With U.S. domestic agricultural policy receiving part of the blame for the suspension of the Doha Round of WTO trade policy talks, the 2007 farm bill and its link to trade policy has become a prime target for comments by non-agricultural groups. The Chicago Council on Global Affairs released a report titled “Modernizing America’s Food and Farm Policy: Vision for a New Direction.” It was developed by an Agricultural Taskforce that included economists from land-grant universities, agribusiness people, former members of Congress, one farmer and representatives of related institutions.
The report’s section on the interaction of farm policy and trade policy provides an overview of the issues that U.S. agriculture must address if it is to take full advantage of opportunities in international markets. The taskforce spent a year doing its work. That encompassed a year that started with a bold WTO agricultural proposal by then USTR Rob Portman to the mid-summer announcement that the WTO talks had been suspended. Over that year the farm policy debate centered on whether to extend the 2002 farm bill or write a new one. By the title of the report, it’s clear that the taskforce recommended writing a new farm bill in 2007.
The report begins with some basic points. The biggest growth in food demand in the years ahead will be in developing countries that have strong economic growth and growing populations. The Doha Round should be restarted to gain market access, and the President’s Trade Promotion Authority should be renewed so a new agreement can move through Congress. Failure to renegotiate the WTO agreement would leave current U.S. farm and trade polices open to WTO cases filed by other countries.
The taskforce included immigration reform in its list of challenges because of the impact on the availability of laborers for farms and food processors. This recognizes that growth in agricultural trade will be more than the bulk commodities like wheat and corn. The Task Force recommended an earned legalization approach that enables undocumented workers to gain legal status and a temporary worker program.
The task force took a direct approach to current farm programs, “We propose that the entire grouping of product-specific, trade distorting income and support programs, including countercyclical and loan deficiency payments, price supports, and federal crop insurance and disaster payments, be replaced with a new portfolio of approaches that are non-distorting and compliant with WTO green box rules…” That is a radical approach, but it does acknowledge that the programs probably have become too intertwined to be changed one at a time or be gradually reformed.
The new programs to be implemented in the next farm bill include:
- Transition direct payments that are decoupled from production and market conditions to comply with the WTO green box;
- Universal revenue insurance for all commodities at subsidized rates to protect against losses in price and production;
- A land stewardship program that recognizes and rewards the value of the environmental contributions made by farmers;
- Farmer savings accounts similar to tax-deferred 401(k) accounts with matching contributions by the government;
- Funding of programs that benefit the entire agricultural industry such as research and infrastructure projects (not less than 20 percent of current funds for trade-distorting domestic support programs); and
- Transition measures to protect farmers and owners of rented farmland from declining land values that may result from these changes.
These recommendations are not new to agricultural policy discussions and include some of the ideas talked about by Secretary of Agriculture Mike Johanns. Decoupled direct payments that declined over time were part of the 1996 farm bill. Whole farm revenue assurance is currently being discussed by some farm groups. The land stewardship program is a version of the Conservation Security Program from the 2002 farm bill. Farmer savings accounts have been talked about for over ten years. Fruit and vegetable producer groups support funding for production research and market development efforts rather than having price and income support programs. Protecting against declining land values may be the hardest to do, but the increasing use of corn and soybean oil for ethanol and biodiesel production may support commodity prices and land values.
The good news in the report is the belief that WTO compliant programs can be created to at least partially replace existing programs. The report provides some specifics, but most of the details are left to be worked out. Provisions for a transition program to protect land prices are an indication that the taskforce understood that this transition will not be pain free for most producers of farm program crops.
The taskforce also had two recommendations for international food aid:
- Replace loans to foreign governments with support for the McGovern-Dole International Food for Education and Child Nutrition Program, and
- Fund cargo preference through the Department of Defense and use USDA funds to purchase food from local producers in developing countries.
This report is the first of many that will be released over the next six months by non-farm groups with an interest in the link between farm policy and trade policy. The recommendations can be used as a checklist to see if others develop new ideas. If farm policy in the next farm bill, whenever it is written, is to be WTO complaint, much work must be done to shape the proposals in reports like this to meet the needs of U.S. farmers and ranchers.