US President George Bush's announcement of a $1.4 billion expansion of the US Export Enhancement Program (EEP) for wheat exports could cut the price of Australian wheat exports by as much as $40 per tonne. The 29 million tonnes of subsidised wheat the US intends to dump on the world market is likely to undermine established markets for Australian wheat. Yet Bush says the program is "not aimed at Australia". The real target, he says, is the European Community, which heavily subsidises its agricultural exports. Australia and the US have argued for "free trade" in the stalled Uruguay Round of the General Agreement on Tariffs and Trade (GATT). But do the deeds match the words? PETER BOYLE looks at the background to this latest round of the "wheat war" and discovers there are no "friends" when money is involved.
If the European Community is now the real threat to free trade, it could not have been so before the late 1970s, when it first became a significant exporter of wheat. Before then the US had the dominant position but nevertheless had been subsidising its wheat prices since World War II. Even when it could most afford to trade freely in wheat, the US was using subsidies.
In 1981, the US exported 48 million tonnes of wheat and the EC only 11 million tonnes. In an attempt to push back the EC, the US introduced the Export Enhancement Program. It was initially worth only $2 billion in subsidies and was to apply for only three years. It failed to beat back the EC. By 1986, the EC had pushed its wheat exports to 18 million tonnes, and the US had dropped to 27 million tonnes.
On April 17, 1986, then US President Ronald Reagan assured then Prime Minister Bob Hawke that these "interim measures" to counter EC subsidies would take account of Australia's interest. Yet 11 days later the US sold 50,000 tonnes of subsidised wheat to Yemen, a traditional Australian market.
US threats to offer subsidised wheat to the USSR and China (also important markets for Australian wheat) in May 1986 resulted in an angry reaction by Australian farmers and demands to challenge the US military bases in Australia. Politicians in both major parties rejected these calls.
An official US government report noted in March 1987 that Argentina, Australia and Canada were being "adversely affected by EEP". That year the EC had a poor wheat crop, but the US extended its EEP scheme, selling another 5 million tonnes of subsidised wheat to China, 9 million tonnes to the USSR, 2.3 million tonnes to Egypt and 0.9 million tonnes to Iraq. All of these were traditional Australian markets, and EC wheat was not sold to Middle Eastern markets.
When US Vice-President Dan Quayle visited Australia in April 1989, he said that he didn't believe that EEP was hurting the Australian Bureau of Agricultural and Resource Economics (ABARE) estimated that EEP was costing Australia between $215 million and $337 million a year in lost farm income. By 1989, Australian wheat exports to China had dropped by 66% and to the USSR by 98% since EEP came into effect. Sales to Yemen had halved.
According to the Australian Farm Journal, since the EEP began, Australian wheat plantings have dropped by 24%, production by 35%, wheat exports by 35% and wheat export income by 43%. If EEP continues, the Journal estimates that an additional 10,000 farmers will go out of business by the mid-1990s.
In March 1991, President Bush assured Hawke in a letter that "all possible care will be taken to avoid disruption of traditional markets where Australia, as a non-subsidising exporter, has significant interests". This was a "thank you" for Australia's participation in the Gulf War. Yet only a few months later, the US dumped subsidised wheat on Kuwait, Egypt and China, all traditional Australian wheat markets.
Bush's latest expansion of the EEP scheme was undoubtedly announced with an eye on the November presidential election. But it is also a sign of the growing trade war between the major economies. Even in wheat, Australia's biggest crop, Australia is small player on a global scale, accounting for only 10-15% of global wheat trade. The US has 35-45% of the market and the EC about 20%.
Wheat Board
The US is battling to maintain its dominant position. Its objectives are not only the elimination of EC subsidies but the monopolisation of trade through its giant agri-businesses. In May 1988 a US government official admitted that the EEP has been useful against "monopoly selling organisations" such as the Wheat Board in Australia and its counterpart in Canada.
The Wheat Board centrally markets all exported wheat (the domestic market was deregulated four years ago). But major grain trading transnational corporations like Conagra, Continental, Cargill and Dreyfuss are waging a battle to deregulate the wheat export market as well. This would allow the international grain traders to make farmers compete against each other by offering the lowest price.
Most wheat farmers are understandably suspicious of these moves, and there has been considerable debate about how to respond to the trade war. Some suggest militant protest action and tough bargaining over the US bases or US imports to force concessions from the US. Others, like Australian Farm Journal publisher Paul Myers, want Australia to join the trade war by bringing in its own Export Enhancement Program.
One problem with the latter suggestion is the question how it would be paid for. Myers suggests that Australian consumers be taxed through tariffs or quotas on imports into Australia. Ultimately, a country trade war (or a shooting war) unless it has considerable economic weight. But a more important consideration is who exactly "wins" a trade war?
Since 1991, the US has been sitting on a 32 million cubic metre mountain of stockpiled wheat. But the wheat "glut" is more an expression of the inequitable world economic order than it is of absolute overproduction.
This year global food wheat (about a third of wheat production is fed to livestock) usage is estimated to be 380 million tonnes, but according to the United Nations Food and Agricultural Organisation, real world demand for food wheat is at least 100 million tonnes above present usage.
Much more wheat could be produced, but many nations cannot afford to buy the wheat they need nor get aid to cover their needs. So while the wheat price war rages, tens of millions of people will starve. They are not going to win a trade war.