Ag Policy, Lecture 5 Knutson, 6th Edition Chapters 4, & 6

• Agricultural Trade Issues and Policies

• Relationships• Trade Issues

• Geopolitical Centers of Influence

International Policy

• Live in a global economy where:– Interdependence of policies– Global Agriculture Markets– Few commodities are isolated through

barriers to trade (successful only in varying degrees)

US Trade Policy US Trade Policy ComplexityComplexity

• Trade Policy does NOT exist in Isolation– A component of Foreign Policy– Intertwined in Domestic/Economic Policy– Intertwined in Ag & Food Policy

US Trade Policy US Trade Policy ComplexityComplexity

• President– Council of Economic

Advisors– Secretary of State−National Security Advisor

• Several Congressional Committees−Foreign Relations−Ways and Means−Finance−Defense−Agriculture

• Several government agencies−State−Defense−Treasury−NSC−CEA−OMB−USDA

Fast Track-Trade Fast Track-Trade Promotion Authority (TPA)Promotion Authority (TPA)

• Gives President authority to negotiate trade agreements with approval of the Congress but without modification by the Congress

−Constitutional requirement that Congress approves all agreements (treaties) with foreign governments

−TPA necessary to achieve serious negotiations by a foreign government

−TPA given reluctantly by the Congress, particularly when power is given to the opposite party as was the case in the Clinton years

−Given to President Bush in 2002 for 5 years

US Trade Policy IssuesUS Trade Policy Issues

• Food Diplomacy• Increased Market Access• Building Markets• Developing Market Economies• Increasing Food Security• Protectionist Policies

Food DiplomacyFood Diplomacy

• Positive

• Punitive

Market AccessMarket Access

• Why do we want market access?• Why would we refuse others access?• Access is gained by reducing barriers to trade

• Bilateral & Multilateral Trade Agreements– Free-trade Agreements– Customs Unions

• Common policy toward non-members

– Common Markets• Free movement of factors of production• Alignment of major economic & agricultural policies

– Economic Unions• Unified social/economic policies

Building Foreign MarketsBuilding Foreign Markets

• USDA Foreign Ag Service and Producer Checkoff partnership in promotion – Education– Demonstration– Formerly Mass Media Advertisement

• Market Intelligence• Export Credit and Enhancement

– Cash or Commodity Subsidies– Credit Guarantees (USDA General Sales

Manager)

Building Market Building Market EconomiesEconomies

• Typically Mingled with Multiple Objectives for Developing Economies

• Partnerships with UN, World Bank, Voluntary Organizations– Institution Building– Technical Assistance– Infrastructure Development– Applied Research

Food SecurityFood Security

• Global Food Availability

• Individual Food Security

• Food Safety

Protectionist PoliciesProtectionist Policies

• Barriers to Trade• All Domestic Farm Policies• Trade Remedy Laws

– Anti-Dumping Provisions– Countervailing Duty (Tariff)

Geopolitical Centers of Influence

• Countries or groups (blocs) of countries that have (or could have a major impact on U.S. agriculture and agribusiness

• Some individual countries are in this position now, have been, or will be– Mexico– Canada– Japan– China– Russia

• Some are organized into blocs– NAFTA– EU– MERCOSUR/FTAA– Cairns group– APEC

Geopolitical Centers of Influence

• Then there are the developing countries– Largely ignored up to now– Want preferred access to developed

country markets

• There are interest groups outside the countries and blocs that try to influence the world agenda– Greenpeace– UN/FAO

NAFTA (North American NAFTA (North American Free Trade Agreement)Free Trade Agreement)

3 Separate AgreementsCanada – US Trade Agreement

(CUSTA) effective in 1989Canada – Mexico Trade Agreement

effective in 1994US – Mexico Trade Agreement

effective in 1994

NAFTA TradeNAFTA Trade

U.S Absolute (Comparative) AdvantagesCorn, Soybeans, (Poultry, Fed beef, Hogs)

Canada Absolute (Comparative) Advantage(Wheat, Oats, Barley, Canola, Flax, Fed Beef)

Mexico Absolute (Comparative) AdvantageVegetables, (sugar)

NAFTA IssuesNAFTA Issues

Countries maintain separate domestic farm policiesU.S. – Price/Income Support to Farmers,

Conservation

Canada – State Trading (CWB), Production Controls, Conservation, NISA

Mexico -- Direct Support, Price Supports

Dispute Settlement, 5 member panel of judges

MERCOSURMERCOSUR

Argentina, Brazil, Paraguay, and UruguayEstablished in 1991Competitive in Corn, Soybean, Beef, and Orange Juice

ProductionU.S. has lost some beef markets because of the freer trade

within MERCOSURStrong Advocate for Eliminating SubsidiesOpportunities

• Expand to include Bolivia, Chile, Peru, Ecuador, Colombia, Venezuela

• Potentially a part of FTAAProblems

• Political and Economic Instability

Cairns GroupCairns Group• Established in 1986 in Cairns, Australia

– 18 southern hemisphere countries– Major members include Australia, New Zealand,

Brazil, Argentina, Chili, Thailand, Canada

• All export dependent• Wheat, rice, coffee, beef, dairy, soybeans• Ag policies

– Works largely through WTO– Seeks removal of barriers to trade– Seeks elimination of ag subsidies (Critics of U.S.

and EU)– Members not free of ag policies that impede trade

APECAPEC• Asian Pacific Economic Cooperation,

– 21 countries that border Pacific Ocean– Highly diverse membership including: U.S., Japan,

China, Russia, Mexico, Chile, Australia, New Zealand, Vietnam, Thailand

– Accounts for 60% of World GDP

• Accounts for 60% of U.S. ag exports• Accounts for 50% U.S. of imports

• Objectives– Free trade among developed country members by

2010– Free trade throughout by 2020

JapanJapan• 125 M people• Ag

– 40% self-sufficient on food needs– Income increases encourages dietary change

• Ag Policy– Conversion from rice to F&V– “Control” dietary change through Japan Food

Agency purchases in international market.– 3rd largest US customer but Australia and New

Zealand has location advantage.– Strong Protectionist Stance

ChinaChina

• 1.3 Billion people• Ag

– Essentially self-sufficient – Undergoing substantial dietary change

• Ag Policy– State dominated– Transition to market economy– Entry into WTO

RussiaRussia

• 145 M people• Ag

– Grain, sugar beets, rapeseed/canola, beef, milk

– Net importer (major market for U.S. meat)

• Ag Policy– Slow conversion to market economy– Privatization of land– State control of imports

Developing CountriesDeveloping Countries

• 67 Countries (40% of world population) • Low-Income (< $2000 per capita)• Net-Importers (dependent on food aid)• Mostly trade with developed countries• Policies Center Around Increased

Income– Expansion of Exports– Difficult to establish export markets– Reluctant to allow imports

EU Common Agricultural EU Common Agricultural Policy (CAP)Policy (CAP)

• EU History– 1957 Treaty of Rome formed European

Economic CommunityCustoms Union: No internal barrier to trade

among members; common external tariff; Free movement of labor and capital

– 1992 Maastricht Treaty formed European Union to establish common currency

– 1999 European Monetary Union (Adoption of the Euro)

EU Common Agricultural EU Common Agricultural Policy (CAP) cont.Policy (CAP) cont.

• 25 Members• Original Treaty of Rome Included:

– France– Germany– Italy– Belgium– Netherlands– Luxembourg

EU Common Agricultural EU Common Agricultural Policy (CAP) cont.Policy (CAP) cont.

• Governance– Council of the European Union

Decision body with heads of state for each country (like Senate)

– European ParliamentLegislature body with 626 members appointed by

population (like House)

– European CommissionExecutive branch implements policyCommission on Agriculture manages CAP

– Court of JusticeDispute settlement body

EU Value of Ag Production EU Value of Ag Production and Processing ($B) and Processing ($B)

US EU 15

Ag Production 222 526

Processed Products

364 784

Dimensions of the EU’s Dimensions of the EU’s Common Agricultural Common Agricultural

PolicyPolicy• TRQ to prevent imports• Price Supports

– Intervention price (EU purchase for storage)

• Direct Payments– Related to historical yield and current acres– Payment per head for livestock

• Production Controls– Set aside percent of cropland– Marketing/production quotas in dairy

• Export subsidy to prevent stocks in storage from becoming excessive

Dimensions of the EU’s Dimensions of the EU’s Common Agricultural Common Agricultural

PolicyPolicy• Multifunctional Payments

– Noncommodity outputs that are jointly produced by agricultureCountryside benefits of farming

– Notion that agriculture can become too intensive and farmers need to be compensated for making it less intensiveOrganic Farming

• Sanitary & Phytosanitary Standards– Import restrictions on hormone treated beef– Import restrictions on GMOs

Why Expand?Why Expand?

•EU– Political

influence

– Security

– Globalization

– Trade

• Complexity of Trade Policy

• Trade Development Issues

• Geopolitical Centers of Influence

• Next Class– WTO (Chapter 5)

Lecture 5, Wrap up