As U.S. Farm Bill Negotiations Begin, Brazil Doubling Down On Ag Subsidies

May 13, 2013

by Tonya Allen

As the United States Congress begins negotiating a new five-year Farm Bill and discussing major spending reductions, Brazil, one of America’s largest competitors in the global marketplace, is doubling down its rate of subsidization.

Brazilian farm subsidies increased two-fold in the past three years, according to the Brazilian government’s own recent report to the World Trade Organization (WTO).

And Brazil isn’t even showing all of its cards.

“These reports illustrate only the specific definitions of ‘subsidies’ or ‘support’ and do not capture many government tools used to boost an industry,” says Patrick Chatenay, a sugar and ethanol expert from the UK-based company ProSunergy who spent months unearthing hidden Brazilian sugar subsidies, and recently made this report available to U.S. lawmakers.

Sugar producers in Brazil alone get $2.5 billion a year in subsidies, his research found.

In addition, Chatenay says, WTO rules allow trade-distorting subsidies in developing countries to amount to 10 percent of agricultural revenues before even being counted against subsidy caps.  And in the WTO, Brazil is considered a developing country despite its sophisticated agricultural empire.  That’s because the WTO lets countries designate themselves as developing or developed, and Brazil has deemed itself a small startup.

Another category of aid which is largely unaccounted for in Brazil’s WTO bookkeeping is composed of financial and tax debts write-offs.

One example of this was an 81 percent write off of taxes in 2010 for the country’s fifth largest sugar and ethanol company, Guarani, totaling $34 million.

All told, Chatenay estimates $1.5 to $2.6 billion in agricultural loans have been written off, with another $5.9 billion under debt restructuring schemes.

Then there’s the brand-new subsidies. Brazil’s Finance Minister Guido Mantega just announced another massive ethanol industry bailout, with a package of tax cuts and credit breaks that will cost nearly $500 million this year alone.  This is unlikely to show up in future support estimates either.

Sounds like Brazil is playing by House rules.

Standing in contrast to this tangled web of hidden subsidies is the United States, which as detailed in the handbook of foreign farm subsidies published by Texas Tech University, ranks low on both the tariff and subsidization scale when compared to its competitors.

Veteran trade advisor and former Assistant U.S. Trade Representative Donald M. Phillips says we are just beginning to realize the magnitude of the spike in the subsidization of agriculture by Brazil and other countries, as highlighted in a 2011 study on the issue by DTB Associates. And this information should serve as a strong argument for the importance of keeping America’s agriculture policies intact as Farm Bill negotiations continue.

“Given the obvious escalation of farm subsidies in Brazil and other emerging countries, often in violation of their WTO commitments, it makes no sense for the U.S. to unilaterally disarm by crippling the safety net programs for U.S. farmers,” Phillips said.

Congress holds the cards. Why gamble with our farm futures?