Efforts to boost wheat prices signal trade alarm

by Morton Sosland
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Except for his off-hand, pre-inauguration criticism of payments to "millionaire farmers" who are not eligible for programs, President Barack Obama has shown little concern about declining farm income and its role in the recession. In contrast to many earlier setbacks when steps to improve agriculture had a role, attention to these possibilities in the new administration is minimal. This is explained by two forces. One is that memories are still fresh about sky-high prices received by farmers last year that led to rising food prices. Any concern about present prices being low would be greeted by consumers with disbelief. The other force is the way responding to economic contraction is centered on financial, housing and industrial manufacturing to the exclusion of all else.

This environment may explain why hardly anyone has stepped forward to suggest that agriculture and specifically prices for wheat and other commodities that have fallen deserve support. In the face of billions being spent in bail-out schemes to stimulate growth, speaking out in agriculture’s behalf has been limited to a few words from Secretary of Agriculture Tom Vilsack. The contrast is striking with past years when rural populism resulted in demands for assistance. At the moment, and one suspects for the foreseeable future, the odds favor little attention to agriculture by an administration that has many other issues.

Yet, neglect of agriculture is at sharp variance with the intensity accorded these same matters in other countries. Primarily in response to concerns about the adequacy of domestic supplies during the 2007-08 season of skyrocketing prices, more than a few nations have stepped up price support in reaction to sharp falls. The aim has been to maintain and even to expand domestic production as a way of guarding against shortages attributable to crop cutbacks or artificial brakes on exports by nations seeking to guard supplies.

In China, support for domestic grain production and prices is being expanded by state purchases to boost nationally-controlled reserves. Thus far, more than 30 million tonnes have been bought from a crop that totaled 525 million. This is on top of an earlier pronouncement that purchase prices for wheat and rice are being raised. Along with these moves, China has agreed to step up investing in rural infrastructure, to speed development of new varieties with higher yields, and to assure that the amount of arable land for grain does not shrink.

And then there is Russia, which along with China, is counted as an evolving major competitor of America in the different world forecast to emerge from the current turmoil. Moscow has been an aggressive buyer of grain to help support domestic prices. Sufficient funds have been allocated to finance purchases this year of at least 10 million tonnes. In a provocative approach to bolstering domestic prices, Russia is receiving bids for export subsidies from shippers who have purchased wheat on the domestic market at prices above certain minimum levels. On top of all of this, Prime Minister Vladimir Putin has indicated the government stands ready to provide farmers with billions of rubles in special subsidies to compensate for fuel and fertilizer cost increases.

Once the new administration is aware of steps taken in other countries, attitudes might well change. Word should come at this week’s Agricultural Outlook Forum. Most efforts to bolster domestic prices are contrary to trade principles of the World Trade Organization, even without the Doha Round completed. It may have been easy for the United States to pay little heed to the Doha outcome when wheat and other grain prices were soaring. The present situation is starkly different, not just because prices are lower, but also because of undertakings in places like Russia and China that undermine trade. Among the many good reasons to press for a successful Doha conclusion, hardly any matches in its immediacy the need to deal with direct governmental interference to support grain prices.

This article can also be found in the digital edition of Milling and Baking News, February 24, 2008, starting on Page 7. Click here to search that archive.

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