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Ag subsidies are more a world norm

Ask an American living in the city about U.S. agricultural subsidies and he or she is sure to go on and on and about how U.S. farm policy is destroying the livelihoods of poor farmers around the world.

But a report from Texas Tech University’s Cotton Economic Research Institute shows that agricultural subsidies are more the norm rather than the exception for 21 developing and developed countries studied. The study focused on seven commodities: corn, cotton, rice, sorghum, soybeans, sugar and wheat.

Here are highlights from selected countries in the study which was released in April:

Australia – Australia removed most forms of commodity-specific agricultural assistance in the mid-1980s, retaining primarily safety net programs to assist producers in times of financial difficulty. Australia does not use longer term income support payments.

Brazil – The removal of taxes, tariffs, and other trade restrictions in the early 1990s fueled rapid growth in the Brazilian agricultural sector. Agriculture and allied industries account for 40 percent of Brazilian total exports and virtually all of a $34 billion trade surplus. Much of Brazil’s support is in the form of subsidized credit.

The basic minimum support price for cotton lint is 79 cents per pound, while the WTO-bound import tariff for cotton is 35 percent.

The Brazilian government purchases and sells cotton as part of its effort to control prices. When prices were low in the second half of 2005, the government purchased 4,500 metric tons of cotton, increasing government stocks to the highest level in two years. In 2007, when prices rose above the minimum guaranteed price, Brazil sold nearly two-thirds of its stocks and purchased only about 1,000 metric tons of cotton later in the year.

China – Currently, Chinese food security policy is primarily focused on maintaining self-sufficiency in rice, wheat, corn, and tubers. Soybeans and cotton are no longer part of this group.

China plans to maintain its grain self-sufficiency rate at above 95 percent through 2020. This objective is implemented using direct payments, seed subsidies, tariff rate quotas, and price support programs (for rice and wheat), subsidies for farm machinery, and subsidies for farm use of fuel and fertilizers. In recent years, these programs have expanded and the costs nearly doubled from 2007 to 2008 going from $7.6 billion to $15.1 billion.

Egypt – While fertilizer and pesticide subsidy programs were phased out in 2003, assistance to producers in the form of soft loans, free irrigation, and subsidized electricity are maintained.

Direct income support is provided to producers. The government has a subsidy program directed to textile mills to purchase cotton for 53 cents per pound. Egypt has removed all export restrictions on its cotton. Egypt bans imports from countries affected by boll weevil infestation. The United States is now treated as boll weevil-free by Egypt because risks are considered minimal due to the ginning and baling process.

The government provides input assistance to producers to defray the costs of land preparation, pesticides, and planting seeds.

EU-27 – Support mechanisms include a mixture of price supports and supply controls. Farmers remove a percentage of their arable cropland from production in order to receive direct (coupled) payments. The direct subsidy for durum wheat is roughly $149 per acre.

EU grains receive export subsidies to be price competitive on the world market.

Out-of-quota tariff rates are 86.9 percent for durum wheat, 71.5 percent for corn, and 72.4 percent for grain sorghum.

Subsidized export limits are 530 million bushels for wheat and 427 million bushels for coarse grains.

For cotton, a decoupled payment of at least 65 percent of the 2000-2002 historical payment began in 2006. A coupled payment of up to 35 percent is allowed as an area-based subsidy with a maximum base of about 1 million acres, split between Greece, Portugal, and Spain.

India – A significant portion of government funds have been allocated to subsidizing production inputs such as fertilizers, seed, power, and irrigation. The fertilizer subsidy alone increased from $1.25 billion in 1992-93 to $2.88 billion in 2001-2002.

The government also buys agricultural products from farmers at announced support prices. The government has maintained these domestic policies with a series of restrictive trade policies such as import licensing, tariffs, quotas, and state trading. However, the Indian government has been removing many licensing and quota restrictions and is replacing them with high tariffs.

Indonesia – The budgetary allocation for fertilizer subsidies was also increased from $1.5 billion in 2008 to $2.1 billion in 2009.

Funding for seed subsidies increased from $3.4 billion in 2008 to $3.6 billion n 2009. Funding for infrastructure development increased from $9.2 billion in 2008 to $10.2 billion in 2009.

Japan – In 2005, the Ministry of Agriculture, Forestry, and Fisheries announced a new farm program that replaces commodity-based farm payments with targeted direct payments.

Payments are made to farmers to shift land from rice to wheat and soybean production. The government annually forecasts domestic rice consumption, estimates the land needed to produce that quantity, and allocates the desired reductions. Producers who conform to the acreage reductions are eligible for subsidy payments. Japan announced plans to phase out production controls by 2008. Income support is a direct payment based on the difference between an average price and the market price. The cost of this program in 2002 was about $1.03 billion. Japan uses regulations on allowable pesticide and veterinary drug residues in rice and has a tariff rate quota on rice.

Mexico – Since the transition period of the North American Free Trade Agreement, Mexico has drastically reduced some market interventions. However, some reversal of this trend has occurred in recent years with the introduction of a target income program for some crops and an increase in energy and irrigation subsidies.

The target price for cotton is 42 cents per pound from 2008-2009 to 2013. Cotton producers also receive a per hectare income support subsidy. Under this program, farmers with production areas between 1 and 5 hectares receive the equivalent of $44 per acre, while farmers with larger production areas receive $36 per acre.

Nigeria – Government supports focus on input supply, extension service deliveries, the administration of soft loan programs and the maintenance of a buffer stock program to stabilize commodity prices. The Nigerian agricultural sector remains heavily protected with an average applied tariff of 40 percent.

However, imports for sorghum and corn remain banned because the country is self-sufficient and is determined to protect its local producers.

Pakistan – The government agrees to make purchases when the market price of major commodities produced in the country falls below an announced level. The government subsidizes agricultural production credit through both government and private banks for the purchase of seeds, fertilizers, pesticides/insecticides, animal feed, labor, fuel, irrigation water charges, and agricultural machinery.

Input subsidies are offered for electricity and fertilizer and development loans are also provided for machinery purchases. The government also subsidizes natural gas purchases for fertilizer production at around $200 million per year.

A minimum support price for seed cotton is announced at the start of each marketing season. The Trading Corporation of Pakistan intervenes in the market if the prices fall below the support price. For 2008-2009, the support price is 59 cents per pound.

Russia – Grain is purchased into a fund if market prices for farm products drop lower than the pre-determined level. Grain is sold out of the fund if there is a shortage on the market or if market prices exceed the pre-determined level. Budgetary constraints limit the ability for direct subsidies or other forms of support.

Agricultural energy is subsidized. This includes such items as fuel for machinery and natural gas. The Russian government remains committed to increasing production by increasing credit and subsidizing crop inputs, as well as offering a special machinery leasing fund. However, implementation of these programs depends on the federal budget allocation to agriculture. While no prescribed rules govern seed subsidies, many local jurisdictions offer credit for seed purchases, sell seeds below their commercial price, or cover a portion of seed treatment expenses.

Thailand – Soybean growers receive no production support from the government but processors are required to purchase soybeans at minimum prices. Currently, food processors must buy domestic Grade 1 soybeans for no less than $10.49 per bushel at the factory or $9.75 at the farm.

West Africa – There are no specific border policies to limit cotton imports, mainly because of weak domestic textile industries that exclusively use locally produced cotton.

Exports of cotton are subject to a tax, which vary from one country to another. Mali applies a 3 percent tax on exports.

In Benin, the producer price for cotton is fixed at the beginning of each marketing year. Currently it is set at 55 cents per pound for first grade cotton and 42 cents per pound for second grade cotton.

In Burkina Faso, the producer price for cotton is set at 48 cents for first grade cotton, 39 cents for second grade cotton, and 33 cents for third grade cotton.

In Mali, the base price is established at 45 cents per pound.

Chad’s procurement prices are the lowest among the African countries.

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