USDA to Subsidize Barley Export to 3 Foreign Markets

The U.S. Department of Agriculture said Wednesday that it will subsidize the export of 34,000 tons of barley to three foreign markets to retaliate against the European Union for selling subsidized grain to a Fresno firm.

The tit-for-tat action was announced as barley growers from the Midwest and Northwest gathered at the Port of Stockton to protest the expected arrival of the ship Otrada and its cargo of 34,000 tons of subsidized barley from Finland.

“Our action today demonstrates how seriously we view the EU sale,” Agriculture Secretary Dan Glickman said in a statement.

It was the first time the United States had authorized a subsidy on grain in nearly three years. Under the USDA’s so-called enhanced export program, which is intended to build overseas markets, a subsidy will be paid directly to the shipper that sends the U.S. barley to Algeria, Norway and Cyprus--customers that have traditionally bought from European producers.

The grain brouhaha is the latest in a string of trade clashes between the United States and Europe.

Notably, Europe has had in place for more than a decade a ban on imports of U.S. meat produced with hormones. Although the World Trade Organization has stood behind the safety of U.S. meat, Europe has dragged its feet on lifting the ban.

(Reuters reported Wednesday that World Trade Organization arbitrators have given the EU less than a year to lift the ban on meat imports or begin compensating U.S. exporters for lost business.)

Europe also has prohibited imports of U.S. corn because of concerns about genetically modified varieties. That ban has cost U.S. growers $220 million in lost trade, according to USDA officials.

The subsidy decision had the backing of a wide range of Washington officialdom, including the White House Council of Economic Advisors, the State Department, the Treasury Department, the Commerce Department and the U.S. Trade Representative.

Separately, Secretary of State Madeleine K. Albright on Tuesday sent a letter of protest to European Commission President Jacques Santer. A State Department spokesman warned that “such subsidies distort international markets and undercut American farmers.”

Jerry Siebert, an economist at UC Berkeley, called the subsidy decision significant. “It will be interesting to see where we go from here,” he said.

In the past, such episodes have occasionally escalated, as was the case years ago when a U.S.-EU dispute over pasta shipments spilled over and led to tariffs on wine, prunes, raisins and citrus.

U.S. growers, who had earlier berated Glickman for not taking firmer action, expressed delight at the announcement.

“It’s a wonderful and appropriate decision,” said Jack Pettus, a lobbyist for the National Barley Growers Assn. He called it “a shot across the bow” of the EU, given that the action affects markets that “Europe considers their own.”

The barley saga began in early April, when Penny-Newman Grain Co., a small regional grain-trading and feed supply firm in Fresno, paid $3 million for a shipment of barley from Finland. As reported last week, Mike Nicoletti, president of the firm, said he did not realize at the time that the barley was subsidized. He added that the purchase did not violate any laws or trading rules.

Nonetheless, the grain buy rankled U.S. growers, who contended that subsidized grain imports would force prices down and ruin the domestic market for them.

Under pressure from farm groups and farm-state legislators, Glickman demanded that EU authorities remove the United States from a list of nations targeted to receive subsidized shipments. But the EU refused, noting that it is allowed to subsidize a certain amount of grains each year under the 1994 General Agreement on Tariffs and Trade.

Although U.S. growers were heartened by the USDA action, they were thwarted in their effort to protest the arrival of the disputed grain. From Stockton, they hustled to a private bulk terminal at the Port of Richmond, where the ship reportedly had stopped temporarily. It is expected to resume its journey and reach Stockton by the first of next week.

Theoretically, the decision to subsidize U.S. barley shipments could take some of the pressure off Nicoletti. But a protest at the docks could still hamper unloading and cost him big bucks.

“Trading is a two-way street,” he said. “We bought our grain fair and square. If people interfere with free trade, everybody loses.”

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Reuters and Bloomberg News were used in compiling this report.