US farmers are better prepared for a US-Aust FTA than Australian farmers

Unsustainable commodity prices are an area of concern for US cattlemen. They argue that there is a base level beyond which cattlemen cannot continue to reduce costs. Often after a commodity price collapse, costs remain a real issue during a protracted recovery phase. They want established some international mechanism to remedy price collapses. Currently WTO direct payments for income support could be used to support US cattlemen under such distress. Australia has no comparable mechanism to support beef producers.

A real measure of the US cattle industry professionalism is their public questioning of Computable General Equilibrium (CGE) modelling used in policy development by the US Administration. They quite correctly argue that the underlying assumptions of CGE modelling leave a lot to be desired in real world policy development. The shortcomings of CGE modelling are well known yet Australian farm representatives have never publicly questioned such modelling. Moreover, CGE modlling and its underlying theory are used by Australian farm lobby groups to argue support for their free trade stance. Where will this theoretical difference leave the two countries in determining a final position?

A Broader Perspective

The US cattle industry is the largest sector in US agriculture. Cattle are run in all 50 states. This means that almost every county has some economic impact arising from the industry. In 2000, sales of cattle and calves totaled $ 40.76b US or 21percent of all agricultural receipts in the US. Converted to $AUD value, at current exchange rates, it would represent approximately $69b AUD or in excess of double the total output of Australian agriculture for 2000.

Another important point is that the US cattle industry is predominantly found in the intermediate farmer sector. This means that cattlemen can tap into two sources of income support programs. They can access covered crop programs with concessional interest marketing loans, direct payments and counter cyclical payments. They can also tap into conservation and environmental direct payment programs of income support. This means that removal of quotas and penalty tariffs on Australian imports might not prove the bonanza trumpeted by the free trade lobby. Established income support programs can be used or extended to offset income deficiencies brought about by removal of border constraints' negative impact upon US cattlemen.

Some sobering thoughts.

Australian beef producers need urgently to upgrade their understanding of the WTO AoA . They should also look to established FTAs as models for guidance in what promises to be a very protracted and professional campaign by experienced US cattle producers.