Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.US to Keep Pushing China on Domestic Ag Supports: USTR Froman
Countries should no longer ignore the rise of China's trade-distorting farm subsidies and the U.S. is keeping pressure on China over the issue, U.S. Trade Representative (USTR) Michael Froman said in Geneva.
“When major emerging economies are providing trade-distortive agricultural subsidies at a greater volume than all of the developed countries put together, we can no longer turn a blind eye,” Froman said Oct. 17 during a speech sponsored by the Geneva Graduate Institute. “We have found that China is providing nearly $100 billion per year in highly trade-distortive subsidies above and beyond their WTO limits,” Froman said. “How can we have a serious conversation about distortions to global agricultural trade if we pretend that trade-distortive subsidies at this level don't exist?”
The U.S. recently filed a WTO dispute against China for allegedly violating the terms of its 2001 accession agreement by providing more than $100 billion in trade-distorting domestic support in excess of its WTO commitments. The U.S. case alleged that between 2012 and 2015 Beijing supported farmers at levels that were substantially above China's WTO commitment to cap such subsidies at 8.5 percent of the value of production.
India Weighing Decision on Compliance with WTO Solar Program Ruling
India is mulling whether to comply with a recent World Trade Organization (WTO) ruling that found India's domestic solar policies violate international trade rules. India must inform WTO of their intentions within 30 days.
During an Oct. 14 meeting of the WTO's dispute settlement body (DSB), members of India's delegation said they were "disappointed" that WTO did not adequately consider "the unique nature and role of solar cells and modules in solar power generation."
If India does not inform WTO of its intention to comply with the ruling within the next 30 days, the U.S. could seek retaliatory trade tariffs.
For their part, the U.S. delegation said India's current solar policies "undermine efforts to promote the generation of clean energy by requiring the use of more expensive and less efficient equipment." They noted the U.S. "strongly supports" India's effort to bolster domestic solar and remains willing to forge a "mutually agreed solution" to resolve the dispute.
Washington Insider: Ag Boom in Ukraine
Bloomberg is reporting this week that money is flowing to modernized farms in Ukraine even close to the war zone and that a farming giant is emerging. The story focuses on Ihor Makarevych, chief executive officer of Agrofirma Podolivska, which manages farmland in Ukraine’s Kharkiv region. The firm’s land borders Russia and the Donetsk and Luhansk regions, partly controlled by separatists. Still, says Bloomberg, the war seems far away.
Ukraine is already the world’s fifth-biggest seller of wheat and other grains. The main point of the article is that “companies are betting that global appetites will increasingly rely on Black Sea soil even as obstacles to growth remain.” This likely makes Ukraine a big answer to the question of how you feed the world, Bloomberg says and cites Steve Pifer, a former U.S. ambassador there, who adds that it is a complex place to do business.
The country’s advantages start with its deep, black soil and build on its proximity to the European Union, Middle East, Russia and Africa that provide natural markets. So does suspicion of GMOs. Ukraine’s non-GMO corn varieties have made it China’s No. 1 source, Bloomberg says.
Ukraine’s commodity exports reached nearly $8 billion in 2015, quintupling its revenue from a decade earlier and topping Russia, its closest rival. By the mid-2020s, “Ukraine will be No. 3, after the US and Brazil,” according to Martin Schuldt, Cargill’s top representative in Ukraine.
Cargill’s sunflower-seed processing plant in the Donetsk region was overrun by separatists in 2014 and still can’t be used. However, the company is investing $100 million in a new export grain terminal. Bunge, the world’s biggest soy processor, opened a port this year—another vote of confidence in the country.
The region’s conflicts pretty much haven’t spilled over to the rest of the country, according to John Shmorhun, CEO of AgroGeneration, a global private equity firm that owns Agrofirma Podolivska, which cultivates part of the 120,000 hectares of land it operates. He thinks that if his company manages someone else’s land, it can “double, triple the yield.” Shmorhun is a Ukrainian American who led Ukraine operations for DuPont before moving to AgroGeneration.
About 1 in every 6 acres of agricultural land in Ukraine isn’t being farmed. Of land in production, Shmorhun says only about a quarter is reaching yields on the level of those in the developed world, because of lower-quality seeds, fertilizers, and equipment. “Despite occasional saber rattling, the country is stable, he argues.
Land reform in the years immediately after Ukrainian independence in 1991 left title for much of the farmland in the hands of former Soviet farmworkers and their descendants, along with the government. Legally, no one can sell it. Companies such as AgroGeneration have grown by signing long-term leases with owners for parcels as small as 5 acres. But the uncertainty of land titles has deterred investors and kept farmers from expanding, according to Pifer, the former US diplomat.
“Lack of cheap funding is a big obstacle,” Shmorhun says. “We need infrastructure, including roads, grain elevators, dryers, storage.” Average long-term borrowing costs exceed 20% for loans in hryvni and 7% for loans in foreign currencies. The hryvnia is one of the world’s weakest currencies, so investments from any but the best-capitalized enterprises is rare. “Farmers can’t finance better seeds or machinery,” so the bulk of farmland is tilled with 20th century, or older, technology. “It’s remarkable Ukraine produces as much as it does,” he says.
While the land is valuable, the Parliament regularly extends a ban on sales of agricultural property. Last October, legislators approved a bill prolonging the moratorium through 2018, but the president has yet to sign it in spite of fears that large Ukrainian companies and foreign investors will gobble up the land and displace small farmers.
Corruption also deters investors, Pifer says. “If you’re worried that a contract may not be honored, you don’t expand.” And Russia continues to intimidate. Military drills in Crimea in September and the massing of troops across Ukraine’s eastern border in August were a reminder that cold conflicts can turn hot.
Despite the difficulties, Ukraine’s emergence as a global agro powerhouse may be a safe bet for the reason that the world needs more food, and Ukraine can produce it, but it must overcome problems of finance and infrastructure and political instability. Still, Ukraine is attracting investment in spite of its handicaps, and its growth can be expected to continue to compete with the United States for global markets—a trend producers should watch closely, Washington Insider believes.
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