US dairy farmers are getting a US$2 billion ($2.8b) pandemic comfort handout from their government and that’s not good news for the economic cornerstone New Zealand dairy industry.
Not only is the Biden administration’s pandemic aid programme likely to increase US milk growth and further boost historic levels of subsidies to American farmers, it raises a question about the US commitment to its WTO subsidy agreement, says the Dairy Companies Association of New Zealand (DCANZ).
“We know they [subsidies] can be market-distorting and can suppress prices, so what happens in terms of farm support policies can have a very direct impact here in New Zealand,” said DCANZ executive director Kimberly Crewther.
Subsidies to US farmers in the past four years had reached unprecedented levels, she said.
Independent researchers had suggested spending has been so big in 2019 and 2020 that the US was likely to have exceeded its domestic support lending limits under the WTO.
The first of the subsidies in recent years had been designed to compensate farmers for the impact of trade conflict with China and had progressed through to Covid relief payments.
“What is disappointing is that these policies which were initially implemented in response to trade disruption and Covid appear to be continuing under Biden in new forms.
“Despite the historically high levels of support provided, the US dairy industry has been critical that current government payments to dairy farmers remain insufficient,” she said.
Trade Minister Damien O’Connor told the Herald the US was “very focused on domestic issues at the moment”.
“I’ve certainly been encouraged by a fresh approach [by the Biden administration] to discussions around trade and engagement, and continue to be optimistic.
“I think we have to acknowledge Covid has created a huge number of interventions of many shapes and sizes across the globe. Until we get ahead of Covid it’s going to be challenging to unwind them. We just have to engage on a positive basis to achieve our trade [objectives]…”
Global subsidies to agriculture are significant and particularly prominent in the dairy industry, DCANZ’s Crewther said.
Details of the US Department of Agriculture (USDA) “pandemic market volatility assistance programme” emerged this week as the number of US dairy farms continues to steadily decline.
The overall number of licensed operations in the US has declined by more than 55 per cent from 70,375 in 2003 to 31,657 in 2020, according to a USDA report. The last three years of data show larger year-over-year declines than any other decline in the last 13 years, it said.
Despite this, the US in the past 20 years had grown to become a significant player in the world dairy market, said Crewther.
“It is the world’s third-largest dairy exporter. In 2020 it exported a record amount. We expect the impact of the new payments will further encourage US milk growth which is now tracking at 2 per cent year-on-year in July.
“There is also the broader question around the importance of the US respecting its agreed WTO subsidy commitments. We think this is something all WTO members should be concerned about and we look forward to New Zealand officials utilising the WTO committee on agriculture to ask questions of the US about these new announcements.”
Crewther said a report out of the US last year which examined EU intervention from 2015-2019 estimated this practice alone took 28c off the farmgate return for milk in New Zealand – about half a billion dollars out of the country’s economy.
US agriculture secretary Tom Vilsack said the pandemic market volatility assistance package was another component of an ongoing effort “to get aid to producers who have been left behind and build our progress towards economic recovery”.
Through the programme, about US$350 million ($507m) in pandemic assistance payments would be made to dairy farmers “who received a lower value for their products due to market abnormalities caused by the pandemic”, he said.
This targeted assistance was the first step in the Government’s US$2b approach to help the dairy industry recover and be more resilient for the future.
US family farmers had been “battered” by the pandemic, trade issues and unpredictable weather, said Vilsack.
The programme is part of US$6b pandemic assistance announced by the USDA in March.
Other pandemic assistance to dairy farmers includes US$400m for a new dairy donation programme to address food insecurity and mitigate food waste and US$580m for supplementary dairy margin coverage for small and medium farms.
Crewther said DCANZ supports tightening up the rules on subsidies in the WTO – and is hopeful that WTO members can throw their support behind a proposal to half trade-distorting support at a WTO ministerial conference later this year.
“This would be a significant step forward to level the playing field for New Zealand’s unsubsidised agricultural exports.Reforming these policies has broader public policy benefits as well, as highlighted by the OECD, who highlights that much farm spending is not only inequitable and market-distorting but also harms the environment and food security.”
New Zealand, though a small milk producer by global standards, is the world’s biggest dairy exporter. It exports 95 per cent of all milk produced here. The industry returns around $20b a year to the New Zealand economy.
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