Another Corn Trade Disagreement with Canada


On January 8th the Canadian government asked the U.S. government for consultations at the World Trade Organization (WTO) on subsidies provided to U.S. corn growers and the total level of U.S. trade-distorting agricultural support. After 18 years of the U.S.-Canadian Free Trade Agreement and much economic integration, it is clearly a trade policy failure for either country to use the blunt instrument of WTO consultations on a trade issue.

That the Canadians asked for consultations just as the Congress begins work on a new farm bill is not a surprise. In August of 2005 when Canadian corn growers filed a corn trade case under Canada’s Special Import Measures Act, in which the Canadian International Trade Tribunal issued a final ruling in April 2006 of no injury in their anti-dumping and countervailing investigation, they also wanted the Canadian government to ask for WTO consultations.

The Canadian arguments on corn are particularly weak. The press release on the request for consultations noted that in 2005/06 the U.S. accounted for 41 percent of world corn production and 68 percent of exports. That is about the same as 25 years ago when the U.S. had 45 percent of world production and 76 percent of world trade. The U.S. has croplands uniquely suited for corn production with or without farm programs. Canada has the opposite with most of its land too far north to grow corn, even though the corn growing area is moving north some with newer hybrids.

The backgrounder attached to the press release noted that the U.S. corn crop increased from 256 million metric tons (mmt) in 2003/04 to a record 300 mmt in 2004/05 and 282 mmt in 05/06. After improved market prices for the 2002 and 2003 crops, U.S. corn farmers increased plantings for 2004 by 2.9 percent, but weather was ideal and per acre yields increased by 12.8 percent and resulted in a record large crop. In 2005 corn farmers responded to those higher yields by increasing acreage another 1.1 percent and were disappointed by a per acre yield decline of 7.8 percent. The Canadians conveniently failed to note that planted acreage was down 3.9 percent in 2006 and the crop was only 273 mmt, the smallest crop since 2003.

Despite whatever influences farm program payments may have, in recent years U.S. corn farmers appear to have been responding to market prices and changes in yield per acre. U.S. planted corn acres are expected to be up sharply in 2007 in response to higher prices for the 2006 corn crop, but weather will still determine the final size of the crop.

Arguments over acreage, yield, output, imports and consumption can go on for years, as the ongoing policy arguments over corn and other products have proven. The real issue is that the U.S. and Canada have agricultures that are competitive in some respects and complimentary in others and are joined together geographically by an international border and politically by the Canadian-U.S. Free Trade Agreement that encourages the free flow across the border of most agricultural products. Both countries have much to gain by working together to resolve policy differences.

Each country can easily produce more food products than can be consumed in the country and more than can be expected to be exported to the other country. They have a common interest in exporting to third countries. Increasing income opportunities in both countries has to be the central focus of agricultural trade policy in each country. A “beggar thy neighbor” policy will not help either country.

There are significant agricultural policy differences that cannot be glossed over. What is needed is a joint commitment by governments, private companies and associations to find a policy middle ground that allows each country to use its resources to improve farm and ranch income through trade. That will require four strategies.

First, policy makers need to strengthen the complimentary trade between the two agricultures. The easiest policy issues to deal with should be those where both countries can see the advantage of working together. That is what is so disheartening about the corn disputes because the comparative production advantage is clearly on the side of the U.S., and Canadian corn users benefit.

Second, where producers in the two countries are direct competitors policy makers need to recognize that neither country can expect to gain a long-term advantage over the other. Wheat and beef are two areas where their will likely always be competition. Disagreements may arise over which public policies are best, but the countries choosing different public policies should not be designed to put one country at a disadvantage to the other.

Third, sanitary and phyto-sanitary programs and other regulatory programs need to be harmonized. In a world where consumers increasingly demand a higher standard of food safety, neither country can afford to do anything other than work hard to stay ahead of the rest of the world. Failure to work together is too costly for both countries.

Fourth, what works for the U.S. and Canada must be applied first to relations with the third member of NAFTA, Mexico, and then to bilateral agreements that the U.S., Canada and Mexico have with third countries. The proposal by former USTR Robert Zoellick for a new Association of American Free Trade Agreements (AAFTA) is a call to the reality of the future.

The U.S. and Canada have had 18 years of not tackling tough issues. Now is the time to begin investing in solving trade policy problems with a win-win view for both countries rather than casting blame on one another.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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