US subsidies most harmful to domestic agribusiness, says Brazilian agriculture confederation

A study commissioned by CNA shows that soya, corn, cotton, dairy and sugar are among the products most affected.

Brazil’s positive performance in the foreign trade of agricultural products over the past few years is being more threatened by the new US Farm Bill than by recent changes in the Common Agricultural Policy (CAP) of the European Union. This is one of the conclusions of the unprecedented study “Agricultural Policy of the United States and European Union: Impact on Brazilian Agribusiness” commissioned by the Brazilian Confederation of Agriculture and Livestock (CNA).

Soya, corn, cotton and wheat are among the Brazilian products most harmed by US subsidies. In the case of the European bloc, what most concerns farmers in Brazil is the milk and sugar subsidies.

“With the technology, quality and prices of our agricultural products, our country is competitive in all markets. We just cannot compete with the subsidies that cause unfair competition”, asserts the President of the CNA, Senator Kátia Abreu.

It was to discuss this issue that the CNA promoted a seminar on Wednesday, 26th of March, at the organisation’s headquarters in Brasilia.

New trend

In the past five years, the influence of subsidy policies on international trade was lower as the prices of agricultural products were at higher levels. The trend, however, is that international prices decrease due to an increase in production, particularly in the United States, and also because various countries accumulate large stocks.

Therefore, the chances are expanded of mechanisms supporting prices and income being activated by the US government, amplifying market distortions.

In the 2014/2015 harvest, the prices of corn and wheat are likely to retreat almost 15%, while soya prices are expected to fall 30%, according to forecasts by the US Department of Agriculture (USDA).

An analysis of the effects of the CAP and the new US Farm Bill shows that US policy is the more damaging of the two to the main sector of the Brazilian economy.

Impact of US Farm Bill

Approved in February, US law foresees expenditures of between US$12.8 billion and US$19.8 billion annually between 2014 and 2018 to finance a trade distorting policy, with programs targeted at specific products and a guaranteed price and income for local producers.

These programmes will keep the US agricultural production within the levels they have been nowadays, which will lead to lower international prices, and therefore distorting the markets.

The CNA also highlights the fact that the US has not resolved the pending issue of the cotton dispute, instead, maintaining the distortions which the World Trade Organization (WTO) has already condemned. In 2002, Brazil complained to the WTO questioning the US subsidies for cotton producers.

The CNA’s study demonstrates that the US government spent US$ 4.6 billion in support policies for cotton in 2004, when the figure represented 49% of total income for cotton farmers in the country.

Ten years later, the full payment of subsidies has been reduced but remains high: in the range of 17% of the income of cotton farmers despite condemnation by the WTO. The new US Farm Bill predicts a share even bigger: between 19% and 21% in the period from 2014 to 2018 (between US$1.3 billion and US$1.4 billion).

Impact of the CAP

European agricultural policy of 2013 eliminated export subsidies and transformed a large proportion of support policies into direct payments to producers without considering the different levels and types of production.

Despite the changes in the CAP representing a step forward, the CNA still fears its effects on the sugar and dairy sectors. In these cases, Brazilian attention will centre on the need for continuity in the reforms of specific policies in order to determine whether changes will result in international market distortions.

The new CAP has an annual budget of 60 billion Euros distributed among the 28 member countries, an amount which accounts for 14% of the total income of European farmers.

Even with a subsidy that is four times greater than the US subsidies, the effect of this new European Union policy for products exported by Brazil is softened by the division between countries and their producers, without focusing on specific products.

About the CNA

The CNA – Brazilian Confederation of Agriculture and Livestock – comprises the rural union system together with 27 state federations and 2,300 municipal unions. Headquartered in Brasília, Brazil’s capital city, it is the national forum for discussions regarding the country’s agricultural production, always acting to defend the socio-economic rights and interests of those who live and work in rural areas.

About Senator Kátia Abreu

Kátia Abreu, the CNA President since 2008, is a cattle breeder, forester and a Tocantins State Senator. In 2011, she was re-elected as the president of the Tocantins State Federation of Agriculture and Livestock, a post she previously held for four consecutive mandates, from 1995 to 2005.

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