Trade Policy and the New U.S. Farm Bill


For the last three years there were repeated discussions about the influence that a new U.S. farm bill would have on the Doha Round of WTO trade policy negotiations and vice versa and which one should be completed first. After many delays for both, the U.S. farm bill was completed first and only minimally addressed issues in the Doha talks. The new law should neither speed up nor slow down the pace of the final negotiations.

Price contingent payments to producers that distort production signals have been a key issue in the WTO talks. The price support loan rate for wheat was increased $0.19 per bushel to $2.94 per bushel beginning in 2010 and loan rates were left unchanged for corn, soybeans, cotton and rice. The target price for counter-cyclical program payments for cotton was decreased beginning in 2008 from $0.724 per pound to $0.7125 per pound. Target prices were increased beginning in 2010 for wheat by $0.25 per bushel to $4.17 per bushel and for soybeans by $0.20 per bushel to $6.00 per bushel. Corn and rice target prices were unchanged. Cotton and corn are the two commodities most under pressure at the WTO, and Congress lowered the target price for cotton and left corn provisions unchanged. This action was mostly driven by budget factors, not trade policy concerns. Given the increases in market prices and production costs of the past two years, these programs will have little or no impact on production decisions for U.S. producers. A payment program for domestic cotton mills was created for use of cotton at a rate of 4 cents per pound in 2008-2011 and at 3 cents per pound beginning in 2012.

Decoupled direct payments made regardless of market prices and considered to be minimally trade distorting were left unchanged at $0.52 per bushel for wheat, $0.28 per bushel for corn, $0.44 per bushel for soybeans, $0.667 per pound for cotton and $2.35 per hundredweight for rice, but total payments for the 2009-11 crops were reduced by $313 million. The prohibition on growing fruits and vegetables on farm program acreage questioned in the Brazil WTO cotton case as making direct payments not fully decoupled was not changed.

The price support loan rate for sugar was increased beginning in 2010 by 0.75 cents per pound to 18.75 cents per pound for cane sugar and 24 cents per pound for beet sugar. This continues to set the minimum price for sugar in the U.S. above world market prices. U.S. produced sugar is guaranteed to have at least 85 percent of the market regardless of domestic demand or the amount of imports. Excess sugar supplies will be used in a new sugar-to-ethanol program that will operate at substantial losses for the U.S. government. The current 54 cents per gallon ethanol import tariff that was to expire at the end of 2008 was extended for another two years. Both actions will lead to complaints from Brazil which wants to export more ethanol to the U.S.

A permanent agriculture disaster program was created with funding of $3.85 billion over five years. The program is expected to be most often used by producers from 10-12 plains and mountain states affected by weather-related production problems. Since most states have at least occasional disasters, the program will likely result in legislated disaster aid for other areas. The program will be in the amber box subject to overall limits.

A new Average Crop Revenue Election (ACRE) that begins for the 2009 crop year will be closely watched. By agreeing to a 20 percent reduction in direct payments and a 30 percent reduction in loan rates, producers will be allowed to participate in a revenue counter-cyclical program based on state level revenue targets of 90 percent of the 5-year state average yield (excluding the highest and lowest yields) times the national season average price for the commodity for the previous two years. Once a producer chooses this option it remains the safety net for the remainder of the term of the farm bill. This will be a more market driven safety net that the current loan rates and target prices, but will be tied to market prices and be an amber box program. Funding for the crop insurance program will be cut by almost $6 billion over ten years. Crop insurance has received more attention in recent years as subsidies have escalated and dollar per acre coverage increased.

Conservation funding will increase by $6.5 billion on a net basis with much of the increases coming on land that produces crops. While that is good for conservation and generally considered to be green box as non-trade distorting, it may run afoul of WTO requirements to not make payments beyond the extra costs or loss of income for landowners.

Changes were made in export promotion programs. Authorization for the Export Enhancement Program, a subsidy program created in the mid-1980s and not used for a decade, was repealed. Also repealed was the GSM-103 long-term export credit guarantee program as well as the 1 percent fee cap on the GSM-102 short-term program which makes it more WTO compatible. Meaningful changes were not made in U.S. international food aid. President Bush has repeated asked that a minimum of 25 percent of U.S. food aid be provided in cash to make the program more consistent with other WTO members. The legislation provides for a token pilot program of $60 million.

Any one item mentioned above would not be worthy of serious attention by most members of the WTO. Taken together they indicate that U.S. domestic policy easily overruled trade policy in U.S. farm bill negotiations. In an era of record high market prices and concerns about food shortages, members of the WTO may more focused, at least for a while, on adequate food supplies rather the details of U.S. farm policies. With U.S. farm policies in place, the attention should now be on wrapping up the Doha Round.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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