AGRICULTURE-LATAM: Subsidies and Asia Behind Falling Prices

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Feb 26 1999 (IPS) - The Asian crisis and European Union agricultural subsidies today exert more pressure on international grain prices than do the economic troubles of Brazil.

These were the conclusions of analysts of the Argentinian cereal market, noting how far the withdrawal of Asian consumers and a new wave of protectionism in Europe have struck prices.

The problems of the Asian consumer added to increasingly efficient production have caused a surplus which pushed prices down to levels unthinkable only two years ago. Soya fell 30 percent in the last year, wheat 25 percent and maize 21 percent.

Agricultural consultant Alejandro Ramirez told IPS the pace of demand continues to be set by Southeast Asia, which lowered demand after its crisis in 1997 withdrawing from the market to await economic recovery.

The Asia-Pacific region has a population of 1.7 billion, which up until 1997 had been gradually increasing its consumption of cereals and red meat, to the detriment of rice and white meat. But the 1997 crisis forced this to fall.

“Today reserves and savings in these countries are recovering, but the crisis served to make them aware of the way their exit from the market affected prices, and now they are cautious: they are only thinking of negotiating purchasing contracts from June,” said Ramirez.

This factor of the Asian withdrawal from the grains market, after causing strong demand and increasing prices, caused fear amongst farmers and European authorities and, defensively, the United States.

This week, the agriculture ministers of the southern cone common market (Mercosur) countries – Argentina, Brazil, Paraguay and Uruguay – and its associates Chile and Bolivia, called for the complete elimination of subsidies on exports, criticised as “the most negative and unjust distortion of commerce.”

Governmental representatives in the sector, meeting in Salvador, Brazil, studied common strategies for upcoming multilateral negotiations starting late this year in the World Trade Organisation.

Meanwhile, in Europe and the United States, far from commitments assumed to eliminate subsidies by the year 2000, governments are echoing the demands of thousands of farmers calling on the State not to abandon them to their fate just as there is sustained fall in demand.

Thousands of producers protested this week in Brussels over threatened reforms to the Common Agricultural Policy. According to data presented by the presidents of the Mercosur nations at the last summit of the subregional bloc this week in Brazil, these are billion-dollar subsidies.

Uruguay’s President Julio Maria Sanguinetti said this involved some 160 billion dollars which the industrialised countries hand out each year to support their farmers, while Argentinian official, Nestor Alcala said it was nearer 280 billion.

US authorities stated federal aid to farmers this year would reach 18 billion dollars, the highest level since 1987, to deal with the fall in prices, and they said they would hold these levels until Europe backs down.

US secretary of agriculture, Dan Glickman, said this week he would like to say there is light at the end of the tunnel for the price crisis, but in truth “further production surpluses and weak future world demand” are expected.

Buyers’ problems in paying for shipments, the reapperance of Chinese supply on the market and the annultion of some operations only accentuated the downward trend of grain prices on the markets toward the end of this week.

Sunflower seed Thursday was worth half the price of a year ago, and soya in Chicago went for less than 170 dollars per ton, the lowest level in the last 23 years. In Argentina, this oil seed was even cheaper, at 151 dollars.

Argentina modernised its farming production during the nineties, and grain and oil seed harvests this year are expected to better the 67 million tons of 1998. However, the depreciation of these cereals will not allow producers to enjoy greater profits.

Producers believe if prodution and trade were liberalised in the industrialised countries, sales would increase abroad. But most of the local farmers’ organisations are sceptical on this front.

Both the Sociedad Rural, which includes the big landowners, and the Federacion Agraria, of small and medium-sized concerns, stated incredulity at the European Unions promises to end subsidies in June.

In this context, the crisis which began in Brazil with the devaluation of the real in mid-June, will barely be a drop in the ocean for such a conflictive panorama, much as was the case with Russia in 1998, when its declaration of a unilateral moratorium caused the Rouble to collapse.

Demand for cereals in Brazil, the biggest economy of Latin America, is sufficiently set for it to remain unchanged despite the crisis which affected other types of consumer goods – like cars or televisions.

This week, the Brazilian government promised to import five million tons of Argentinian wheat, as planned, but made the operation conditional on a withdrawal of Buenos Aires’s appeal to the World Trade Organisation for subsidies on chicken and pork production.

Rumours of the acquisition of US wheat at subsidised prices were denied, although local analysts did not totally rule out the possibility. “These rumours are scary in a market where demand is king and imposes the prices,” said one of them.

For example, the fall of sunflower seed prices in Argentina was heavily influenced by the decision of some traditional buyers – including Egypt and Pakistan – to change their supplier.

Nor have there been any advances in attracting back Iran – a client lost for political reasons. The Argentinian courts believe Teheran collaborated with the terrorists who bombed a Jewish community centre in 1994 leaving 84 dead, and the government reduced diplomatic representation in the country to a minimum.

Iran responded by suspending 700 million dollars-worth of purchases of soya, sunflower seed and its derivatives from the country – around 13 percent of all local oil shipments.

Local producers are now lobbying for the foreign ministry to reconsider this decision as it affects them far more than the Brazilian crisis, Alberto Rodriguez of the oil seed and oil producers organisation told IPS.