With the House of Representatives having passed a 2007 farm bill and the Senate Agriculture Committee set to begin work shortly, the International Food and Agricultural Trade Policy Council (IPC) has release an issue brief titled The 2007 Farm Bill: Implications for Developing Countries. It provides a view of how the world trade policy community looks at the House bill and how it could impact WTO trade policy negotiations. The IPCs stated purpose is to find practical solutions that support the more open and equitable trade of food and agricultural products to meet the worlds growing needs.

The analysis struggles with the need to look back at U.S. farm policy from 1998 to 2005, a time of relatively low market prices and high government support costs, while looking forward to the worldwide production of biofuels and changing market conditions. The history is well known with estimates of the price depressing impacts of subsidized U.S. production and farm program crop producers receiving a quarter to half of their gross revenue from government payments in some years. The future with biofuels production is more complicated because the tax incentives and import protection that support the U.S. industry are not part of the farm bill.

Developing countries see the U.S. as a competitor for crops like sugar and cotton where they have the comparative advantage if there were no U.S. subsidies or import restraints. They often produce just one or two crops and lack the flexibility to shift to other crops. Existing U.S. policies are seen as supporting production in three ways: payments are linked to specific crops and guarantee revenue, payments based on production provide incentives to produce regardless of market conditions, and payments encourage planting of crops to build base to receive more payments in future years.

The farm bill also sets the rules for U.S. food aid programs. The U.S. provides just over half the worlds total food aid, three million tons in 2006 at a cost of $2.2 billion including shipping. Other donors provide money so food can be purchased near where it is needed at a lower cost. The major concern is that in-kind U.S. food aid often displaces commercial market transactions that could be provided by farmers in developing countries.

The development of biofuels markets in the U.S. can have a positive impact for farmers in developing countries who are connected to international markets and receive higher market prices. U.S. corn over $3.00 per bushel and soybeans over $7.00 per bushel impact markets around the world. If U.S. exports decline because more corn and soybean oil are used in the U.S. for biofuels, that would create more opportunities in export markets for producers in developing countries. Some farmers may pay higher prices for food products they buy, but that would be offset by the higher prices for the products they sell. The non-farm poor in developing countries who spend 50 percent or more of their income on food would be the biggest losers.

The authors note that prices for most commodities are expected to be well above price and income support levels in the House farm bill. That causes reformers to argue that now is the time to move away from the farm policies of the last 75 years. The 1996 farm bill was also written in a time of high market prices, and by 1998 low prices returned and farmers received emergency assistance that became the basis for the 2002 farm bill.

The analysis considers what the House bill (the Farm, Nutrition, and Bioenergy Act) would mean for developing countries if the final bill closely resembles it. The bill is viewed as a status quo bill that does not result in new opportunities for farmers in developing countries. It increases the price support for sugar by 3 percent and guarantees that 85 percent of the domestic market will be supplied by U.S. sugar. Funding for specialty crops is increased, but the programs are minimally trade distorting. Additional funding for sanitary and phyto-sanitary issues could improve food safety for imported foods and may unduly limit imports of specialty crops from developing countries. The House bill makes no changes in U.S. food aid programs even though the Bush Administration had recommended that up to 25 percent of food aid be used for local and regional purchases. The House farm bill supports renewable energy, including cellulosic ethanol, but as noted earlier the major incentives are not in the farm bill.

The House bill also leaves the U.S. out of compliance with the Brazilian cotton case ruling. The prohibition of planting fruits and vegetables on farm program acres could cause the fixed, direct payments to be considered trade distorting. The likelihood of challenges against other crops remains large.

The authors believe the House farm bills failure to achieve any meaningful changes in farm policy will make it harder to produce a breakthrough in the Doha WTO trade policy negotiations. The current U.S. offer to reduce trade distorting domestic supports to $22 billion per year is well short of the $15 billion per year the Chairman of the WTO Agriculture Committee thinks is needed to get an agreement. U.S. support for 2006 is estimated at $11 billion. This would appear to provide room for compromise, but if commodity prices declined sharply in future years less income support would be available for U.S. producers. Farm bill reformers see a lower WTO cap as one way to restrain U.S. government support when a price downturn does occur.

The authors concluded, Perhaps most at risk, though hard to define, is the position of leadership that the US has maintained in international farm and food trade for the post-war periodWith a status quo farm bill, the credibility of the US as it seeks to open up markets abroad will be further compromised.