What's Costing U.S. Wheat Growers $700 Million Per Year?

September 13, 2016 01:08 PM
What's Costing U.S. Wheat Growers $700 Million Per Year?

U.S. agricultural exports have remained a bright spot, even as the country struggled through an economic recession, piling up a healthy trade surplus and agricultural exports that have exceeded $100 billion dollars for most of the past decade.

But according to the Obama Administration, U.S. agricultural exports would have done even better – save for what it calls “excessive government support” provided by China for its production of rice, wheat and corn. The administration has responded by launching a new trade enforcement action against the People’s Republic of China at the World Trade Organization (WTO).

“Through tariff cuts and the removal of other trade barriers, China has gone from a $2 billion per year market for U.S. agricultural products to a $20 billion-plus market,” according to U.S. Agriculture Secretary Tom Vilsack. “But we could be doing much better, particularly if our grain exports could compete in China on a level playing field. Unfortunately, China’s price supports have encouraged wheat, corn and rice production in China that has displaced imports.”

Vilsack contends that these supports have resulted in significant losses to U.S. producers. Some commodity groups, including the National Association of Wheat Growers and U.S. Wheat Associates, have echoed these concerns.

In fact, according to a 2016 Iowa State University study sponsored by USW, estimated losses to U.S. wheat farmers alone from the Chinese market price support programs are between $650 and $700 million annually in lost income due to pre-empted export opportunities and suppressed global prices.

“Wheat production subsidies in China and other advanced developing countries are the single biggest policy issue affecting our farm gate prices and global trade flows,” according to USW president Alan Tracy.

Tracy argues that China’s support programs haven’t just hurt U.S. farmers – they’re hurting themselves, too. That’s because Chinese flour millers are forced to purchase overpriced domestic wheat, a cost which also trickles down to their customers.

“The studies we have sponsored clearly show that eliminating its expensive market price support programs and letting the market work to meet their wheat needs would reduce the cost of food for Chinese consumers,” he says.

According to the Office of the United States Trade Representative (USTR), China’s support programs have propped up its domestic corn, rice and wheat prices “substantially above” the 8.5% commitment levels agreed upon in its WTO Agriculture Agreement commitment. In 2015, program support exceeded China’s allowable commitment by nearly $100 billion. That has created artificial incentives for Chinese farmers to increase production of these crops.

This marks the 23rd trade enforcement complaint the USTR has filed under the Obama Administration. To date, the U.S. has won each of these complaints that were decided by the WTO.

USTR estimates the American rice, wheat and corn industries contribute around $70 billion to the U.S. economy each year and help support 200,000 U.S. jobs.

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