US Farm subsidies and EU dump cost New Zealand farmers

Donald Trump’s subsidies to US farmers (see below) could be above what is allowed under international trade rules and it has been suggested that subsidies in 2020 will make up 36% of farm incomes.

US farm subsidies

  • 2018 – US$12bn
  • 2019 – US$16bn

This year US farm incomes are set to drop 15% even after the payment of subsidies and billions of dollars have been set aside to assist the farming sector. New Zealand officials are concerned that the subsidies given to US farmers will exceed the US$19billion which is the WTO’s limit. They want formal notification of payments in 2020 and how the US plans to reduce this assistance to farmers. The EU, China, India and China are asking similar questions of the US.

Source: Tutor2u

Subsidies distort trade and entice farmers to keep producing even though prices are falling – see graph . This output tends to be inefficiently produced and would not be competitive in a normal market free of subsidies.What the subsidies did in New Zealand was to encourage people to develop land that was not really suitable for any agricultural use. However as they got a subsidy from the government efficiency or quality didn’t feature as a major factor in maintaining competitiveness. With subsidies prices take longer to recover their former levels while excess supply is worked through as was the case in 2018 and 2019 when the EU dumped subsidised skim milk powder on the global market. But the support package to the US farmers is very significant and has the potential to negatively impact those countries that have unsubsidised farmers.

The Dairy Companies Association of NZ’s (DCANZ) executive director Kimberly Crewther says while other countries had propped up their farmers since the start of the pandemic the US was “way out in front” with the size of its support programmes. 
That was concerning given the growth trajectory the US dairy industry was currently on.
“They have the potential to become the world’s largest dairy exporter, but that is going to come at a high cost to unsubsidised producers and not just exporters like NZ if that growth is coming from subsidies,” she said.

EU dumping has NZ Farmers lose $500m
The dumping of subsidised skim milk powder (SMP) by the EU in 2018 is estimated to have cost New Zealand farmers $500m. In 2016 the EU moved nearly 25% of its production into storage before dumping it on the market in 2018 and 2019 at discounted prices. The purchasing of SMP by the EU was done with the intention of putting a floor price under the low EU farm gate milk prices.
EU stocks – 378,000 tonnes in 2017 – 16% of global supply. Release of stocks onto the market had the estimated impact on prices:

World Price

Source: Tutor2u
  • 2018 – SMP prices down by 3.6%
  • 2019 – SMP prices down by 8.7%

US farm gate prices

  • 2018 – SMP prices down by 1.7%
  • 2019 – SMP prices down by 3.9%

The cost to NZ farmers is estimated at 30c per kg of milk solids in 2018 or 4.7% of the payout. The Eu was able to undercut competitors and increase its share of of the global SMP market from 30.6% in 2016 to 42.3% in 2019. New Zealand’s share fell from 23.5% to 16.3% over the same period.

Source: Farmers Weekly – November 9, 2020

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