World Perspectives : Brazil's Potential WTO Challenge Against U.S. Soy

January 19, 2016

A Question of Subsidies

There have been conflicting articles in the media about whether Brazil's soybean sector has asked the government there to file a WTO complaint against U.S. soybean subsidies.

Reuters reported earlier in January that the Brazilian soy industry association APROSOJA had formally done just that, alleging that the subsidies to soybean farmers in the U.S. are costing those in Brazil about $1 billion in lost income. However, a later Bloomberg article indicated APROSOJA denied having made such a request and noted that it was still reviewing information about the U.S. soy subsidies as its legal team had not yet decided whether there were sufficient grounds to pursue such a complaint. Meanwhile, Inside U.S. Trade reported that APROSOYA has not singled out any specific subsidy provided to the U.S. soybean sector and was instead examining all benefits it receives, including crop insurance subsidies from USDA. Clearly, the association will find it difficult to identify any such payments issued to U.S. soybean farmers when prices were far above U.S. loan rates and target prices. The last two crop years' record national yields would appear to suggest that minimal payments were made to them under the crop insurance program, at least for volumetric crop losses. U.S. soybean prices also continue to be well above the target price.

It would appear Brazil would have no case against the use of USDA export credit guarantees under the GSM-102 program to finance U.S. exports of soybeans, soymeal and soyoil. This is because the program is being operated in conformity with an agreement with Brazil to not challenge those specific credits until 30 September 2018.

There also is the issue of whether the Brazilian soybean sector has been injured by any U.S. subsidy to its soy farmers. That may be hard to prove as Brazil's soybean production has increased from 82 MMT to 96.2 MMT in the last three crop years and its soybean exports have risen from 40.9 to 50.6 MMT during the same period. It also has seen large gains in its exports of soymeal and soyoil over the past three years. Moreover, its ending stocks of soybeans at the end of January are forecast by USDA to total only 472,000 MT. This clearly suggests that this country has not experienced any difficulty in getting rid of its growing supplies. Instead, it is the U.S. that is building soybean stocks.

It is doubtful that Brazil's government will be inclined to pursue a WTO case against the U.S. soybean sector after spending a great deal of political capita in its 10-year fight with that nation over cotton subsidies. It is also in the midst of having to defend itself in the WTO against complaints filed by the EU, Japan and Indonesia regarding its policies on automobiles, electronics and other industrial products. Thus, the embattled Brazilian government is unlikely to want another dispute that would undermine relations with the U.S. Additionally, the U.S. soybean sector may respond to a WTO challenge with its own complaint against the myriad of credit and other programs that benefit Brazil's soy industry.

Brazil's soybean farmers should also recognize that by complaining about the relatively minimal subsidies to their U.S. counterparts, they will invite a very close look by the U.S. soy sector at the many credit and other such programs that benefit them. They may then find themselves in the crosshairs of WTO complaints.

(This article was originally published in the 14 January 2016 issue ofAg Perspectives as part of the Oilseed Highlights column by John Baize. Click here to find out more about subscribing to AgPerspectives.)