, could be imported cheaply and the carmaker did not need its Melbourne plant. ‘Ford isn’t short of assembly capacity in other places,’ he said. ‘Where’s the plan to integrate Australia?'” Extract from Ford will be next carmaker to quit Australia | The Australian
Wormald confirmed what everyone except Kevin Rudd and Kim Carr has understood for decades about the Australian car industry. Referring to the massive $6 billion bribes extended by the Rudd government (including $13 million to prop up Ford’s Geelong factory), he said
“Subsidies were doomed to fail because the industry lacked a vision for the future and Ford was most vulnerable because it was isolated from its parent’s global operations.
“The latest official notification to the WTO shows that total EU support levels have returned to levels not seen since the previous decade, with €90.7 billion of support being reported to the global trade body for 2006/2007 – up from €75.6 billion in 2002, when support was at its lowest in the last fifteen years.” Extract from ICTSD
So-called ‘Green’ box subsidies were growing dramatically (see the graph) in 2006/7 as the more distorting ‘Amber’ and ‘Blue’ box spend declined. There’s no WTO constraint on the total farm subsidy spend, only only spending in a trade-distorting
way, essentially by manipulating prices using taxes, quotas or import restrictions.
Just to remind you of what they said in April:
“We reaffirm the commitment made in Washington not to raise new barriers to investment or to trade in goods and services, including within existing WTO limits, not to impose new trade restrictions, and not to create new subsidies to exports.” G-20 Communiqué emphasis added
By any measure the re-introduction of an export subsidy for the coddled U.S. dairyfarmer is a new subsidy, even if within the terms of the 1994 WTO agreement on subsidy ceilings (cooked-up by the USA and EC in 1992). It’s outrageous and damaging. But foreseeable.
“The US Agriculture Department said it will subsidise about 92,000 tonnes of dairy products headed for the world market. A spokeswoman said the subsidies would help US farmers hit by plunging international prices and trade volumes and was the first time in five years the program would be used.” Extract from The Age
One of my favorite trade economists, Joe Francois, has been working with Julia Woerz on the reasons we have seen such a dramatic (minus 20%) fall in nominal trade values in the past two quarters when the fall in output over the same period was serious but much smaller (minus 5%).
“The problem is not trade finance, but rather finance, full stop. This recession has been characterised by a massive collapse of credit mechanisms that has hit the capital goods and vehicle sectors particularly hard. It turns out that motor vehicles are also the driver of much of the recent trend in OECD trade data. ” Extract from Vox EU
The trade data holds an old (but how often forgotten!) lesson for Minister for Innovation, Kim Carr.
If you read the undertakings on trade and protectionism—with only a moderately skeptical eye—as a firm undertaking, it is not as “wooly” as the critics claim. On the contrary, it is a substantial improvement on other recent efforts and streets ahead of the wobbly paragraph 13 of their November 2008 communiqué.
The underlined phrases (my emphasis) are the significant parts. They make the undertakings more effective, (although not water-tight). I discuss their significance over the fold.
An open global economy
“11. World trade is falling for the first time in [25 years]. We need to sustain the benefits of globalisation and open markets, and promote trade as a crucial driver of growth in the world economy. Therefore:
12. We call on the WTO, together with the IMF and other international bodies as appropriate, to report on our adherence to these undertakings on a quarterly basis.
- We reaffirm the commitment made in Washington not to raise new barriers to investment or to trade in goods and services, including within existing WTO limits, not to impose new trade restrictions, and not to create new subsidies to exports.
- We will rectify promptly any such measures. We extend this pledge for a further 12 months;
- we will notify promptly governments and other relevant institutions of any measures which have the potential to cause direct or indirect trade distortions;
- we will minimise any negative impact on trade and investment of our domestic policy actions including action in support of the financial sector. We will not retreat into financial protectionism;
- we commit to conduct our economic policies responsibly with regard to the impact on other countries and to refrain from competitive devaluation of our currencies.
13. We are committed to reaching rapid agreement, on the basis of progress already made, on modalities leading to a successful conclusion of the Doha Round which would boost the global economy by at least $150 billion per annum.”
Extract from the Financial Times account of the G20 draft communiqué
Here’s how I read the underlined bits.