What will it mean for US agriculture and ag commodities traders?
WTO Deal to Scrap Agricultural Export Subsidies Could Level Field for Some
Raises stakes for producers who currently benefit from much government help
The World Trade Organization agreed at a meeting in Nairobi on Saturday to eliminate some $15 billion of subsidies on exported produce from milk to sugar and rice.
Farmers from countries like New Zealand, Australia and Canada, who get relatively limited help from their governments, cheered the move, which should make their produce more competitive in global markets.
Yet those farmers who receive more generous subsidies—a costly practice often criticized for manipulating prices—could lose their edge. Some of the biggest beneficiaries have been both in developed and developing countries including Switzerland, India and Thailand.
“The decision tackles the issue once and for all,” said Director-General Roberto Azevêdo in a speech following the decision. “It removes the distortions that these subsidies cause in agriculture markets.”
The agreement requires developed countries to eliminate subsidies starting Jan. 1, with the exception of some dairy, pork and processed products. Developing countries have until the end of 2018.
Export subsidies include any form of financial aid or support given by a government to a firm involved in exporting agricultural products. Opponents of subsidies say farmers in countries without them trade at a disadvantage in the global marketplace. The issue had been on the WTO’s list of unfinished business: An agreement in 2005 to end all agricultural export subsidies by 2013 never came to fruition.
Farmers in Australia and New Zealand are among the least subsidized in the world, according to a 2014 Organization for Economic Cooperation and Development report, which measures domestic and export subsidies along with a number of tariffs. New Zealand farmer subsidies equate to just 1% of revenue, and those are 2.3% in Australia. That compares with 57% in Switzerland.
However, analysts say the extent of the benefit is hard to quantify. Global export subsidies have fallen in recent years, so the financial impact could be limited. Rather, the fact that new subsidies won’t be implemented is the clearest sign of progress, they say.
“Much of this is simply a promise not to do something that most countries stopped some time ago,” said Tobin Gorey, director of agri-strategy at the Commonwealth Bank of Australia.
The news comes when India, the world’s second largest sugar producer, is planning to release a mountain of the sweetener onto world markets. To reduce huge stockpiles amassed after five years of bumper crops, New Delhi has offered to give refiners a bonus for every ton of sugar they export. If they release the proposed 4 million tons of sugar onto the market, prices could fall by 15%, according to some traders.
Sugar prices hit seven-year lows in August before recovering in recent months.
Thailand, once the world’s largest rice exporter, is another country that has supported its farmers with billions of dollars in subsidies. Thai farmers accumulated huge stocks of the grain after embarking on a plan to jack up rural incomes and boost spending by buying rice from farmers at up to double market prices. The program fell apart in early 2014 after incurring paper losses of some $15 billion. Much of the grain left unsold in government warehouses is now being sold in global markets.
For Switzerland, the agreement requires an end to subsidies for processed agricultural products, such as chocolate exports, over a five-year period. However, in a statement released by the Swiss government after the WTO’s decision, officials said they would consider alternatives to continue to support the sector.
To be a sure, a number of other support measures remain in place to support local agriculture, including tariffs, quotas and domestic subsidies.
“This package was not comprehensive, and leaves some important issues to be worked on further,” Todd McClay, New Zealand’s trade minister said.