BRASILIA (Reuters) - After finally turning the page on a dispute over spying that hampered attempts to deepen trade ties, Brazil and the United States may be headed for another clash, this time over U.S. farm subsidies.
Brasilia is gathering evidence to show that the United States is increasing subsidies for soy and corn farmers, which threatens to further push down prices for the key crops grown in the South American country and hurt its already sputtering economy, four Brazilian officials told Reuters.
Although it is too early to launch a full-out trade dispute, Brazil plans to apply pressure on Washington by questioning its farm program at the World Trade Organization’s agriculture committee and by rallying support among other commodities exporters, officials said.
Brazil’s growing concerns over U.S. farm subsidies comes as President Dilma Rousseff prepares to visit Washington in June, a trip aimed at bolstering trade between the hemisphere’s two largest economies.
It took more than a year of intense negotiations for Rousseff to reschedule the trip, which was originally set to take place in 2013 but was scrapped following revelations that Washington spied on her personal communications.
Although Rousseff will not address the concerns about farm subsidies directly with U.S. President Barack Obama, her aides plan to bring it up in meetings with U.S. officials ahead of the visit, one of the Brazilian officials said. They all spoke on condition of anonymity to discuss the plans candidly.
“We are certain that U.S. subsidies will rise, but we need to gather evidence during the next harvest to build our case,” said another official involved in trade policymaking. “We don’t rule out a trade dispute, but we are in the early stages.”
The U.S. government says its farm programs are transparent and fair and do not distort commodity markets.
“The new farm bill programs have minimal effects on production and trade and, as such, we are confident that the programs are in compliance with our WTO commitments,” Cullen Schwarz, a U.S. Department of Agriculture spokesman, said in email response to questions from Reuters. He was referring to the 2014 U.S. farm bill.
A farming powerhouse, Brazil is an experienced player in agriculture disputes. It won a landmark WTO case in 2004 against U.S. cotton subsidies, a dispute that finally ended last September with a $300 million settlement for Brazilian producers.
The concerns over subsidies show how difficult it is for the regional powers to deepen economic ties after decades of disagreements over trade policy and other issues.
On her trip to Washington, Rousseff wants to attract more U.S. investment and technology to Brazil, which is one of the world’s most closed economies because of high import tariffs and other trade barriers. But officials say both countries will struggle to deliver on key topics such as ending double taxation.
Brazilian officials worry that the drop in global grains prices will prompt the United States to release more subsidies to its farmers through crop insurance schemes in the 2014 farm bill.
In a presentation last year when she led Brazil’s farm lobby group CNA, Katia Abreu, now agriculture minister, warned that Brazil could lose up to $500 million a year in revenues from soy exports due to price distortions caused by U.S. subsidies.
The estimates are from a study by consultancy Agroicone, which expects those subsidies to drag down world corn and soy prices by 4 percent and 3 percent, respectively.
“If prices remain at this level that will trigger more subsidies to U.S. farmers, leaving Brazilian producers at a disadvantage,” said Alinne Oliveira, head of international affairs at CNA, which set up a group to monitor the subsidies.
Soy prices on world markets have plunged around 35 percent over the last year while the value of corn fell nearly 60 percent since its record high in late 2012, according to benchmark CME futures.
Brazilian authorities expect to have more evidence of the distortions by early next year to challenge the United States. In the meantime, officials say Brasilia will seek to press the United States to be more transparent about its subsidies.
Brazil comes a close second to the United States as the world’s largest producer of soy, which makes up about 10 percent of its total exports. The fall in soy prices helped explain Brazil’s first trade deficit in 14 years in 2014.
“We need to act multilaterally at the WTO to reduce those subsidies,” said another Brazilian official. “At a time when economic growth is low, every major exporter is fighting for every little piece of the market.”
Editing by Todd Benson and Frances Kerry