On September 27 the U.S. submitted to the WTO its notification concerning domestic support commitments for the marketing year of 2010 crops and calendar year 2010 for livestock. The ‘Amber Box’ total Aggregate Measures of Support (AMS) for trade distorting subsidies subject to WTO limitations totaled $4.1 billion, down from $4.3 billion in 2009, $6.3 billion in 2008 and 2007 and $7.7 billion in 2006. The level is expected to increase under the Senate passed farm bill and the House Agriculture Committee farm bill.
The total AMS commitment level for marketing year 2010 was $19.1 billion. That was negotiated and reduced under the Uruguay Round Agreement on Agriculture completed in 1993. The last agreed upon reduction in the AMS occurred for marketing year 1999. In 2006 under the Doha Round of negotiations the U.S. proposed to reduce the yearly limit to $7.6 billion if other nations made commensurate reductions. The Doha talks have been stalled since then and the $19.1 billion limit is still in force. The recent proposal by the G20 group of developing countries at the WTO to include agriculture in an ‘early harvest’ agreement did not include language on domestic supports.
The biggest change under the Senate and House bills will be ending of direct payments made regardless of production or price. These payments totaled $4.9 billion in 2010 and are considered to be non-trade distorting because they are ‘de-coupled’ from current production and price. The program is acceptable under WTO commitments for the same reasons it was opposed by hundreds of newspaper editorial boards. They are counted in the ‘Green Box’ along with domestic nutrition programs, conservation programs, research, health and food safety programs and administrative costs. There are no limits on these programs.
Almost the entire AMS total for marketing year 2010 of $4.1 billion came from two programs – dairy and sugar. Both of these are price support programs. The price support program for cheese and butter automatically get an AMS of $2.8 billion. The Senate and House bills have a milk margin insurance program that will likely reduce the amber box AMS in years when the industry is profitable. The sugar program has an AMS of $1.3 billion per year and no changes have been proposed in the bills.
The Senate farm bill would create a new Agriculture Risk Coverage (ARC) program as part of the farm income safety net. ARC would make payments when crop revenues decline below a projected value based on a rolling historical average. USDA Chief Economist Joe Glauber told Inside U.S. Trade the payments would likely be classified as a product-specific Amber Box payment in AMS notifications to the WTO. When Glauber was Deputy Chief Economist he also served as chief agricultural negotiator during part of the Doha Round. Just how much the AMS would be will depend on market prices and price guarantees.
The other change in the Amber Box AMS is in crop insurance. Both bills add a Supplemental Coverage Option. The Congressional Budget Office estimates the Senate version at $3 billion over ten years and the House version at $4 billion. For 2010, USDA reported the AMS for crop insurance at $4.7 billion, the amount of subsidy provided by the Federal Crop Insurance Corporation to policies purchased by farmers. USDA does not report indemnities in excess of premiums as a cost for the government or a benefit for farmers. U.S. crop insurance has not received much attention in the WTO, but that will likely change as it plays a larger role in policy.
Crop insurance is reported under non-product specific Amber Box payments. If these payments for all crops and livestock do not exceed 5 percent of the total value of agricultural production, about $16.7 billion in 2010, they are considered de minimis and do not count to the Amber Box total. The Supplemental Crop Revenue Assurance program (SURE) was the other significant program at $395 million in the non-product specific category. The total AMS was $5.4 billion. The proposed changes are not likely to cause the AMS to be above the $16.7 billion AMS limit for de minimis. If the total was above the limit, all of the AMS would be added to the Amber Box AMS and exceed the $7.6 billion limit.
The House Committee bill also included a Price Loss Coverage (PLC) program which is a traditional fixed price countercyclical support program. It ties the program to current production by increasing target prices, allowing farms to update yields to the 2008-2012 period, and making payments on annual planted acres not fixed historical base acres. These features appear to make it an Amber Box program, but the current countercyclical program, $17 million in 2010, is reported under the non-product specific de minimis category with crop insurance and SURE.
The Doha Round proposal also includes an overall trade-distorting support cap for the U.S. of $14.5 billion on the sum of Amber Box and de minimis payments. The sum of the two for the U.S. for 2010 would have been $9.8 billion.
Some international groups will look at the U.S. 2012 farm bill with possible higher Amber Box spending as a step away from the less trade distorting ‘de-coupled’ payments of the 1996 farm bill. That would be true, but the domestic opposition to ‘direct payments’ left the House and Senate little choice. Whether intended or not, the final bill may look like it was designed to avoid specific WTO limits on AMS. This may lead to attempts to change how AMS is reported which could result in sharp changes in total Amber Box AMS.
USDA Chief Economist Glauber also told Inside U.S. Trade he believes that any deal that U.S. negotiators bring home from Geneva would require lawmakers to evaluate its overall costs and benefits and, most likely, make changes to U.S. farm policy in order to ensure that it does not violate the terms of the deal. Making proactive changes may be hard to do if the farm bill is acted on in the lame-duck session of Congress when many weighty issues are competing for time.