Later this year, Congress will begin the arduous task of writing the next Farm Bill -- a multi-year plan for government farm programs and subsidies. Even before the legislation is crafted though, lawmakers are trying to provide government aid to their farmers. Citing a litany of calamities, a group of farm state Senators is calling for nearly $4 billion in relief to help farmers deal with higher fuel costs and damage from other natural disasters. President Bush is threatening to veto the aid, because it raises the price of a spending bill for the Iraq war and hurricane recovery. Even without the aid, the government will spend an estimated $17 billion subsidizing U.S. farmers this year. And farm subsidies, particularly those of the United States and the European Union have been the main sticking point in current World Trade Organization talks. Currently, the U.S. enjoys a razor-thin agricultural trade surplus. But, as David Miller explains, the government's latest assessment of agricultural trade reveals the margin is shrinking rapidly.
The U.S. agricultural trade surplus reached its peak in 1996 at a record $26.8 billion. That year, the U.S. exported $60.3 billion worth of agricultural products and imported $33.5 billion in foreign agricultural goods. But the cushion declined steadily over the past decade. Last year the U.S. exported a record $62.4 billion worth of goods-- a 4 percent increase since 1996. During the same time period imports grew 72 percent to $57.7 billion yielding a trade surplus of only $4.6 billion.
Despite the fact that the trade surplus continues to evaporate, USDA officials were encouraged by the current report. Exports are up 8 percent over last year at this time with a total of $35.5 billion worth of products already out the door.
The number one overall customer for American agricultural goods continues to be Canada but there are individual stand outs. China took more than 70 percent of the cotton crop and nearly half of the soybean crop.
Dave Salmonsen, American Farm Bureau: " What we're trying to do is improve our ability to export. Now if we can't export our products that certainly can have price impacts here in the U.S. as products back-up. I mean, without world markets, the direct impact on our domestic prices is immediate and swift and we want to make sure that doesn't happen.
The battle for a bigger U.S. share of the worldwide agricultural marketplace continues at the trading table. Since the 2003 World Trade Organization talks in Cancun not much has happened in the way of liberalizing global trade. The sticking point continues to center on how trade distorting agricultural subsidies will be either reallocated or removed. It has been estimated that approximately 55 billion dollars is paid each year to farmers working in the 25 countries of the European Union while roughly $16 billion goes to those working the land in the U.S..
But there appears to be a bright spot on the horizon. In February, European Union Commissioner Peter Mandelson announced he was willing to work with U.S. negotiators.
Peter Mandelson, European Union: (February 22, 2006) "The reduction of our subsidies, the stripping out of the trade distorting elements of our subsidies, is on-going, it's cumulative, it's not going to stop."
This week, Mandelson called on the U.S. to make deeper cuts in subsidies to ensure the stalled negotiations are concluded this year.
Until this problem is solved it appears the tariffs that block the export of U.S. agricultural goods will remain in place. According to reports from the United States Trade Representative's office the average tariff on agricultural imports into the United States is about 12 percent but the world average is slightly more than 60 percent.
The current so-called "Doha round" of trade negotiations is scheduled to conclude at the end of this year.
For Market to Market, I'm David Miller.