Where the Light Never Shines: Export Dumping

2002-12-19 00:00:00

Dumping is the practice of selling products at prices below the cost
of production. Many countries, like Mexico, help protect their
farmers from dumped agricultural products from other countries
through tariffs. But January 1, 2003, most Mexican tariffs on U.S.
agricultural imports set by the North American Free Trade Agreement
(NAFTA) will be removed. This could open the door for widespread
dumping from the U.S., the principle source of dumped agricultural
produce in world markets, and have a devastating impact on Mexico's
agricultural economy.

There are steps the Mexican government can take to protect its
farmers, but it has to act fast. The government of Mexico should
consider suspending the agricultural opening legislated by NAFTA and
begin formal proceedings to institute anti-dumping and
countervailing duties against dumped U.S. agricultural exports.

Much of the discussion over U.S. agriculture policy in the last few
months has centered on agricultural subsidies to farmers. Last year,
at the Doha Ministerial of the World Trade Organization (WTO), the
U.S. demanded that countries around the world put an end to
agricultural subsidies. But this spring, when President Bush signed
a U.S. farm bill that provides billions in subsidies, he said,
"America's farmers need a farm bill that provides support and help
when times are tough. And that is why I'm signing this bill today."

As others have said, "They had the light on in the street, but the
house was dark." The truth of the matter is, nobody is telling the
truth about subsidies. US farm subsidies are the prop of a highly
distorted marketplace that has lowered income for farmers both in
the U.S. and around the world. And here is where the light never

U.S. and Mexican farmers have a common problem. The government in
Washington used to maintain a floor price for the US domestic market
through a loan program. In 1996, it ended this model, and prices are
now free to fall to the level agri-business is willing to pay.
Instead of loan rates, the US government has turned to income
support payments as the form for current subsidies. The remaining
loan rates on many commodities are far below production costs, even
on the most efficient farms. The US domestic price for most major
commodities, including wheat, corn, cotton, rice, and soybeans, has
always affected world prices because the volume of US exports is so
great. By allowing prices to free fall, the US government is leaving
producers everywhere at the mercy of a few dominant transnational
agribusinesses to set prices.

When you find yourself asking the question, "How can they grow it so
cheaply?" the answer is, they can't.

An analysis from the Institute for Agriculture and Trade Policy found
that corn cost the average U.S. farmer $3.41/ bushel to produce in
2001. This does not include any profit, but does include a
conservative transportation and handling cost of 54 cents/ bushel.
In 2001, corn sold on the U.S. market for about $2.10/bushel and in
the international market for $2.28/ bushel. The dumping margin - the
gap between costs of production and the final export price - was 25%
in 2001, slightly down from an average of 31% in the two preceding

When farmers are told they have to produce food cheaply to export,
ask yourself, "Who exports grain?" Farmers don't export grain.
Countries, for the most part, don't export grain. According to
research at the University of Missouri, 82% of US corn exports are
from Cargill, Archer Daniels Midland and Zen Noh (a Japanese firm
with a relatively small percentage of the total). These same
companies dominate the global corn trade.

To ensure a steady and abundant supply of cheap agricultural
products, billions of dollars from the U.S. food and agriculture
programs are paid out as welfare payments to farmers. Those who gain
the most from this farm program are the highly concentrated
agribusiness companies who are able to buy commodities for cheap
prices, and export those commodities by undercutting farmers in
other countries. Mexican producers and peasants throughout the
developing world are expected to compete with these global giants.

Consider corn producers in Mexico. The NAFTA requires Mexico to
dramatically increase the amount of corn imports from the United
States. Although nutritionally inferior, the yellow corn raised in
the United States for animal feed is sold at prices cheaper than the
white corn traditionally raised in Mexico to make tortillas. In
fact, U.S. grown yellow corn is normally sold into Mexico at prices
30% below the actual cost of production.

Mexican corn farmers have watched prices for their crops collapse.
This sector of Mexican agriculture that provides livelihoods to
millions, and is deeply rooted in the culture of the country, is in
economic shock. The steady stream of migrants from rural Mexico to
the United States is just one of the symptoms

of this disaster. Ironically, corn farmers in the U.S. have also been
receiving record low prices, pushing many into bankruptcy and
foreclosure along with their Mexican colleagues.

The United States is a leading voice in justifying trade remedy laws
--such as duties to raise the price of imports that US firms judge to
be dumped into the U.S. market. However, it does not extend this
vigilance to agriculture. Neither imports nor exports of
agricultural products in the U.S. attract the same attention. The
United States is the principle source of dumped agricultural produce
in world markets. By subscribing to the fiction that the world price
is somehow the appropriate price for all markets everywhere, the US
also becomes a victim of the this policy by allowing imports, often
of the same products it exports, at dumped prices. Cattle, soybeans
and much else besides move both ways across the border, all at
prices that are far below the cost of production.

NAFTA and the WTO give countries the right to investigate where they
judge import prices to be unfair and, if it can establish "material
injury" to its domestic producers, it can impose antidumping duties
to curb the damage. These dumping rules are in place because if
imported goods are unfairly priced then domestic competitors will be
put out of business.

When U.S. Undersecretary of Agriculture J.B. Penn suggests that the
US might retaliate if Mexico takes steps to protect its farmers, it
only seems right that President Fox should raise the issue of export
dumping. There are provisions within the NAFTA and the WTO
agreements that can be used to challenge global agribusiness.
Instead of continuing to complain about subsidies to farmers and
peasants, like sick people fighting over medicine, we need to turn
the spotlight on those trade practices that are destroying farmers
and peasants on both sides of the border.

* Mark Ritchie is founder and President of the Institute for
Agriculture and Trade Policy in Minneapolis.