Subsidy Spotlight: Brazil

January 9, 2012

As the United States Congress begins debate of the 2012 Farm Bill, America’s biggest competitors on the global marketplace have been steadily increasing their rates of subsidization, according to a study by DTB Associates.

And one of the biggest offenders is also one of the biggest agricultural superpowers and biggest critics of U.S. farm policy: Brazil.

“Overall government support for Brazilian agriculture has mushroomed over the past decade,” the report noted.  “The government has raised support prices for a range of commodities and increased funding for other programs as well.”

Among the most egregious examples included in the detailed eight-page country profile:

  • $64 billion in subsidized or mandated agricultural credits for the 2010/11 crop—this was up from $7.5 billion 10 years earlier.
  • Legislation under consideration to provide $14 billion in direct farm subsidies and the rescheduling of $50 billion in farm debt.
  • A complex web of support programs that guarantee minimum commodity prices—in 2010, these programs resulted in a $785 million benefit for wheat producers, $1.1 billion for corn growers, $908 million for rice farmers, and $276 million for cotton producers.

Amazingly, DTB’s commodity-specific support program calculations don’t even include the impact of massive credit subsidies provided, or the fact that $43 billion of these credits are estimated to be in arrears.

Notwithstanding this, the subsidies generated by these support programs exceed the allowable amount, or cap, to which Brazil committed in the World Trade Organization (WTO).

Just on the basis of these programs alone, Brazil appears to be in violation of its Aggregate Measure of Support (AMS) cap by more than $2 billion.

The United States and European Union, by comparison, are well under their respective AMS caps.

DTB isn’t alone in their criticism of Brazil, which ironically has led the charge against U.S. and European farm policies at the same time it has been rapidly expanding its own subsidization.

Texas Tech University recently updated its popular handbook of foreign farm subsidies.

In addition to describing numerous foreign commodity subsidies, Texas Tech also noted Brazilian ethanol supports underpinning the world’s biggest ethanol producer and exporter.

Those programs include usage of mandates, preferential tax treatment, storage credits, and import restrictions.

A search of the he Texas Tech handbook—which has a searchable database by country and commodity—also turned up that Brazil maintains a 75-cent support price for cotton.  This is ironic given they brought an action against the U.S. in the WTO courts for a 52-cent marketing loan.

Despite the emergence of studies like those done by DTB Associates and Texas Tech, Brazil’s subsidization spike has gone largely ignored.

“[B]ecause the run-up in subsidies is a recent development, and because countries have not reported new programs to the WTO or have failed in their notifications to calculate properly the level of support, the changes have attracted little attention,” DTB Associates concluded in its report.

“We believe that when trade officials examine the developments, they will discover clear violations of WTO commitments.”

Here’s hoping Congress takes notice of high foreign subsidies, too, as it shapes America’s farm policy future.

A unilateral disarmament of U.S. policy—which already ranks among the lowest in the world in terms of the support it provides to producers—at a time when competitors are ramping up subsidization would endanger one of the U.S. economy’s only economic bright spots.