International Policy Live in a global economy where: –Interdependence means that any policy decisions made by one country has a impact on the U.S. –Many ag markets are global in scope thus while the price of corn may be in the US, there is a global market influenced by world supply and demand forces –The exceptions to this global market are few and are limited to those commodities that have been able to isolate themselves through barriers to trade (successful only in varying degrees) 19 Read Chapters 4, 5, 6 Knutson, Penn and Flinchbaugh

North America Free Trade Agreement NAFTA Really 3 Separate Trade Agreements  Canada – US Trade Agreement (CUSTA) effective in 1989  Canada – Mexico Trade Agreement effective in 1993  US – Mexico Trade Agreement effective in 1994 Farm Policy Harmonization is a major problem

North America Free Trade Agreement NAFTA CUSTA – 1989 –Tariffs on most commodities phased out over year period with following important exceptions being Tariff Rate Quotas (TRQ) on:  Poultry: Canadian Poultry Board  Dairy: Canadian Dairy Board and US price supports  Sugar: US price supports –A TRQ allows a certain amount of imports at a lower tariff (sometimes zero) with impacts above the quota assessed a higher tariff. Example the TRQ in Canada for cheese is 245% of the price at 20,412 MT. For the US it is 58% at 134,995 MT.

North America Free Trade Agreement NAFTA US – Mexico Trade Agreement in 1994 –Convert all trade barriers to tariffs (Mexico had extensive licensing of imports) and then reduce to zero over 5-15 years.

North America Free Trade Agreement NAFTA Overall provision that has caused conflict involves the ability of the three countries to maintain their own domestic farm programs (subsidies) in the setting of freer trade – reductions in tariffs. –If free trade is to exist there must be harmonization of policies.

North America Free Trade Agreement NAFTA Basic method for dispute settlement involves the establishment of Panels which act as “judges” of who did what to whom (legal rights and obligations) –Members of these panels include: 2 members chosen by one country 2 members chosen by the other country 1 mutually agreed upon chair –Original agreements had a provision for continuing discussion to eliminate domestic program issues but no Secretariat was established (comparable to EU Commission) to continue to process of negotiation

Canada Policies Canadian Wheat Board (CWB) –No production controls –All wheat and barley marketed through CWB except that fed on farm –Strict Controls over quality Emphasis on protein content Controls varieties planted –CWB markets wheat to domestic and export markets –Pools all receipts from marketing –Pays producers the average price adjusted for quality Payments in increments as sales take place Closes out the pool at end of marketing season –Little or no carryover

Canada Policies Canadian Wheat Board acts as an effective barrier to trade by virtue of its marketing requirement The price incentive is to move wheat south rather than north Dairy and poultry boards have high TRQs combined with marketing quotas limiting the quantity of product that can be sold Net Income Stabilization Account (NISA) program whereby farmers can deposit with the government up to 3% of sales revenue which is matched up to $250,000 each year with an account limit of 1.5 X 5 year average sales –Withdrawals are allowed in low income years

Mexico Policy Mexican Farm Supports SAGARPA: USDA of Mexico  PROCAMPO: Small farmer payments  Market support payment: Pays difference between government determined target price and market price Maintains sugar industry  Discourages fructose in soft drinks

Mexico Policy Issues Concern about level of U.S. subsidies Imports of poultry and hogs Lower price of corn and soybeans  Corn staple  Input for livestock and poultry  Input for HFCS production  Results in low prices for poultry and hogs Deny access to U.S. sugar market  Share of U.S. imports  HFCS imports to Mexico

Mexico Policy Issues Research/Extension: Weak Infrastructure  Roads: Border issue  Railroads: Privatization  Utilities  Irrigation development Plant and animal protection

Comparison of Mexican and U.S. Agricultural Production CommodityMMTUS MMT Sugar Corn Fruit Vegetables & Melons 9 54 Citrus 6 15 Milk 9 77 Wheat 3 54 Tomatoes 2 16 Beef 1 12 Chicken 2 14 Pork 1 9 Peppers 2 -- Bananas 2 -- Mangoes 2 -- Coconut 1 --

Geopolitical Centers of Influence Countries or groups (blocs) of countries that have (or could have a major impact on U.S. agriculture and agribusiness Some individual countries are in this position now, have been, or will be –Mexico –Canada –Japan –China –Russia Some are organized into blocs –NAFTA –EU –MERCOSUR/FTAA –Cairns group –APEC

Geopolitical Centers of Influence Then there are the developing countries –Largely ignored up to now –Want preferred access to developed country markets There are interest groups outside the countries and blocs that try to influence the world agenda –Greenpeace –UN/FAO

U.S. 9.6 M sq km –19% arable –214 sq km irrigated 280 M people Ag –Corn, soybean, wheat, chicken, beef, milk, pork –Export 2 of 5 acres Ag policy –Export-oriented –Farmer safety net substantial

Canadian Agricultural Production CommodityMMTUS MMT Wheat Barley 11 5 Corn Soybeans 2 78 Rapeseed/Canola Beef 1 12 Hogs 2 9 Chicken 1 13 Milk 8 75

Canada WTO Box Status NISA? Dairy and poultry boards? CWB?

Mexico/Canada/US Basic need exist for harmonization of policies Farm subsidies Market information Grades and standards Infrastructure Plant and animal protection