The Political Economy of U.S. Export Subsidies for Wheat

Abstract

During 1985-93 the U.S. Government provided $4.9 billion in subsidies to targeted foreign buyers of U.S. wheat under its Export Enhancement Program (EEP). The subsidies averaged $31 per metric ton, or about 25 percent of the U.S. price. The EEP generates a small gain to U.S. farmers, compared to its costs. Lacking a clear economic justification, the debate on the EEP indicates the following were the key factors in its political success: farmers and agribusiness have been unified in support of the program, and have excellent political channels through which to express their views; domestic users of wheat have not opposed the program; and the program received an initial boost because of its use of large government-owned wheat stocks, allowing it to be treated as budget neutral in Congress. An economic argument that carried political weight was that the EEP, by increasing the costs of the European Community's wheat export subsidies, would encourage them to negotiate joint U.S./EC subsidy reductions. In fact, the EC in 1993 did agree to multilateral subsidy reductions in the GATT, as well as reforming their own policies unilaterally. But it remains questionable whether this outcome justifies the EEP.