Brazil's Addition Of Ethanol Subsidies To Their WTO Appeal Raises The Stakes For US Agriculture

Implications: Brazil’s complaint, originally filed in July, now includes a challenge on the payments for “energy subsidies”—ie: ethanol’s $0.51 per gallon subsidy, and the biodiesel blending credit. The US says it considers those “industrial” subsidies, and not a part of this WTO discussion Brazil has already won a WTO case against US Cotton Programs, in 2004 A potential, still unreleased WTO Compliance Panel report is said to show that the US is still in violation of the 2004 Cotton ruling

Analysis:

The addition of “energy subsidies” to Brazil’s challenge to US soybean and corn subsidy programs signals an increase in the stakes associated with the WTO, as it relates to US Crop Support Programs.  With the renewal of the US Farm Bill now in active discussion in the halls of Congress, will Brazil’s added challenge cause Congress-me -women from farm belt states to “back off” on their demand for, in a general sense, more of the same for US Farm Programs?

The Case For More Of The Same: Strong Roots

It’s probably hard for anyone outside of the farm belt to understand just how good farmers are at working the halls of Congress.  Anyone that still believes that farmers all wear bib overalls and spend all day sitting outside on a tractor should spend some time sitting in the office of a farm state Senator or Representative.  If you did, you would be amazed at the steady flow of farmers passing through those doors, pressing their case for their specific commodity. 

Other than Farm Bureau, which is supposed to represent ALL farmer members, most farmers make their visits as representatives of a specific commodity (ie: corn or soybeans).  These farmers tend to focus only on the crop they are there to lobby for, regardless of what crops, or livestock, they produce in total. 

All of the major commodities have political arms (National Corn Growers, American Soybean Association) which are funded with a combination of membership dollars from farmers, and corporate sponsorship. 

An interesting side note here, which may play into this discussion, is the split that is now occurring between what grain and soy farmers want, and what livestock farmers want.  Higher corn and soybean prices are just as bad for livestock producers (higher feed costs) as they are good for grain farmers.  Time will tell if this split will weaken the grain and soy farmers push for a continuation of the current programs.

Bottom-line, US agriculture is one of the very best in the country at grass-root political lobbying.  Due to that alone, the safe bet would be for more of the same, in US Farm Policy).

The Case For Change: Dilution of Support

Before ethanol became a Wall Street wonder last fall, it was the one-two punch of the National Corn Growers (with their grass-root lobbying) and corporate money from companies like Archer Daniels Midland (ADM) that kept the lights on in the world of corn-based biofuels.  Farmers supplied the face, but the corporate world supplied the majority of money for the effort, and that money made all the difference.  A case in point is the biodiesel industry, which has had the same level of farmer support (National Biodiesel Board, American Soybean Association), but has only in the last few years, received any type of federal assistance.  What was missing?  Major financial support from the commercials.

So now that ADM, Bunge, Cargill and others are moving to hedge their biofuels bet with investments in Brazil’s sugar sector, will they continue to support the fight to support only US biofuels?  Will ADM continue to supply a large percentage of the lobbying capital needed to keep the US ethanol subsidy in place? 

My guess is that multinational’s support for the US ethanol subsidy, and import tariff, will decrease, as economic self-interests begin to put some daylight between the interests of US corn growers, and US multinationals.

The Cotton Wildcard

The US’s loss of the cotton case in 2004, along with what now may be, a damaging report on a lack of compliance in that case’s settlement, may set the stage for a more vigorous case with oilseeds, grains and biofuels.  I don’t believe that the US can afford to ignore the WTO, and Congress may be forced by the international courts (and a potential loss of trade/sanctions/retaliatory actions) to do legislatively, what they don’t have the will to do politically, on their own.