Subsidies for Wheat Must Rise, U.S. Says : Trade: Without a GATT deal, Agriculture Department believes higher payments are needed for exports, to counter those paid by the European Community.

Staying in the world wheat market could cost the government more than usual this year because of a wide gap between global and U.S. prices.

The Agriculture Department argues that higher subsidies under the Export Enhancement Program are needed to counter those paid by the European Community.

The subsidy competition also shows why it is critical to agree on a world trade deal that cuts farm export subsidies by the Dec. 15 deadline under the General Agreement on Tariffs and Trade.

Gene Moos, the undersecretary of agriculture for international affairs and commodity programs, said the government has no choice but to spend more now.

“We’re willing to spend this kind of money to send a direct signal to the European Community that as long as they engage in this kind of export subsidy practice, we’ll do the same thing,” Moos said in an interview.

“We’re hoping that will encourage them to sit down and work out an agreement under the Uruguay round, and both countries can reduce their level of export subsidy and hence their cost to their federal treasuries,” he said.

How much the department will spend before the marketing year ends next May remains unknown. But payments have been rising since June.

The program covers a number of commodities, but wheat is the most important. Spending for all supports has exceeded $900 million for the last three fiscal years.

“Bonuses” or subsidies under the enhancement program averaged $20 a ton in June, then doubled in July. They surpassed $52 in October, the highest since record highs of $53.12 in August, 1991, and $58.84 in October of that year.

Some November payments have neared $65 for sales to countries in eastern Europe and North Africa where EC competition is strongest.

European subsidies neared $69 in September and October, the department says. The United States says the Europeans have been driving down world prices by selling from government stockpiles.

Under the U.S. export program, private grain companies like Cargill Inc., Continental Grain Co. and Louis Dreyfus Corp. negotiate wheat sales. If it approves the deal, the Agriculture Department makes up the difference between the world price and the U.S. price.

Cargill, for instance, received $3.5 million from the Agriculture Department for a November sale of 54,000 metric tons of hard red winter wheat to Egypt, reflecting a bonus of $64.48 a ton.

U.S. prices this fall have ranged from about $140 to $145 a ton, while world prices have been about $80 to $85.

U.S. prices are lower on average than they were last year, Moos noted. “And of course, the producers say their cost of production has increased since then, and their level of income support from the government has decreased as well,” he said.

The United States expects to sell less wheat this year on the world market--about 30% of the world market as opposed to 34% last year. But the amount of wheat sold under the program has been rising.

From June to August, subsidized sales were already up 89% from the previous year, the department says. Excluding a one-time sale to China of 800,000 tons in July, the increase was 60%.

The China sale was a cameo appearance from a country that had been a major customer. China had a large crop this year and has been trying to keep down U.S. imports for economic and political reasons.

The Agriculture Department has nonetheless been pressing China to buy more U.S. wheat. It wasn’t until last November that China made its first purchases for the marketing year that ended in May, 1993.

The former Soviet Union, with credit problems, is another erstwhile customer that has quit buying from the United States.

The United States made its record bonus payments in late 1991 to clinch major sales to China and the nations that comprise the former Soviet Union.

“There’s too much wheat chasing too little business,” said Gregg Doud, research and marketing analyst for U.S. Wheat Associates, an export trade association. Poor quality because of cool, wet harvest periods in most countries has also depressed prices, he said.

By contrast, some high quality durum wheat headed for Japan has been selling for $283 a ton, he noted. The wheat, which accounts for a small share of U.S. production, is used to make pasta.

“That’s the disparity in quality we’re talking about here,” he said.