US Faces Deciding Moment on Australia FTA 

U.S. WHEAT ASSOCIATES / Wheat Letter 20jan04

Just this month, Australia's acting Prime Minister John Anderson announced that a group of U.S. Senators visiting Australia decided to side with the Australian Wheat Board and against the American wheat farmers on the terms of a proposed Free Trade Agreement. While not naming names, Anderson told his country's reporters that the Senators were Australia's "allies" and that they weren't concerned about an issue that matters deeply to their voters: unfair trade competition from an archaic monopoly wheat desk.

U.S. Wheat Associates, when questioned by Australian media, declined to agree with Anderson's characterization of the Senators' views. "We haven't heard of any U.S. Senator discarding the concerns of the American wheat industry," responded USW vice president Nelson Denlinger, "so we assume that the group was simply being courteous when confronted by the acting Prime Minister. And we are certain that the U.S. Trade Representative has not turned his back on the U.S. wheat industry."

Anderson's pronouncement comes at a pivotal time. This week, Australian negotiators are in Washington D.C., meeting with U.S. Trade Representative negotiators, hammering out the last—and probably most difficult—provisions of a proposed free trade agreement.

From the moment that the FTA was proposed, U.S. Wheat Associates has been unequivocal in our position. USW leadership wrote to Zoellick almost three years ago, cautioning that if Australia wants free trade with the U.S., then they must open themselves to fair competition with the U.S.

"As we enter into discussions, it is absolutely vital that the U.S. maintain the position that the wheat export monopoly of the Australian Wheat Board [AWB] must be removed," USW president Alan Tracy explained in his earlier letter. "We are confident that, with your history of support for American agriculture, you will recognize the folly of discussing market access between our countries without concurrently addressing the unfair distortions caused by their monopolies."

While the AWB is no longer an official arm of the government, it still operates as a monopoly with government sanction, exercising sole control over international sales, shipping and promotion of Australian wheat. Contrary to their assertions, AWB Ltd is not like any other commercial marketer, such as U.S. companies, which must cover their replacement cost for each sale and must let market forces dictate their prices. They set their price by administrative fiat, and the AWB’s ability to work outside the norms of global competition directly and often egregiously undercuts U.S. wheat sales.

"It is terribly frustrating when your competition can underprice you at will," points out Alan Lee, USW chairman and a wheat grower in North Dakota.

The U.S. wheat industry has long been united in its fight against unfair exporting monopoly single desks, and the distortions they cause in global wheat trade. "The American wheat farmer is directly harmed by monopoly practices," Lee explains. "The global trading system can only work fairly when we are competing by rules that allow competition to work. It is time for Australia to take a chance on true competition, so that American growers can meet them in a fair and open world market."

To reach an agreement on the Free Trade Agreement, it is becoming increasingly evident that the two sides will have to engage in a number of trade-offs on several even more difficult issues, and USW recognizes that the AWB issue may get shunted to the side. "If the monopoly powers of the AWB are not removed through this FTA, we look forward to a congressional rejection of the proposed agreement," Tracy states.

CHINA TEAM SCHEDULES U.S. VISIT U.S. Wheat Associates received word last week that the COFCO "Wheat Trade Mission" plans to visit the U.S. during the week of February 15. Mr. Mingchen Zhou, COFCO Chairman, will lead the delegation, accompanied by Mr. Xubo Yu, the Vice President of COFCO. Officials from COFCO's Wheat Division and others will also be on the team. The team will arrive in Washington, D.C. for meetings with USW, the grain trade and officials at the U.S. Department of Agriculture.

"We have much to discuss," observed USW president Alan Tracy, "and we look forward to our meetings. China's recent purchases are a grand beginning to a new page in our long history of wheat trade, and COFCO's visit is yet another indication of our strengthening relationship." As of January 8, China had purchased 679 thousand metric tons of U.S. wheat so far this marketing year. Private exporters reported additional sales of 1,040,000 metric tons (MT) of U.S. wheat for delivery to China, the U.S. Agriculture Department said last week, with 300,000 metric tons for delivery during the 2003/04 marketing year and 670,000 MT for delivery in 2004/05.

WHEAT GROUPS SUPPORT USTR ACTION American wheat industry organizations strongly approve of U.S. Trade Representative Robert Zoellick's recent efforts to re-energize WTO negotiations. Zoellick sent a letter to ministerial colleagues around the world, sharing "some common sense reflections on where we stand on the Doha Agenda and ideas on how we might advance it together."

"We agree with Ambassador Zoellick that these negotiations are much too important to be allowed to languish," said Alan Lee, chairman of U.S. Wheat Associates. "We don't expect that this single particular initiative will result in immediate agreement on the issues, but we hope it stirs the hopes that were flying so high when nations first started this long and difficult process."

“The WTO negotiations are the most important process of opening markets for the wheat industry. We commend Ambassador Zoellick for this effort to re-energize the Doha negotiations,” Bruce Hamnes, chairman of the Wheat Export Trade Education Committee stated. “Increased market access, elimination of export subsidies by a date certain, and disciplines on State Trading Enterprises are all things that the U.S. wheat industry supports 100 percent.”

Tommy Womack, president of the National Association of Wheat Growers acknowledged the efforts that Zoellick is making towards keeping the developing countries included in the commitments. “While we understand that some developing countries need longer time frames for their commitments, it is still important that they also make some progress in opening their markets. A negotiation is not a negotiation unless everyone participates.”

In his letter, Zoellick indicated that his thoughts "are not intended to launch breakthrough proposals" but will hopefully nevertheless "offer a sense of how we might move ahead."

In regards to agriculture, Zoellick suggests that WTO Members agree to eliminate agricultural export subsidies by a date certain. Members should also agree to substantially decrease and harmonize levels of trade-distorting domestic support, and seek a substantial increase in real market access opportunities both in developed and major developing economies. Zoellick notes that the U.S. stands by its 2002 proposal to set a goal of total elimination of trade-distorting subsidies and barriers to market access. He also suggests that domestic supports, export subsidies, and tariffs for cotton (including cotton textiles) be cut substantially as part of a comprehensive agreement.

The U.S. wheat industry renews its commitment to assist, in any way we can, to bring real reform that will result in fairer international markets. The U.S. wheat industry exports nearly half of its production, and has made clear its positions on various issues under negotiation. Above all, the industry has been united in urging the administration to move the agenda forward and to fight hard for success in a comprehensive round. WHEAT ORGANIZATIONS HONOR SENATOR CONRAD BURNS Senator Conrad Burns has been selected as the 2003 "Wheat Leader of the Year," the highest Congressional honor bestowed by the National Association of Wheat Growers (NAWG), U.S. Wheat Associates (USW), and the Wheat Export Trade Education Committee (WETEC).

A champion for wheat growers on a number of issues during his career, Senator Burns was recognized by NAWG primarily for his efforts on three specific domestic issues during 2003: disaster assistance, rail competition, and pesticide harmonization.

“Without the personal intervention of Senator Burns, I don’t think we would have been able to secure a disaster assistance package for crop failures in 2001 and 2002,” said Texas farmer Tommy Womack, president of NAWG. “Many legislators played important roles, but Senator Burns’ work was critical.”

Senator Burns also cosponsored legislation on rail competition and pesticide regulatory harmonization, two principal goals of NAWG. The rail legislation would ensure that all producers, regardless of location, have access to competitively-priced rail transportation service, and has attracted a broad bipartisan coalition of supporters. The harmonization bill, offered with Senator Byron Dorgan (D-ND), would work to equalize prices paid by American and Canadian farmers for crop protection products.

“Both the rail competition and crop protection issues are key competitive drivers for farmers, particularly in the Northern Tier states,” added NAWG vice president Mark Gage, who farms in North Dakota. “Senator Burns leadership, along with others, is moving these issues forward for us, and we appreciate his help.”

The leadership of U.S. Wheat Associates, the industry's export market development organization, noted that Senator Burns consistently fights for fairness in wheat export markets as well. Most recently, the Senator joined ranks with others in urging that wheat purchasing in Iraq, currently a matter of intense concern for the American wheat exporting community, be handled fairly and transparently.

“Senator Burns has a deep understanding of the subtleties in wheat trade, especially as we try to compete with the monopoly Australian and Canadian wheat boards,” said Alan Lee, USW chairman. “It takes a strong leader to commit to examining troubling AWB tactics, for instance, prior to Senate consideration of a possible Free Trade Agreement with Australia. He is that strong leader and he deserves a strong commendation from the wheat industry in return.”

The Wheat Export Education Committee, responsible for trade policy and securing funding for critical market development activities, also congratulated Senator Burns. “As an industry we are honored and lucky to have the long-standing support and leadership of individuals like Senator Burns,” said chairman, Bruce Hamnes, a Minnesota producer. “The industry thanks Senator Burns and will look forward to his valued input on the many critical issues facing the wheat industry.”

Growers from Montana, Senator Burns’ home state, welcomed the news.

“Senator Burns has been the wheat producers' best friend on a myriad of issues,” stated Lochiel Edwards, president of the Montana Grain Growers Association. “Whether it was drought assistance, the 2002 farm bill or his current leadership on rail competition and pesticide harmonization legislation, producers could not ask for a better champion. He has truly worked for the survival of not only Montana producers, but the entire U.S. wheat industry.”

Burns joins an elite group of past recipients of the Wheat Leader Award, including Senator Pat Roberts (R-KS), Congressman George Nethercutt (R-WA), Congressman Larry Combest (R-TX), and Senator Max Baucus (D-MT). The award will be presented on Tuesday, January 27, at the 2004 Wheat Industry Conference in Atlanta.

EXPORTS UP, WINTER WHEAT PLANTINGS DOWN (Excerpts from USDA Economic Research Service, January 14 "Wheat Outlook" report)

Projected U.S. 2003/04 ending stocks of wheat are down 24 million bushels from last month due to increased exports. Projected exports are 25 million bushels above last month because of increased world import demand and the strong pace of exports to date. The projected 2003/04 wheat price range is up 5 cents on both ends to $3.25 to $3.45 per bushel.

Winter wheat seedings are estimated at 43.46 million acres, 3 percent less than last year.

U.S. wheat exports (July – June) are forecast up 1 million tons this month because of increased trade and the strong pace of sales and shipments during the first half of the year. World wheat trade (July-June) projected for 2003/04 is up 2 million tons to 99.5 million. While global production is forecast up 2.1 million tons, world consumption is up 2.7 million, causing a 0.7- million-ton decline in expected ending stocks.

U.S. Exports Up U.S. wheat exports in 2003/04 (July-June) are forecast at 31 million tons, up 1 million this month, and more than 8 million tons greater than the previous year. The pace of shipments during the first half of the year has been robust, and outstanding sales at the beginning of January were large. With increased U.S. supplies and reduced competition from the EU and former Soviet Union, the U.S. export share is expected to increase.

According to Census data through November and Inspections data for December, U.S. wheat shipments during the first half of 2003/04 reached nearly 16 million tons, up 3 million compared with the previous year. Moreover, as of January 1, 2004, outstanding export sales reached 6.6 million tons, up 3.2 million compared with a year ago. Sales and shipments are expected to exceed last year’s slow pace during the rest of 2003/04.

Ending Stocks Down Projected total U.S. 2003/04 wheat supplies are unchanged from last month. However, based on import pace to date, 2 million bushels are moved from durum to soft red winter (SRW). Total projected domestic use for 2003/04 is down 1.0 million bushels from last month because of reduced seed use. Projected food use is unchanged in total and for each class from last month. However, the class analysis of the December 1, 2003, ending stocks in Grain Stocks led to changes in the projections of feed and residual use. Total projected feed and residual use remains unchanged from last month. A 35-million-bushel increase in hard red winter (HRW) feed and residual use is offset by a 30-million-bushel and a 5-million-bushel decrease in SRW and hard red spring (HRS), respectively.

Based on increased world demand and the export pace to date, total projected exports for 2003/04 are raised by 25 million bushels to 1,125 million bushels. This is the highest level of U.S. exports since 1995/96. [emphasis added] The class allocations are raised 10 million bushels each for HRW and SRW and 5 million bushels for HRS.

Projected ending stocks for 2003/04 are down 24 million bushels to 559 million bushels. Ending stocks for 2003/04 are still higher than the 2002/03 ending stocks of 491 million bushels. By class, HRW ending stocks are projected down 44 million bushels from last month to 226 million bushels. SRW ending stocks are projected up 22 million bushels to 69 million bushels. The stocks-to-use ratio for the 2003/04 crop is down to 23.8 percent from 25.1 percent last month. This projected 2003/04 stocks-to-use ratio is below the 2002/03 ratio of 24.8 percent.

Winter Wheat Planted Acres for Harvest in 2004 Down 3 Percent [See ERS web site for complete seeded report. http://www.ers.usda.gov/publications/so/view.asp?f=field/whs-bb/] Winter wheat seeded area for 2004 is expected to total 43.5 million acres, down 1.5 million acres from 2003 according to Winter Wheat Seedings. Approximate class acreages are: HRW, 31.0 million; SRW, 8.3 million; and white winter, 4.2 million...

SRW area, at about 8.3 million acres, is up slightly from last year... White winter wheat seeded area totals about 4.2 million acres, down .3 million acres from 2003... Durum wheat seedings in Arizona and California for the 2004 harvest are estimated at 180,000 acres. This total is down 27 percent from their final 2003 acreage...

World 2003/04 Wheat Stocks Down Despite Increased Production This Month Global production is forecast at 553 million tons, up 2.1 million from last month. India’s production was revised up 2.3 million tons to 69.3 million based on revised estimates by the Government of India. Production in Bulgaria was revised down 150,000 tons to 1.7 million. World wheat production in 2003/04 is forecast down 14 million tons compared with the previous year and 57 million less than the record production reached in 1997/98.

World wheat consumption in 2003/04 is forecast up 2.7 million tons to 591 million. India is expected to use all 2.3 million tons of additional production during 2003/04, with consumption reaching 71 million tons. However, both production and use are expected to decline compared with the previous year, and stocks are expected to decline. Wheat consumption is up 0.5 million tons in the European Union (EU) where feed demand for wheat remains strong, boosting prices.

In Ukraine, wheat use is projected up 0.5 million tons because of larger-than-previously expected imports. Imports are up because the lowest crop on record has boosted prices, and imports are needed to limit declines in flour consumption.

World 2003/04 ending stocks are down mostly because of the drop in the United States, with changes in expected foreign stocks mostly offsetting. China’s projected stocks are up 0.6 million tons as imports were increased more than exports. However, projected ending stocks for Canada were reduced 0.5 million tons because of increased export prospects.

World Wheat Trade Up Nearly 2 Million Tons This Month World wheat trade in 2003/04 is expected to reach 99.5 million tons, up nearly 2 million this month. China’s imports were increased 1 million tons to 2 million, as agreements were announced with Canada and Australia and more purchases from the United States were reported. However, there remains some uncertainty about how much will be shipped during the 2003/04 (July-June) marketing year. China’s exports were increased 0.4 million tons to 1.7 million because of strong early-season shipments.

Wheat imports for Ukraine in 2003/04 are up 0.5 million tons to 3.5 million tons because of the strong pace of purchases. Ukraine has only been a net importer of wheat in 2 of the previous 10 years. Smaller increases in expected imports are included for Kenya and Bulgaria. Forecast EU wheat exports were reduced 0.5 million tons to 7 million as new export tenders remain suspended. High grains prices in the EU and lower stocks, caused by drought-reduced production, make subsidizing exports less attractive.

Canada is expected to export 16 million tons in 2003/04, up 0.5 million this month. The pace of exports is increasing, and with attractive prices, Canada is expected to increase exports rather than replenish stocks.

Source: (Mrs.) Dawn Forsythe Director, Public Affairs U..S. Wheat Associates Washington, D.C, 202-463-0999 www.uswheat.org