Averting a Wheat War

August 03, 1994

Behind the new U.S.-Canadian wheat agreement, which ostensibly averts a trade war at the expense of American pasta eaters, lurk hyper-costly federal farm subsidies that hit taxpayers coming and going. Consider: the federal government generously doles out $1.9 billion a year to wheat farmers to support the market price of their crop. At the same, good old Uncle Sucker spends another $1 billion a year to encourage farm exports that tend to drive down the price of wheat.

This is part of a very big business. The United States produces 2.4 billion bushels of wheat per year, half of which is exported to foreign countries and is a major factor in reducing mountainous trade deficits.

In the Canadian case, some crop shortfalls plus U.S.-encouraged exports of durum wheat used in pasta-making created a domestic shortage that Canadian farmers were only too happy to fill. Alarmed farmers in Montana and North Dakota could produce no evidence that the Canadians were "dumping" their crop at prices less than the Canadians paid their own farmers. So U.S. farmers turned to grass-roots protests, plus an obscure part of a 1933 law allowing the president to curb imports that depress farm prices enough to increase to cost of federal farm subsidies. They figured the lower prices caused by 100,000 tons of Canadian imports were costing the Treasury $170 million in subsidies paid, of course, to farmers.

Canadian officials rebelled momentarily, threatening to retaliate against U.S. farm exports -- mostly dairy and poultry products. But rather than risk an all-out dispute, they finally agreed to reduce their wheat exports to the U.S. to 1.5 million tons over the next 12 months, half the amount shipped in the past 12 months. Meantime, a bi-national commission will investigate.

The wheat growers lobby is happy, saying the pact will hardly be noticeable in a pack of macaroni, but the pasta lobby pronounces itself incensed.

As for taxpayers, they were ignored as the Clinton administration succumbed to the very protectionist practices it decries in the policies of other nations. The need to placate farm state senators obviously took precedence over the spirit of the North American Free Trade Agreement ratified last year by the U.S., Mexico and Canada.

Does all this make sense? Politically, yes; economically, no. The best way to protect taxpayers is not through protectionism or limiting competition but by cutting back on costly farm subsidies.

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