Ag Policy, Lecture 5 Knutson, 6th Edition Chapters 4,

1
Ag Policy, Lecture 5 Knutson, 6th Edition
Chapters 4, 6

• Agricultural Trade Issues and Policies
• Relationships
• Trade Issues
• Geopolitical Centers of Influence

2
International Policy

• Live in a global economy where
• Interdependence of policies
• Global Agriculture Markets
• Few commodities are isolated through barriers to
  trade (successful only in varying degrees)

3
US Trade Policy Complexity

• Trade Policy does NOT exist in Isolation
• A component of Foreign Policy
• Intertwined in Domestic/Economic Policy
• Intertwined in Ag Food Policy

4
US Trade Policy Complexity

• President
• Council of Economic Advisors
• Secretary of State
• National Security Advisor
• Several Congressional Committees
• Foreign Relations
• Ways and Means
• Finance
• Defense
• Agriculture

• Several government agencies
• State
• Defense
• Treasury
• NSC
• CEA
• OMB
• USDA

5
Fast Track-Trade Promotion Authority (TPA)

• Gives President authority to negotiate trade
  agreements with approval of the Congress but
  without modification by the Congress
• Constitutional requirement that Congress approves
  all agreements (treaties) with foreign
  governments
• TPA necessary to achieve serious negotiations by
  a foreign government
• TPA given reluctantly by the Congress,
  particularly when power is given to the opposite
  party as was the case in the Clinton years
• Given to President Bush in 2002 for 5 years

6
US Trade Policy Issues

• Food Diplomacy
• Increased Market Access
• Building Markets
• Developing Market Economies
• Increasing Food Security
• Protectionist Policies

7
Food Diplomacy

• Positive
• Punitive

8
Market Access

• Why do we want market access?
• Why would we refuse others access?
• Access is gained by reducing barriers to trade
• Bilateral Multilateral Trade Agreements
• Free-trade Agreements
• Customs Unions
• Common policy toward non-members
• Common Markets
• Free movement of factors of production
• Alignment of major economic agricultural
  policies
• Economic Unions
• Unified social/economic policies

9
Building Foreign Markets

• USDA Foreign Ag Service and Producer Checkoff
  partnership in promotion
• Education
• Demonstration
• Formerly Mass Media Advertisement
• Market Intelligence
• Export Credit and Enhancement
• Cash or Commodity Subsidies
• Credit Guarantees (USDA General Sales Manager)

10
Building Market Economies

• Typically Mingled with Multiple Objectives for
  Developing Economies
• Partnerships with UN, World Bank, Voluntary
  Organizations
• Institution Building
• Technical Assistance
• Infrastructure Development
• Applied Research

11
Food Security

• Global Food Availability
• Individual Food Security
• Food Safety

12
Protectionist Policies

• Barriers to Trade
• All Domestic Farm Policies
• Trade Remedy Laws
• Anti-Dumping Provisions
• Countervailing Duty (Tariff)

13
Geopolitical Centers of Influence

• Countries or groups (blocs) of countries that
  have (or could have a major impact on U.S.
  agriculture and agribusiness
• Some individual countries are in this position
  now, have been, or will be
• Mexico
• Canada
• Japan
• China
• Russia
• Some are organized into blocs
• NAFTA
• EU
• MERCOSUR/FTAA
• Cairns group
• APEC

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Geopolitical Centers of Influence

• Then there are the developing countries
• Largely ignored up to now
• Want preferred access to developed country
  markets
• There are interest groups outside the countries
  and blocs that try to influence the world agenda
• Greenpeace
• UN/FAO

15
NAFTA (North American Free Trade Agreement)

• 3 Separate Agreements
• Canada US Trade Agreement (CUSTA) effective in
  1989
• Canada Mexico Trade Agreement effective in 1994
• US Mexico Trade Agreement effective in 1994

16
NAFTA Trade

• U.S Absolute (Comparative) Advantages
• Corn, Soybeans, (Poultry, Fed beef, Hogs)
• Canada Absolute (Comparative) Advantage
• (Wheat, Oats, Barley, Canola, Flax, Fed Beef)
• Mexico Absolute (Comparative) Advantage
• Vegetables, (sugar)

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NAFTA Issues

• Countries maintain separate domestic farm
  policies
• U.S. Price/Income Support to Farmers,
  Conservation
• Canada State Trading (CWB), Production
  Controls, Conservation, NISA
• Mexico -- Direct Support, Price Supports
• Dispute Settlement, 5 member panel of judges

18
MERCOSUR

• Argentina, Brazil, Paraguay, and Uruguay
• Established in 1991
• Competitive in Corn, Soybean, Beef, and Orange
  Juice Production
• U.S. has lost some beef markets because of the
  freer trade within MERCOSUR
• Strong Advocate for Eliminating Subsidies
• Opportunities
• Expand to include Bolivia, Chile, Peru, Ecuador,
  Colombia, Venezuela
• Potentially a part of FTAA
• Problems
• Political and Economic Instability

19
Cairns Group

• Established in 1986 in Cairns, Australia
• 18 southern hemisphere countries
• Major members include Australia, New Zealand,
  Brazil, Argentina, Chili, Thailand, Canada
• All export dependent
• Wheat, rice, coffee, beef, dairy, soybeans
• Ag policies
• Works largely through WTO
• Seeks removal of barriers to trade
• Seeks elimination of ag subsidies (Critics of
  U.S. and EU)
• Members not free of ag policies that impede trade

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APEC

• Asian Pacific Economic Cooperation,
• 21 countries that border Pacific Ocean
• Highly diverse membership including U.S.,
  Japan, China, Russia, Mexico, Chile, Australia,
  New Zealand, Vietnam, Thailand
• Accounts for 60 of World GDP
• Accounts for 60 of U.S. ag exports
• Accounts for 50 U.S. of imports
• Objectives
• Free trade among developed country members by
  2010
• Free trade throughout by 2020

21
Japan

• 125 M people
• Ag
• 40 self-sufficient on food needs
• Income increases encourages dietary change
• Ag Policy
• Conversion from rice to FV
• Control dietary change through Japan Food
  Agency purchases in international market.
• 3rd largest US customer but Australia and New
  Zealand has location advantage.
• Strong Protectionist Stance

22
China

• 1.3 Billion people
• Ag
• Essentially self-sufficient
• Undergoing substantial dietary change
• Ag Policy
• State dominated
• Transition to market economy
• Entry into WTO

23
Russia

• 145 M people
• Ag
• Grain, sugar beets, rapeseed/canola, beef, milk
• Net importer (major market for U.S. meat)
• Ag Policy
• Slow conversion to market economy
• Privatization of land
• State control of imports

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Developing Countries

• 67 Countries (40 of world population)
• Low-Income (lt 2000 per capita)
• Net-Importers (dependent on food aid)
• Mostly trade with developed countries
• Policies Center Around Increased Income
• Expansion of Exports
• Difficult to establish export markets
• Reluctant to allow imports

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EU Common Agricultural Policy (CAP)

• EU History
• 1957 Treaty of Rome formed European Economic
  Community
• Customs Union No internal barrier to trade
  among members common external tariff Free
  movement of labor and capital
• 1992 Maastricht Treaty formed European Union to
  establish common currency
• 1999 European Monetary Union (Adoption of the
  Euro)

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EU Common Agricultural Policy (CAP) cont.

• 25 Members
• Original Treaty of Rome Included
• France
• Germany
• Italy
• Belgium
• Netherlands
• Luxembourg

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EU Common Agricultural Policy (CAP) cont.

• Governance
• Council of the European Union
• Decision body with heads of state for each
  country (like Senate)
• European Parliament
• Legislature body with 626 members appointed by
  population (like House)
• European Commission
• Executive branch implements policy
• Commission on Agriculture manages CAP
• Court of Justice
• Dispute settlement body

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EU Value of Ag Production and Processing (B)
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Dimensions of the EUs Common Agricultural Policy

• TRQ to prevent imports
• Price Supports
• Intervention price (EU purchase for storage)
• Direct Payments
• Related to historical yield and current acres
• Payment per head for livestock
• Production Controls
• Set aside percent of cropland
• Marketing/production quotas in dairy
• Export subsidy to prevent stocks in storage from
  becoming excessive

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Dimensions of the EUs Common Agricultural Policy

• Multifunctional Payments
• Noncommodity outputs that are jointly produced by
  agriculture
• Countryside benefits of farming
• Notion that agriculture can become too intensive
  and farmers need to be compensated for making it
  less intensive
• Organic Farming
• Sanitary Phytosanitary Standards
• Import restrictions on hormone treated beef
• Import restrictions on GMOs

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Why Expand?

• EU
• Political influence
• Security
• Globalization
• Trade

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Lecture 5, Wrap up

• Complexity of Trade Policy
• Trade Development Issues
• Geopolitical Centers of Influence
• Next Class
• WTO (Chapter 5)