Russia Threatens European Cattle, Meat Import Ban

Russia on Tuesday threatened a ban of Western European beef and livestock imports after a virus that was previously known to affect goats and sheep was also discovered in cattle this week.

The Schmallenberg virus, named after the German town where it was first diagnosed last year, has been found in newborn Belgian, Dutch and German calves, lambs and kids. The disease is transmitted by means of insect vectors and has been detected in fourteen Belgian, 52 Dutch and twenty German farms. Read more “Russia Threatens European Cattle, Meat Import Ban”

Latin America, Riding the Commodity Boom

Growing demand for oil and other natural resources in Asia is fueling an export boom in Latin America where even Venezuela, otherwise hostile to freer trade, is witnessing economic expansion thanks to globalization.

The region’s foremost oil exporter has averaged 4.6 percent economic growth since 2005 compared to 4 percent in Chile, the world’s leader in copper and economically the freest nation in South America.

Even in Argentina, where business confidence is fading and enterprise increasingly squeezed between regulations and populist spending measures, growth averaged 7 percent during the same period as record soy and other farm exports helped offset Buenos Aires’ inflationary monetary policy and persecution of international energy companies and investors.

Commodity demand will likely slacken in 2012 as a result of economic woes elsewhere, meaning countries as Chile, Colombia, Peru and Uruguay, which are generally open to foreign business and investment, will do better than Venezuela and even Brazil which is struggling to escape the legacy of decades of corruption and nepotism.

The overall pace of Brazil’s regulatory reform has slowed but President Dilma Rousseff is leading an effort to root out corruption at great political peril to her ruling Workers’ Party. In her battle for transparency, political allies have abandoned Rousseff’s administration and her aloof leadership style threatens to alienate local machines and left-wing voters.

2012 may be Rousseff’s test year. If she manages to ramrod her transparency agenda through Congress and continues the free-trade policies of her predecessor, Brazil could eventually outperform the region in economic growth.

In the long-term, the largest and most powerful country in South America is well positioned for a future of enduring prosperity. Commodity exports, despite their expected downturn this year, are critical to Brazil’s success.

Asian demand for corn is expected to increase by roughly 25 percent this decade which will be a huge boon to exporters in the Americas, including Argentina, Brazil and the United States which between them constitute almost a third of global corn production.

International beef, pork and soybean trade will probably expand by similar factors, again benefiting Latin American producers. Brazil currently provides 40 percent of global beef and 15 percent of pork exports and it dominates the sugar market, accounting for 60 percent of the market. With the elimination of sugar tariffs in the United States earlier this year, which were designed to protect the ethanol industry there, Brazil will be able to export north as well.

The country’s ability to turn this export advantage into a broader economic success that sees industries and services flourish hinges on Rousseff’s willingness to reform.

Brazil has seen some progress but starting or closing a business remains costly and time consuming while organizing new investment is inhibited by regulations that make it especially difficult for foreign companies to compete. Tariffs and anti-dumping measures are barriers to trade and excessive labor laws stifle employment and expansion. There’s a risk of “Dutch disease” if growth is taken for granted and politicians refuse to challenge vested interests to improve market conditions. The president appears committed to the task but is her party?

Ethanol Subsidies Die

Lawmakers in the United States allowed a tax credit for ethanol blenders to expire this month along with a tariff on ethanol imports that effectively barred Brazilian ethanol from entering the country.

Both measures died as a result of inaction on the part of legislators. They were scheduled to expire and Congress didn’t stop to prevent it.

The blenders’ subsidy extended a $.45 subsidy per gallon of ethanol blended into gasoline that cost taxpayers roughly $6 billion every year. Brazilian ethanol, which is more efficiently produced from sugar cane, was subject to a $.54 per gallon tax.

Still in force is a federal mandate that requires a minimum amount of ethanol to be used every year but at least there’s now a better and cheaper alternative available. The mandate should also be repealed though. There’s no good reason to so benefit one industry, especially when it burns food and causes food prices to soar around the world.

Japan’s Noda Faces Farmers’ Lobby on Trade Policy

Barely two months in office, Japan’s prime minister Yoshihiko Noda faces a split in his ruling party over a push to liberalize trade relations with other Pacific nations.

The premier has demanded consensus on Japan’s entry to the Trans Pacific Partnership before its prospective members are due to convene in Hawaii next month but his Democratic Party is divided.

The Trans Pacific Partnership began in 2006 as a free-trade agreement between Brunei, Chile, New Zealand and Singapore. Australia, Malaysia, Peru, the United States and Vietnam are on track to join the organization which seeks to eliminate all tariffs on Pacific trade by 2015. Canada, the Philippines, South Korea and Taiwan have also expressed an interest in joining.

During next month’s Asia-Pacific Economic Cooperation meeting in Honolulu, present and future members of the TPP are expected to decide on expansion as well as the broad outlines for a trade agreement.

Japan’s agricultural lobby is opposed to joining the partnership. Former agriculture minister Masahiko Yamada leads the resistance against freer trade within the Democratic Party. He is an ally of party strongman Ichirō Ozawa who is currently under investigation on corruption charges. Noda’s ascendance to the premiership in September was a setback for Ozawa who had endorsed his opponent.

Noda has tried to unify the ruling party by bringing Ozawa allies into his cabinet but the debate over whether or not to join the Trans Pacific Partnership is fracturing his very government. The defense minister, Yasuo Ichikawa, a former agricultural ministry bureaucrat, is one of the voices cautioning against a multilateral liberalization of trade relations. Opponents of TPP membership fear that Japanese farmers would struggle to compete against other East Asian and South American producers.

The underlying predicament, writes Jeffrey W. Hornung at The Diplomat, is that both of Japan’s major political parties rely heavily on rural support. Bodies that represent farmers’ interests have gained an “inordinate amount of influence” of the political process, he writes.

The Democratic Party has advocated direct income subsidies for small farmers for more than a decade while the liberal democrats, traditionally in power, enacted structural economic reforms in the 1990s that disadvantaged the rural economy. Rural voters switched parties in 2009’s election and propelled the Democrats to power for the first time in their existence.

Japanese businesses, by contrast, argue that freer trade could be a boon to the country’s sluggish economy which is still recovering from March’s devastating earthquake and tsunami. They fear that Japan is lacking behind other Asian powerhouses, Korea in particular.

South Korea, which recently enacted a free-trade agreement with the United States that could boost its exports by several tens of billions of dollars per year, conducts more than a third of its trade with countries it has trade deals with. The Japanese figure is just 18 percent.

Japan’s population, moreover, is shrinking. By midcentury, it is expected to have lost 32 million people, a huge drop for an industrial nation that will have to rely increasingly on exports.

Europe’s Egg Shortage

It’s difficult to get about some eggs in the eastern parts of the Netherlands these days. Supermarkets are experiencing serious shortages there because large supplies of eggs have been bought up by German wholesalers. The Netherlands has always been one of the world’s greatest exportors of eggs but usually not at a disadvantage to the country’s own market. So many more eggs are finding their way to Germany now because that country is set to ban battery hen cages next January 1 which has severaly damaged its own production already.

The European Parliament voted to ban battery cages in 1999 when so much as 93 percent of eggs in what was then the European Community came from battery hens. By 2012 all member states must have the battery system abolished but Germany has chosen to take the lead by outlawing the practice in 2010 already.

Of course, when parliament forced farmers to turn back the clock half a century it provided adequate protection against the import of cheap eggs from abroad by imposing extensive border and subsidy measures. To control imports and boost exports, the European Union uses sluice-gate prices, basic and variable import levies and export refunds on all shell eggs and products.

The sluice-gate price is a theoretical, calculated price at which poultry imports to Europe should be priced given world grain costs. The import levy is fixed at a level to protect European egg producers against imports from countries that benefit from market cereal prices considerably below the European average. The simple purpose of the measure is to prevent the import of eggs that are priced lower than their European counterparts.

A safeguard clause allows Brussels to suspend imports if the European market is threatened with serious disturbances such as a flood of low priced imports. Refunds are paid to European exporters from the Common Agricultural Policy budget to help them compete outside Europe where producer costs can be lower due to lower feed grain prices, for example.

Understandably, this is upsetting developing countries which are currently stalling negotiations within the World Trade Organization for one thing, precisely because the West, the European Union in particular, is increasingly protecting its own market, making it near impossible for Third World farmer to compete. Yet, with subsidies, European producers are able to penetrate their markets. (So next time you hear someone denounce “free trade” for destroying Third World agriculture, you know better than to nod in approval.)

The only ones not complaining right now are Dutch poultry farmers who are able to sell their eggs in Germany at prices unprecedented in recent history. Within the next two years however, they too will be forced to give up their battery cages. Inevitably, the supply of eggs will shrink throughout Europe, driving prices up only further.