USDA Says Price-Supports Hurt American Farmers : Effect of EEC Farm Policies Noted

It’s not just high-powered political talk. The Common Market’s high price supports and export subsidies do have a big impact on the Iowa corn farmer, the Illinois soybean producer and the Kansas wheat grower.

A new analysis by the Agriculture Department says the European Community’s huge harvest of wheat and coarse grains in 1984 was due in part to good weather, but also to a history of catering to European grain farmers through high price supports.

“The resulting supplies will make the EEC for the first time a net exporter of coarse grains, a condition which has existed for wheat as far back as 1974,” says the July issue of Agricultural Outlook. “The situation also serves as an ominous reminder to the United States and other traditional grain exporters that the EEC has growing capability to generate grain surpluses.”

Behind this long-term growth in export potential, the report said, are the trade bloc’s grain pricing policies in tandem with technological advances and higher yields.

“EEC policies have a double impact on U.S. grain exports,” the report said. “Not only are U.S. grains displaced from the EEC market, but they also face direct competition in non-EEC markets from subsidized EEC grains.”

The report was written by Reed E. Friend of the department’s Economic Research Service.

Imports of U.S. grain by the 10-nation Common Market are only half of what they were 20 years ago. In the 1984-85 international marketing year that ends today, June 30, U.S. grain shipments to the Common Market may total only about 4.5 million metric tons, less than one-third the average tonnage during the 1970s.

The U.S. share of the trade bloc’s market, counting trade within the European Economic Community itself, is estimated at 20% for 1984, compared with an average of 40% during the 1970s. Although the major decline has been in coarse grains, mainly corn, wheat also has slipped.

Significant Drop

Overall, the value of U.S. farm exports to the European Community in the fiscal year that ended last Sept. 30 dropped to $6.7 billion from a peak of $10.6 billion in 1979-80.

The Common Market’s policy has offered domestic grain producers protection through a variable levy on imports and an open-ended price support system, or intervention. The bloc’s major grain producers are France, West Germany and the United Kingdom, all of which have responded strongly to the protection and price supports.

As a result, the report said, last year’s huge grain harvest is expected to lead to record exports by the Common Market in 1984-85, including gains for both wheat and barley. The Soviet Union, Poland, Algeria and Egypt are among the bloc’s major foreign markets. Those are also highly prized markets for American farmers.

“The amount the EEC spends to dispose of surplus grains is second only to that spent for the EEC’s biggest surplus commodity, dairy products,” the report said.

Because of the European Economic Community’s aggressive export policy for wheat and flour, the United States filed a complaint under GATT--the General Agreement on Tariffs and Trade--charging that the Common Market was displacing the United States from traditional markets through subsidized exports. Subsequently, in 1983, the Common Market voluntarily and unilaterally limited its subsidized exports to 14% of the world wheat market.

Meanwhile, the report said, the U.S. dollar’s strength increased so much that it nearly eliminated the needed for Common Market export subsidies early in the 1984-85 marketing year.

“For example, in 1979 the EEC’s export subsidy for wheat averaged $2.42 per bushel, but the subsidy dropped to a low of only 5 cents in mid-September, 1984,” the report said. “A similar development occurred for coarse grains.”

The strong growth of the U.S. dollar relative to European and most world currencies has reduced world commodity prices as quoted in dollars, but prices stated in European and other currences have gone up.

“The result has been higher prices for commodities imported from the United States, an improved export position for the EEC and, therefore, lower budgetary costs, despite the bumper grain crop,” the report said.

European officials point out that despite a decline in imports of U.S. grain, imports of commodities such as soybeans and non-grain feed stuffs increased significantly through 1981. Those have slipped in recent years, however.

“Overall, it seems unlikely that EEC policies will be changed to further control grain production in the near future,” the report said.