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WHEAT BOARD SUBSIDIES AND TRADE -- DISTORTING PRACTICES EXPOSED

 WASHINGTON, Feb. 2 /PRNewswire/ -- U.S. Wheat Associates issued the following:
 U.S. wheat producers, concerned with the trade distorting practices used by wheat boards and their affect on the prospective Uruguay Round and the North American Free Trade Agreement (NAFTA), today released a report exposing the subsidies and monopolistic practices of the Canadian and Australian Wheat boards. "Despite repeated warnings, U.S. negotiators continue to treat the wheat board countries as if they are free traders rather than predatory pricing monopolies," according to Cecil Watson, U.S. Wheat Associate's (USW) board chairman.
 The report, commissioned by the wheat export promotion organization and released at their annual board meeting, found that the Canadian government provides 70 percent of inland rail freight costs on its wheat exports, thereby giving its producers a major competitive advantage (subsidy) which last year totaled $455 million, or about $18 per ton. It also notes that if the wheat board does not earn enough on its wheat export sales to cover its initial payment to producers, as was the case in marketing year 1991-92, the Canadian government makes up the difference.
 Quoting from the report, Watson, a Cavalier, N.D., wheat producer, indicates that, "Canada's domestic subsidies to its wheat producers exceed those provided to U.S. producers," and the 1991 producer subsidy equivalent (PSE) for Canada is higher than that of the United States. "Furthermore, Canada has utilized its end-year certificate as a mechanism to keep any significant quantity of U.S. wheat from crossing the border into Canada while Canadian wheat continues to enter the U.S. at increasing levels." Canada's freight subsidies have been noted in the report as an important factor in their increased wheat exports to the United States.
 USW President Winston Wilson indicates that while Australia does not provide as much direct support to its producers as Canada, its wheat board does resort to the same secretive, predatory pricing practices. "Using the open markets only as a point of reference, the board offers different prices to different markets. Price slashing allows them to capture new markets while established customers are charged full price," according to Wilson.
 The administrative pricing practices used by the wheat board monopolies are every bit as disruptive to the market as the EC subsidies, according to the report. For example, it points out that wheat boards often have standing offers to sell their wheat at $3-$5 per ton under U.S. wheat prices, whatever they may be. This practice has nothing to do with being competitive; it reflects a determination by the wheat board monopolies to sell regardless of the open market.
 The Australian Wheat Board seems committed to undercutting the market in order to maintain its market share if it has wheat to sell, according to the report. "This often means leaving money on the table, and it amounts to a producer subsidy for the Australian wheat growers," says Wilson. "The wheat boards are not free traders. They are not fair traders, and they certainly are not open traders," he concluded.
 According to Watson and Wilson, many government officials in this country seem willing to blithely accept the word of countries with wheat boards that they do not subsidize. They indicate that in the case of Australia and Canada this may be done in the name of maintaining "good relations." They feel U.S. officials may not understand how wheat boards operate, or they have other agendas which they deem to be more important than increasing U.S. agricultural exports. Wilson notes, that "to look narrowly at the question of subsidies is to miss the often neglected issue of rigged pricing that is the hallmark of the wheat boards." "Despite all the evidence to the contrary, some in the U.S. government still stubbornly defend Canada as a non-subsidizer," according to Watson.
 U.S. wheat producers will be looking carefully at the prospective NAFTA and Uruguay Round agreements to assure that progress is made in dealing with the subsidies and trade distorting practices of wheat boards as well as those of the EC. If progress is not made, the wheat producer representatives feel that other options, such as broadening the use of the Export Enhancement Program or other new tools to counteract the unfair trade practices of wheat boards, will need to be considered.
 The study was prepared for U.S. Wheat Associates by the Chadwick Company of Sacramento, Calif.
 U.S. Wheat Associates works in more than 140 countries around the world with the purpose of promoting the export of wheat from the United States. Headquartered in Washington, USW has 15 overseas offices and a West Coast office in Portland, Ore. USW is funded by wheat producers in 17 states and through contracts with the Foreign Agricultural Service of the U.S. Department of Agriculture and third-party cooperators overseas.
 GAMES WHEAT BOARDS PLAY
 -- Wheat boards often claim to be victimized by the export policies of the United States, but their trading practices indicate otherwise.
 -- The U.S./Canadian FTA failed to address the subsidies and monopoly pricing practice of the Canadian Wheat Board.
 -- In the Uruguay Round negotiations, the major focus has been on the U.S. and EC agricultural subsidies while the pricing practices and subsidies propping up wheat producers in Canada and Australia have gone largely unnoticed.
 CANADA AS A SUBSIDIZER
 -- The Canadian government is committed to make up losses incurred by the Canadian Wheat Board if export returns do not cover the initial payment to producers. Last year the Wheat Board had a deficit of $643 million, or subsidy of about $25/ton.
 -- The Canadian government provides an inland freight subsidy on its wheat exports which represents about 70 percent of the total transportation cost. The Canadian government's share for last year was about $18/ton. This subsidy has been a significant factor in allowing Canada to expand its wheat exports to the United States.
 -- Canadian domestic production subsidies have increased significantly in recent years with the establishment of the GRIP and NISA programs. Canada's producer subsidy equivalent (PSE) in 1991 was higher than that for the United States, but Canada has largely been able to keep out wheat imports by the use of the end-user certificate.
 Wheat Board Predatory Pricing Practices
 -- Wheat boards maintain a monopoly on their country's exports and set their export prices wherever they choose. They set their export prices arbitrarily, using the open markets only as a point of reference.
 -- "We can and do offer the same type of wheat on the same day to different markets at different prices. Only a single-desk seller can do that. It offers a tremendous advantage," according to Dr. Tim Ryan, senior manager of the Australian Wheat Board. Clearly, there is no price transparency in wheat board operations.
 Traditional Markets
 -- Australia often attempts to impress some in the U.S. government with the claim that a particular country is their "traditional market." Even if Australia's sales to that country have been fairly minor or non-existent for several years, Australia may announce in stern tones that it is "our traditional market," and beware if anyone else tries to sell there, especially withy, it now has become Australia's "traditional market."
 Examples of Wheat Boards Pricing Games
 -- The Canadian Wheat Board made a standing offer to Venezuela and other Latin American countries in 1991 to provide wheat at less than U.S. prices, even if an Export Enhancement Program offer applied. This aggressive pricing allowed the Canadians to make substantial inroads in the U.S. market share especially in Venezuela, while driving down world prices.
 -- In most market years, Australia regularly undercuts comparable U.S. wheat prices in Japan. This procedure amounts to a producer subsidy since it leaves money on the table and results in lower world price levels.
 -- A Mexican miller visiting the United States indicated that, in comparing U.S. and Canadian wheat prices out of West Coast ports, he could import wheat from Vancouver, British Columbia, for $11 to $12 per metric ton less than from Portland. He was also aware of the Canadian government's freight subsidy of around $20 per metric ton that contributed to this situation.
 -- Canada has attempted to maintain a monopoly on the Japanese durum market, and when a tender is announced Canada will often drop its price by $10 to $14 per ton in one day in order to make the sale. On some occasions, the Canadians have offered durum at as much as $22 per ton below the U.S. price.
 -- Australia met with Taiwanese officials in 1991 and suggested that, because the United States was not providing EEP on sales to Taiwan, Australia would be prepared to offer a better deal. Taiwan agreed to buy three cargoes of Australian wheat with payment deferred until documents were submitted. The arrangement amounted to a short- term (six-month), interest-free loan. This effort to penetrate the Taiwan market had to be scaled back in the face of Australia's drought.
 -- Canada has also increased its sales to U.S. mills by undercutting open market prices.
 CONCLUSIONS
 -- The United States needs to review any trade agreements to see if the issue of wheat board pricing practices (state trading) is dealt with in a meaningful way.
 -- The administration should not be deceived by the complaints of Australia or Canada stating "that they aren't a subsidizer."
 -- If progress is not made in reforming the wheat boards, the U.S. government should broaden its focus beyond the EC and use either the EEP or develop new tools to counteract the unfair trade practices of Canada and Australia in order to gain their attention and regain lost U.S. market share.
 -0- 2/2/93
 /CONTACT: Susan Zillinger of U.S. Wheat Associates, 202-463-0999/


CO: U.S. Wheat Associates ST: District of Columbia IN: SU:

DC -- DC001 -- 1677 02/02/93 08:51 EST
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