We were asked to describe (1) the potential capability of export-oriented agricultural STEs to distort trade and (2) the specific potential of the Canadian Wheat Board (CWB), the Australian Wheat Board (AWB), and NZDB to engage in trade-distorting activities, based on their status as STEs. As a result, it is necessary to consider STEs on a case-by-case basis to understand their potential effects. Nonetheless, some changes in subsidies and CWB control, as well as ongoing reviews of the CWB’s monopoly status, may have the effect of reducing the CWB’s ability to potentially distort trade. The CWB’s control of domestic sales for human consumption sales and monopoly over export sales of wheat and barley provide it with the potential ability to charge a higher domestic price for these commodities and use these proceeds to lower export prices, particularly in the case of barley exports. CWB Given Partial Monopoly Authority Over Canadian Wheat and Barley

The CWB’s 1993-94 annual report states that “the CWB’s monopoly is its single greatest asset” and concludes that “the economic benefits that accrue to Prairie farmers from this marketing strength would be greatly diminished were the CWB to operate in tandem with a private system.” CWB has the sole authority to market for export and for domestic human consumption wheat and barley grown in the western prairie provinces of Manitoba, Saskatchewan, Alberta, and British Columbia. Pool deficits have also increased in recent years. One indirect subsidy to CWB and Canadian wheat and barley producers, though a direct subsidy to the Canadian railroad, existed in the form of transportation subsidies. Among other things, the final report also recommended that (1) Canada and the United States undertake regular and structured consultative process concerning grain policy issues with the goal of reducing trade-distorting policies and (2) a bilateral producer/industry-based Consultative Committee be established to handle short-term cross-border issues as an “early warning system for trade difficulties.”

	AWB Enjoys Indirect Government Subsidies, but Ability to Distort Trade Is Limited

AWB has limited capability to distort international wheat markets. Because of this guarantee, it most likely receives favorable interest rates on its loans. AWB-Government Relationship: Both Direct and Indirect Government Subsidies Help AWB

Besides its monopoly on Australian wheat exports, AWB benefits from several forms of assistance. Additionally, AWB’s single-desk seller status gives it a sure source of supply for its export sales. New Zealand Dairy Trade Significant

NZDB operates within the terms of the Dairy Board Act of 1961, as amended. Domestic Market Deregulated, but Small

New Zealand’s domestic dairy market has been deregulated since the late 1980s. NZDB-Government Relationship: Government Assistance Is Limited

Even though NZDB has sole export authority for New Zealand dairy products, it has not received direct government subsidies since 1984, when a governmentwide reform removed most agricultural subsidies. NZDB benefits from a good credit rating, which may be related to its status as a government-established STE. NZDB’s exclusive authority and size translate into market power for NZDB in certain world dairy markets. NZDB can take advantage of the difference between world and U.S. prices by selling its goods through wholly owned subsidiaries in the United States.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed three state trading enterprises (STE), the Canadian Wheat Board (CWB), the Australian Wheat Board (AWB), and the New Zealand Dairy Board (NZDB) focusing on: (1) the potential capability of export-oriented agricultural STEse to distort trade; and (2) the specific potential capability of CWB, AWB, and NZDB to engage in trade-distorting activities based on their status as STEs.

What GAO Found

GAO found that: (1) it is necessary to consider STEs on a case-by-case basis to understand their potential to distort trade; and (2) the three STEs reviewed have varying capabilities to potentially distort trade in their respective commodities, although in each case these capabilities have generally been reduced over recent years due to lower levels of government assistance. CWB benefits from: (1) the Canadian government's subsidies to cover CWB's periodic operational deficits, (2) monopoly over both the domestic human consumption and export wheat and barley markets which may allow for cross-subsidization, and (3) pricing flexibility through delayed producer payments. Canada's elimination of transportation subsidies in 1995 has reduced some of the indirect government support going to its wheat and barley producers, and ongoing Canadian reviews of its agricultural policies may reduce the control of CWB in the future. AWB has not received direct government subsidies in several years but enjoys a government guarantee on its payments to producers. It also enjoys indirect subsidies in the form of favorable interest rates and an authority to collect from producers for investment. The deregulation of Australia's domestic grain trade and the decline of direct government assistance have lessened the possibile trade-distorting policies of AWB. Recent studies have challenged the premise behind a single selling authority, but AWB's monopoly over wheat exports still provides it with a sure source of supply. NZDB is relatively subsidy free but benefits from its monopoly over New Zealand dairy exports and its extensive subsidiary structure worldwide. NZDB's size and exclusive purchasing authority for export also translate into market power for NZDB in certain world dairy markets. Its subsidiaries allow it to keep profits from foreign sales within the organization and take advantage of the difference between world prices and those of the country in which it is selling the goods, such as the United States. NZDB's potential to distort trade due to direct government subsidies was eliminated during the 1980s when New Zealand deregulated the domestic dairy market and stopped offering dairy farmers direct government subsidies.