Who Makes Hay on U.S. Farm Subsidies?

It was a spectacle to make a Kansas senator blush.

On April Fools’ Day, a freighter laden with 20,000 tons of Turkish wheat docked in New Zealand, courtesy of the U.S. government.

Turkey is not a big grain exporter. For some years it hasn’t even been able to meet its own needs. But U.S. grain subsidies under the Export Enhancement Program (EEP) have enabled Turkey to buy cut-price wheat from the United States and sell its own wheat in American, and even Australian, export markets.

The giant communist economies have capitalized the most on U.S. subsidies. Between January, 1987, and March, 1989, U.S. taxpayers gave $885 million in subsidies to traders who shipped 28.8 million metric tons of cut-price wheat to the Soviet Union and China. That’s more than five times the military and security aid requested by the Administration for Central America in ‘88-’89--aid justified mostly on grounds that it was to stem communism.

When Congress and the Reagan Administration struck a deal four years ago to introduce the program, its supporters insisted it would help farmers, bolster sagging exports and force the European Economic Community to abandon its own costly farm export-subsidy program.

But evidence now shows that the U.S. program has wasted taxpayers’ money, aggravated trade tensions and violated program guidelines issued by the Cabinet-level Economic Policy Council in 1985.

Under the $2.5-billion program, foreign buyers purchase U.S. commodities cheaper than Americans can. U.S. exporters can offer bargain rates because they receive free surplus commodities from the U.S. Commodity Credit Corp. In the three years to June, 1988, the big three grain traders reaped more than $1 billion in government aid. Traders, not farmers, benefit directly from subsidies at the U.S. end.

The program’s boosters say all of this ignores the surge in U.S. wheat exports. While exports have risen, this is at the expense of fewer cash sales and, according to farm lobbies, reduced exports of grains not dependent on the program. A study of wheat exports by the Economic Research Service of the U.S. Department of Agriculture in 1988 revealed that the grain would have moved without subsidies. Analysts pointed to a lower, more competitive wheat- loan rate, decreased exports by subsidy-battered allies and greater world demand.

The scheme’s proponents justify its retention on lofty international grounds, claiming that U.S. subsidies force the European Community to hoist its own export subsidy payments. Higher payments, they say, apply extra budgetary pressure on the community and increase the likelihood that Brussels will capitulate to ambitious U.S. demands for agricultural reform at the ongoing General Agreements on Tariffs and Trade (GATT) negotiations.

While EEP has raised European Community subsidy costs for wheat by $538 million between 1985 and 1988, this amount is paltry in the context of the $23.3-billion budget of the organization’s program supporting the modernization of agriculture and promotion of scientific research.

Instead of forcing the European Community to agree to U.S. demands at GATT, the Export Enhancement Program has antagonized community officials and accelerated European exports of subsidized commodities. In 1988-89 the community was expected to be the No. 1 exporter of barley. The European share of the world wheat trade is expected to rise from 18.4% to an unprecedented 20%-21% for 1988-89.

Ironically, the implementation of the subsidy program by the Reagan Administration had nothing to do with helping farmers or achieving trade reform. In 1985, David Stockman, then-Office of Management and Budget director, desperate to secure enough Senate votes to pass a budget reconciliation bill, reportedly agreed to the demands of farm-state senators for an export subsidy program. The program’s aims were considered only after the deal was struck.

Program guidelines continue to be flouted. When then-Agriculture Secretary John Block unveiled EEP on May 15, 1985, he declared that subsidies would be “continuously targeted” at the markets of subsidized countries. By 1988, there was scarcely a food-importing country that had not received subsidized U.S. produce.

Domestically, with stock inventories low, farm incomes buoyant and financial markets impatient for a sign that the Administration and Congress are capable of confronting the budget deficit, this program should be a sitting target. It hasn’t sunk because congressmen love trafficking in farm subsidies to help their reelection.

Internationally, export subsidies erode U.S. credibility and leadership. Other nations find it galling to listen to America preach the virtues of free trade while Congress and the Administration unleash every subsidy program imaginable.

Many U.S. industries are hoping for international trade reform, but such reform is foundering on the issue of farm subsidies and bruising encounters between America and its allies. At the very least Congress and the Administration should signal their commitment to agricultural trade reform by jointly announcing their intention to abolish the Export Enhancement Program and freeze other export subsidy programs for the duration of the GATT round.