On behalf of its 25,000 producer-members, the American Soybean Association (ASA) testified this week before the U.S. House of Representatives Committee on Agriculture that the outcome of the current negotiations on a new World Trade Organization (WTO) agreement is critically important to U.S. soybean producers.
A good Doha Round agreement would greatly benefit U.S. soybean farmers if substantial market access is gained in developing country markets and world-class developing country exporters are subject to similar disciplines as developed countries.
"One-half of our annual soybean production is exported either as soybeans, soybean oil and soybean meal, or in the form of livestock products," said ASA President Bob Metz, a soybean and corn farmer from West Browns Valley, S.D.
World demand for soybeans is increasing rapidly as developing countries, which have very low per capita consumption of these products, improve their standard of living and diet. Many developing countries have high tariffs on soy and livestock products. As a result, improving market access through meaningful tariff reductions in developing countries is a high priority to enhance the profitability for U.S. soybean farmers and the U.S. soybean industry.
"U.S. soybean farmers also are facing rising competition from South American producers, particularly in Brazil and Argentina," Metz said. "Over the past decade, these countries have emerged as world-class exporters, with mature agricultural research, production, and processing infrastructure and improving transportation systems."
Both Brazil and Argentina use a variety of incentives to encourage production and exports of soybeans and other crops. However, these countries have been allowed under the Uruguay Round Agreement to designate themselves as "developing" countries and to avoid disciplines on their domestic support and export programs. ASA believes that it is critically important that any Doha Round Agreement must require that advanced developing country exporters, or their world-class export sectors, be subject to the same rules and disciplines in all three pillars as developed countries.
ASA recognizes the proposal advanced by the Administration as a credible signal to the rest of the world that the U.S. is prepared to make substantial cuts in trade-distorting domestic support if, and only if, market access barriers are greatly reduced and export subsidy practices are eliminated. The proposed cuts in domestic support would require fundamental changes in the structure of U.S. farm programs, including the marketing loan, which has been important in supporting soybean producer income when prices fall.
"In order to support restructuring current programs, ASA needs assurances that the next farm bill will provide U.S. farmers with an adequate safety net, and that the current imbalance in crop program benefits will not continue to distort market signals," Metz said.
On market access, the Administration’s proposed cuts in tariffs by developed countries are substantial, and could expand soy and meat exports to these markets. However, the U.S. proposal did not specifically address the need for equally ambitious improvements in market access by developing countries.
"Developing countries are the markets of the future," Metz said. "In making the case for trade liberalization, the Administration has pointed out that 95 percent of the world’s population lives outside our borders. ASA calls attention to the fact that 81 percent of this population lives in developing countries. That’s why the U.S. must ensure adequate market access to developing country markets."
In addition, ASA is concerned because the Administration’s proposal does not include specific language requiring world-class developing country exporters to undertake disciplines in the three pillars of domestic support, market access, and export subsidy practices, similar to those required of developed countries.
Recent studies by Informa Economics and the U.S. Department of Agriculture’s Economic Research Service indicate that Brazilian farmers benefit from a national program that offers credit at interest rates of from 8.75 to 12.75 percent, compared to the prevailing commercial business rate of 35 percent. Credit provided under this program increased by 48 percent in 2004/05, to $13 billion. Subsidized credit to modernize Brazil’s farm machinery doubled in the same year, to $5.5 billion. In addition, Brazil has frequently rescheduled farm debt for up to 25 years at 3 percent interest rates, which in times of high inflation amounts to giving Brazilian farmers free money.
Brazil also exempts or provides refunds for agricultural exports from its interstate movement tax, and from social welfare taxes, amounting to 21.25 percent of the value of the exported product. Finally, Brazil has a land tax system that encourages farmland expansion by taxing undeveloped land at a higher rate than land brought into production.
"ASA believes strongly that these policies must be subject to discipline under the Doha negotiations," Metz said. "As with improving market access to developing countries, aggressive proposals and agreements in this area are key to ASA support for a WTO agreement."
"U.S. soybean farmers would benefit greatly from a good Doha Round agreement," Metz said. "However, we would not be served well by or support a poor or lop-sided agreement that would require substantial cuts in U.S. amber box domestic support, but would not result in substantial market access gains to developing country markets, and that did not make world-class developing country exporters subject to similar disciplines as developed countries."