BUSINESS

A worldwide glut of food

MADELAINE DROHAN November 9 1987
BUSINESS

A worldwide glut of food

MADELAINE DROHAN November 9 1987

A worldwide glut of food

BUSINESS

ECONOMY

It is a fast-growing monster that the biggest economies in the world continue to feed even as they discuss how to kill it. Last year the United States, Japan and the 12-nation European Community spent more than $80 billion on farm product support. The result: massive overproduction and an escalating subsidy war among producing countries. In the European Community alone, surpluses have reached staggering proportions: 16.7 million tons of grain, 1.5 million tons of butter and 500,000 tons of beef. And yet this year the EC will spend another $37 billion, or 66 per cent of its total budget, on farm support. Still, with world agricultural trade teetering on the brink of chaos, representatives of the 92 member nations of the General Agreement on Tariffs and Trade (GATT) are attempting to negotiate an end to the crisis. Said International Trade Minister Pat Carney in the

House of Commons on Oct. 20, the day Canadian officials unveiled Canada’s negotiating proposals to GATT in Geneva: “It is time that we returned some sanity to agricultural trade.” Despite the good intentions, even the most optimistic observers say that a solution is still some years away. The United States and the European Community—whose subsidy war prompted a push for the talks in the first placecontinue to trade stormy rhetoric on the subject. The two have tabled widely differing plans at the current round of GATT talks that opened a year ago in Geneva, with Canada’s proposals falling somewhere in between. At issue is how quickly and by how much farm subsidies should be cut. In a proposal tabled in July, the Americans called for the elimination of all subsidies by the year 2000. But the Europeans, who presented a plan last week that would reduce but not abolish farm support over an unspecified period, claim that

the United States is being “totally unrealistic.” The Americans countered by accusing the EC of using a “delaying tactic.” Said one U.S. official of the EC proposal: “Inadequate is the most charitable thing I can say about it.”

The Canadian plan, which Carney also presented to the House of Commons, is less radical than the U.S. proposal, calling for a major reduction in all trade barriers and trade-distorting subsidies within five years of the conclusion of the GATT talks, with the eventual goal of total elimination. As well, Canada wants a new set of GATT rules clearly [ spelling out what gov¡ ernments can and canI not do to help their farmers. According to the proposal, farm support payments that do not distort trade would still be allowed. The Canadian position is similar to those of its fellow members in the Cairns Group, a collection of 14 agricultural trading nations, including Australia, that banded together in 1986 to protest against the AmericanEuropean subsidy war. They have sought a high priority for agriculture in the current round of GATT negotiations.

But the Canadian proposal was not clear on whether the government would allow the country’s more than 100 agricultural marketing boards— they govern the production and sale of everything from eggs and poultry to milk and grain—to be negotiated away in Geneva. Although Carney stressed in the House that the boards are consistent with GATT rules, she did not comment on their possible fate in the GATT talks. But farm spokesman Don Knoerr, president of the Canadian Federation of Agriculture, said that the boards, which work in conjunction with import controls, should be “at the top of the Canadian government’s list” of programs to be kept in place to protect farmers.

Indeed, Maclean's has learned that Canada’s negotiating strategy depends on just that. A senior government official involved in planning for the GATT talks said that Ottawa will use the same tactic that it did in the free trade talks with the United States—put everything on the table for negotiation in the knowledge that others will want to protect certain programs. When the

Europeans and Americans have identified what they want to exempt, Canada then will withdraw the marketing boards. Said the official, who asked not to be named: “The Americans pulled away various farm things they didn’t want touched in the free trade negotiations, and then it was much easier for us to match up.”

But the tactic may have worked too well in the free trade talks. Last week Robert Latimer, a retired federal civil servant who advised the Ontario government during those negotiations, told an agricultural conference in Toronto that the United States may try to use GATT to win concessions on some agricultural issues that were left unresolved in the free trade agreement, particularly arrangements protecting some Canadian marketing boards and grain import barriers.

Despite the higher cost to consumers as a result of prices set by the various industry boards, even mentioning their removal poses political risks. Indeed, as the proposals were being drawn up Pierre Blais, a minister of state for agriculture, and other department officials raised farmers’ concerns about making a presentation that did not protect the boards. As a result, an Ottawa briefing for ambassadors from the Cairns Group was cancelled, and Canada’s proposal to GATT was almost delayed. But in the end Carney and Agriculture Minister John Wise overruled Blais, arguing that any proposal that excluded the marketing boards in advance would lessen the pressure on the Europeans to make concessions. In Tokyo, in May, 1986, when the leaders

of the seven major industrialized Western nations met for their annual economic summit, Prime Minister Brian Mulroney called for an end to the U.S.-EC subsidy war that was forcing international grain prices down, crippling Canadian farmers in the process.

Political considerations have also contributed to reluctance on the part

of the Europeans to give up their Common Agricultural Policy (CAP), despite its crushing burden on the EC treasury. Pressure to retain support levels has come from such countries as Germany, where a group of small, inefficient farmers in Bavaria wield an inordinate amount of political clout. But now Britain and some other EC members are demanding cuts in farm spending. In a startling example, British Foreign Secretary Sir Geoffrey Howe compared the average subsidy of $530 for each European cow with an average Ethiopian annual income of $160.

Asked Howe: “How can any of us rest content with such heartless folly?” Still, a recent survey of Europeans showed that 46 per cent of the public— and 50 per cent of farmers—thought that the CAP was worthwhile despite its problems. Said EC farm spokesman Nico Wegter: “It is politically and humanly out of the question to tell 14 million European farmers that from

1988 onward they will have to take world prices.” And European wine producers, who receive subsidies totalling an estimated $3.5 billion a year, are also expected to resist change.

For their part, the Americans claim that their massive farm subsidies—estimated at $36 billion last year—are a necessary retaliation to European farm support. Said one American economic official: “Our technique is to make it so painful for the European Community that they will stop.” And with the United States facing a massive budget deficit and countries such as Britain calling on the EC to slash its spending, there is pressure on both to stop. Those same subsidies prompted External Affairs Minister Joe Clark to protest to U.S. Secretary of State George Shultz two weeks ago in Brussels. He objected to American offers to sell subsidized grain and other commodities to the Soviet Union, China and India, in competition with Canadian producers. While no sales have taken place, Clark said that the offers alone breached the spirit, if not the letter, of the proposed free trade agreement.

For Canada, the stakes at the GATT talks, which are intended to produce a new world trade agreement by 1991, are high. According to Canada’s multilateral trade negotiation ambassador Sylvia Ostry, failure to reach an agreement would result in an “enormous acceleration” of the subsidy war and a campaign of U.S. protectionism that would make existing U.S. agricultural legislation “look pleasant” by comparison. That in turn would have a negative impact on Canada’s trade balance, budget deficit and exchange rate. Still, Ostry, who is also Prime Minister Brian Mulroney’s personal representative responsible for organizing the seven-nation economic summit in Toronto next June, said that she remains optimistic. The tabling of all participants’ proposals in GeÏ neva is ahead of sched| ule, she noted. And she 1 added that there is a I good chance that participants will agree on a general approach to negotiations by June of next year. That would provide Mulroney with a welcome backdrop to the Toronto summit.

MADELAINE DROHAN

PETER LEWIS