By Going for Broke, U.S. Fouls Farm Talks
You don’t need a Ph.D in economics to understand the European Community’s common agricultural policy. It sets artificially high farm prices that create vast food surpluses. In November, for example, the world price for corn averaged $97 a metric ton. Meanwhile, the policy promised European farmers a minimum price of $212, a 119% premium. Naturally, European farmers produce as much as they can. Any surpluses are then dumped onto the world market with huge subsidies.
It’s clear who’s hurt. First come Europe’s consumers and taxpayers. Their food costs are too high, and 60% to 80% of the European Community’s budget goes to the policy. Next come more efficient farmers--in the United States, Australia, Canada, Argentina and other nations--who lose export sales to the Europeans. Considering all these victims, there ought to be strong pressure on the European Community to change the policy. Think again. An intense U.S. campaign against the policy has had almost no success.
It’s a telling failure of economic diplomacy. Increasingly, the United States can advance its economic interests abroad only with the help of other nations. We’re no longer so powerful that we can control the outcome of global negotiations. But we’re clumsy at creating the international coalitions necessary to prevail. The farm negotiations (under the General Agreement on Tariffs and Trade, or GATT) are a case in point. When the talks recently broke down in Montreal, the Americans--not the Europeans--were mainly blamed.
Make no mistake: The talks are critical for U.S. agriculture. They may represent the best chance for America to cut its own costly farm subsidies. American harvests are steadily rising; last summer’s drought only interrupted a long-term trend. Without expanding exports, U.S. farmers face rising surpluses and falling prices. The pressures for continued subsidies would be enormous. Other food exporters confront the same dilemma. Finally, greater agricultural exports would help some developing countries escape the debt crisis.
But somehow U.S. trade negotiators have turned a strong moral position into political weakness. It’s not that other food exporters like the agricultural policy. They don’t. Most of the European Community’s minimum prices (like that of corn) are set well above market levels. In November, the minimum price for a metric ton of soybeans was $577, more than double the world price of $267. Consumers pay these high prices. The Community maintains them by buying any surpluses at the minimums. Cheaper imports are generally kept out with variable levies that raise import prices slightly above the minimums.
The result is that farmers elsewhere lose exports to Europe and must compete with European food surpluses--sold at subsidized prices--in third countries. The policy’s protection has kept high-cost farmers in business. Efficient farmers are spurred to increase output by overusing fertilizers and pesticides. Food production has soared. The European Community once imported wheat; it became an exporter in the early 1970s. Since 1980, output of oil seeds (such as soybeans) has more than quadrupled.
By all logic, the Australians, Canadians and others ought to be loudly echoing U.S. demands that the Europeans alter the policy. But the United States has alienated its natural allies by insisting that all countries commit themselves--in advance of detailed negotiations--to the eventual elimination of most farm subsidies. For the Europeans, this would mean signing an immediate death warrant for the policy. That’s political suicide. It was this humiliating demand that caused the breakdown at Montreal. Other governments regard the U.S. position as wildly unreasonable.
It’s also unnecessary. The issue is not (as the U.S. position implies) all or nothing. Suppose the policy’s excessive prices are cut 60% to 80% over a decade. That would be an immense achievement. But the talks are now stalemated over a non-negotiable principle. The Europeans have scored a public-relations coup and don’t have to say how they’d change the policy to reduce its adverse consequences.
The agricultural policy is not, of course, the only example of farm folly. In addition to direct subsidies, the United States maintains import quotas on sugar and dairy products. Japan and Korea restrict rice imports. Any trade agreement would have to attack all these distortions. The political obstacles are similar everywhere. Farmers have grown dependent on protection, and governments often depend on the votes of farmers. But opening up world agriculture is not a utopian dream. It has a big constituency--food exporters and, less obviously, taxpayers and consumers.
The trouble is that the United States has yet to mobilize this constituency. Any hard negotiation is full of drama and deadlocks. The GATT talks are scheduled to continue until 1990. They could yet succeed. But for that to happen, the United States will have to pursue its goals more adeptly. That’s the real lesson here. Being right is not enough if, in the process, everyone else is offended by American self-righteousness.