China’s excessive wheat subsidies and other policies increase U.S. farm losses

From U.S. Wheat and the National Association of Wheat Growers

Over the past few years, U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) have demonstrated how the policies of a few advanced developing countries are distorting world wheat trade and hurting farmers in the United States and other wheat exporting countries. In 2015, an Iowa State University study sponsored by USW showed that China’s excessive wheat subsidies alone were costing U.S. farmers almost $550 million per year. Now, just one year later, a January 2016 update of the study demonstrated that the decline in world prices has increased the projected annual loss in U.S. wheat farm revenue from China’s policies by 16 percent to $653 million.

A 2014 study by DTB Associates showed that China effectively pays its farmers a minimum procurement price of more than $10 per bushel for wheat and subsidizes input costs. In wheat alone, China provides an aggregate measure of support (AMS) of at least $15.4 billion or 36 percent of the value of production, which far exceed the 8.5 percent de minimis limit set when it joined the World Trade Organization (WTO). China also agreed to allow wheat imports at a 1 percent tariff rate, up to a quota of 9.64 million metric tons. The out-of-quota tariff rate is 65 percent. China rarely administers this tariff rate quota (TRQ) as agreed and imports invariably fall far below the quota, even when its domestic prices are far above world market prices.

The evidence strongly supports the conclusion that China’s noncompliant domestic subsidies and TRQ administration create artificial incentives for its farmers to grow even more wheat at a time when China already controls almost 40 percent of world wheat stocks. In turn, the policies suppress wheat import demand in China and put additional downward pressure on world wheat prices.

“Considering all the trade distorting policies U.S. farmers face in the world, the wheat subsidies in China and in other developing countries have the most serious effect on farm gate prices and trade flows,” said USW President Alan Tracy. “The studies we have sponsored clearly show the problem is growing more serious at the worst time for farmers who are already facing unprofitable prices.” Read the rest of the article here.