Countries around the world are grumbling about agriculture at the World Trade Organization (WTO). On March 31, the 144 WTO member countries missed an important negotiating deadline to develop new agriculture trade rules. Behind the bickering over tariffs and subsidies, there is a festering uneasiness that the agriculture trade system is seriously broken. After nearly a decade of super-charged, globalized trade, farmers around the world -- - from the Philippines to the United States -- - have been crushed by lower prices. The farm crisis has gone global, and many are looking for answers before taking another step forward.
A recent analysis of major agriculture exports from the US provides some clues on how profoundly this system has failed. The US now routinely sells five of its major agricultural commodities on international markets at a price below the cost of production. This practice, known as dumping, causes enormous damage not only to farmers in other countries but to US farmers as well. The cost of production for a bushel of wheat in 2001 was $6.24, while the export price was only $3.50 -- a 44% level of dumping. In 2001, corn was dumped at 33%, soybeans at 29%, cotton at 57%, and rice at 22%.
It's not hard to figure out what dumping from the US does to farmers in other countries. These below-cost imports drive developing-country farmers out of their local markets. This is happening around the world, in places as far apart as Mexico and Burkina Faso. And developing-country farmers who rely on exports cannot compete in the global marketplace with dumped commodities from the United States.
But first to pay the price of dumping are US farmers. Dumping is a product of a non-competitive domestic market. Farmers sell at a loss and must turn to the government for help. The problem gets worse as cheap US commodity prices drive down world prices, creating a vicious cycle that propels still lower prices at the US farm gate. Every cent that a commodity is sold below the cost of production is a cent taken out of our farmers' pockets.
Remarkably, dumping from the US is no accident. It's part of a calculated policy, driven by agribusiness and government bureaucrats, to drive down the price of commodities. This policy approach, vigorously enacted in the 1996 US Farm Bill and through trade negotiations at the WTO, strips away tools designed to guarantee farmers a fair price for their crop -- like supply management, strong marketplace competition, and non-recourse loans. The justification is theoretical: that record-low prices will open up new export markets for US commodities -- which will in turn drive a revitalized farm sector.
This approach has been an unqualified success in driving farm prices down. But export markets remain flat. In fact, countries like Brazil, Argentina and China are grabbing a larger portion of the export market. Of course, with lower prices come lower farm incomes. Many US family farmers have been forced to leave farming. The declining farm sector has caused a negative ripple throughout rural communities. We've seen population declines and the closing of schools and hospitals. This same pattern is happening all over the world -- from the rural Midwest to rural China.
It's no mystery who has benefited from the cheap commodity system. Multinational agribusiness companies have seen their profits skyrocket over the past decade. Archer Daniels Midland idles a soybean plant in Kansas while it builds a new plant in China. Cargill's new facilities in Brazil will help Brazilian soybean farmers compete with US soybean farmers. Cheap commodities, no matter where in the world they are grown, mean cheaper production costs and higher profits for agribusiness giants.
At the WTO, the United States has sold our farm system as the model for the rest of the world. But other countries aren't buying it. Brazil and the European Union are planning to file cases at the WTO, charging the United States with illegal agricultural dumping. Many WTO member-countries are looking for a new economic model that benefits farmers. We would do well to follow their lead.
Ben Lilliston is communications coordinator at the Institute for Agriculture and Trade Policy (www.iatp.org), a policy research center based in Minneapolis, Minn., that is committed to creating environmentally and economically sustainable rural communities and regions through sound agriculture and trade policy.