Sacramento Bee
07-29-06
Trade talks' collapse could put rice subsidies at risk
By Jim Downing -- Bee Staff Writer
The breakdown of world trade talks this week -- amid disagreements over cuts to
farm subsidy programs -- leaves intact U.S. support programs that send as much
as $294 million each year to Sacramento Valley rice farmers.
But the international fight over rice subsidies may just be getting started. With
negotiations on ice, developing countries hurt by European and U.S. subsidies
appear likely to turn to litigation through the World Trade Organization.
"In the absence of an agreement, I think it's everybody's expectation that
countries may file specific suits against elements of the U.S. farm program," said
Tim Johnson, president of the California Rice Commission.
Such litigation can force significant change: The U.S. government recently was
forced to eliminate export subsidies for cotton after Brazil won a WTO case.
Cuts to rice subsidies would affect the economies of many of the Sacramento
Valley's rural communities, where the rice industry contributes about $1 billion
annually.
"Many of the small towns -- including us -- rely on the rice industry for a
livelihood," said John Bush, the mayor of Biggs, in Butte County. "Subsidies are
distasteful to me, but so is losing our economy."
A challenge to U.S. rice subsidies seems likely to come first from Uruguay. The
South American country of 3 million people earns a tenth of its total export
revenue from rice, and has been threatening since last summer to bring a formal
complaint against the United States.
Negotiators from Uruguay's rice industry association agreed to hold off on the
case while the WTO talks were ongoing. Now, said Michael Rou, a Rio Oso rice
farmer who has been involved in talks with the Uruguayan representatives, the
pressure likely will start to build again.
The basis for a complaint would be WTO rules that prohibit certain types of farm
support referred to as trade-distorting subsidies. Such payments encourage
farmers to grow rice regardless of the world market price, increasing the supply
of rice and lowering prices for exporters in other countries.
Although the United States grows only 1.5 percent of the world's rice, it is the
world's fourth-leading exporter. U.S. rice exports account for about 13 percent of
the global total.
It's not clear whether Uruguay has a winnable case, said Colin Carter, a
professor of agricultural and resource economics at the University of California,
Davis.
When Brazil successfully challenged U.S. cotton subsidies, the WTO ruling
turned on a subtle detail of farm policy that doesn't apply to rice growers, he said.
"I don't think the Uruguayans could simply take the cotton case and run with it,"
he said.
In addition, the United States is a less significant global player in the rice trade
than in the cotton trade, making it difficult for Uruguay to argue that U.S. rice
subsidies distort the market.
Litigation would be costly for the California rice industry, Rou said, which would
bear some of the cost of fighting the case along with the federal government.
A loss would be something of a worst-case world trade outcome for the region's
rice growers.
If U.S. negotiators had gotten the WTO agreement that they had sought, rice
farmers would have seen cuts in federal subsidies, but trade barriers imposed by
some key rice-importing countries, notably Japan, would have been reduced.
An economic analysis of the U.S. proposal by researchers at Iowa State
University predicted that the changes would have produced a price jump of 28
percent for California rice and a 13 percent increase in production.
As it is, California rice farmers stand to lose their subsidies, but not gain the
market benefits that might have come with a trade deal.
Independent of what happens in the WTO, the large U.S. subsidy programs for
rice, corn, wheat, soy and cotton likely will be under fire as soon as Congress
debates the 2007 farm bill. Congress rewrites national farm policy once every
five years. The Bush administration has hinted that it will push for cuts in the
traditional large subsidy programs, which account for 93 percent of federal farm
subsidies and amounted to $20 billion in 2005.
Rice subsidies to California farmers have ranged from $88 million to $294 million
annually in the past decade. Nearly all of the state's rice is grown in the
Sacramento Valley.