farmgate: The Farm Bill, The WTO, And The Cornbelt Farmer
It has to be frustrating for farm policy writers. The 2007 Farm Bill is not finished and the 2002 policy expired 5 months ago. But at the same time the House, Senate, and Administration are haggling over domestic policy, the enforcers of international farm policy are methodically dismantling the structure of US farm policy. Where do you start in sorting out the issues and its impact on Cornbelt agriculture?
You’ve followed the progress, then lack of progress, in creating a 2007 Farm Bill. The Senate did not like the House version because of its lack of a disaster program and insufficient conservation programs and wrote its own. The Administration did not like either because the House wanted to raise taxes and both would cost more than the Administration wanted to spend. In brief, the stalemate has continued since late last year, but House, Senate, and Administration leaders are talking about their differences, at least.
The basic structure of prior Farm Bills remain in place, although some tweaking has occurred. There are payments to farmers. There are nutrition, crop insurance and rural development programs, plus funding for research. There are also food aid programs, and export promotion programs that offer credit to foreign buyers. While each Farm Bill contains a new program or two and makes minor adjustments in the way price supports are calculated, there is very little difference in them. That is the problem that international critics have with US farm policy, and The Congressional Research Service (CRS) has just provided a summary to Congress that outlines those complaints, just in case Congress wants to reshape domestic policy to comply with international trading rules.
The primary complaints are from Canada, which is our top trading partner, and Brazil which is one of our top trading competitors. They contend that all of the support programs that USDA provides to farmers exceed what is allowed by the World Trade Organization, and violated maximum support limits in 6 of the last 8 years; in addition to the export credit program being an illegal export subsidy since it does not recover its cost.
The Canadian complaint follows several years of arguments about wheat, and then spilled over to corn with the allegation that US corn was being exported to Canada at less than production cost. Although the Canadian government did not officially agree, it succumbed to political pressure to lodge the WTO complaint. Because market prices have risen well above support prices, and were expected to remain for at least ten years, Canada has dropped the complaint about price subsidies.
The Brazilian complaint followed a successful dismantling of the US cotton program and most recently was focused against the US feed grains program. Since the cotton complaint established a legal precedent that US support programs were improper, Brazil decided to press the issue on other US farm programs. Brazil initially joined in the Canadian compliant, but has lodged is own WTO complaint. Because each complaint was joined by a multitude of other nations, both the cases have been merged by the WTO.
The trade complaints contend US spending on various farm programs distort trade and distort the market by nearly $20 billion per year. The US says its support programs are well within WTO spending limits, but Canada and Brazil say the US did not total up everything it should have, and in actuality those spending limits would be surpassed. At issue are Production Flexibility Contract payments, Direct Payments, Non-insured Crop Disaster Assistance Program payments, Emergency Feed, Livestock Indemnity, and Tree Assistance payments. Additionally, both sides differ on how Counter-Cyclical Payments should be treated. Brazil’s also contends the US should be penalized for USDA direct and guaranteed loan programs, exemption of tax for farm use of petroleum, deductions on Schedule F income tax forms, benefits received from membership in cooperatives, and benefits from irrigation that is part of a government program.
The CRS has told Congress that if the WTO agrees the Production Flexibility Contract and Direct Payments are included, then the US farm program has violated the WTO limits in two of the six years. Also, if the market loss assistance and Counter-Cyclical Payments are added in, then the US has overspent its limits in five of the six years.
Regarding the complaint about the export credit programs, the WTO has already ruled in Brazil’s case against the US cotton program that it is illegal because it does not recover all of its costs. Consequently, the complaint is being raised against the program for all other commodities.
An initial ruling on the complaint is scheduled for late this year, but appeals could push a final decision well into the future. If the US is found to be at fault, then Congress would likely have to re-open the Farm Bill and write new commodity programs and other programs that aid farmers. The House and Senate Farm Bill proposals would cure the problems with the export credit programs. However neither version addresses the issues of Direct Payments and maintains the status quo on other programs. But most of the issues have been temporarily resolved by the fact market prices have risen well above support levels and the USDA has substantially reduced its financial outlays.
Summary:
Cornbelt farmers are particularly in jeopardy of losing their safety net, if the WTO finds that many US farm programs are providing more financial help than is allowed. Currently, however commodity prices are above support levels, and USDA expenditures are minimized. The new Farm Bill could address the international trade complaints, but does little to do that, and Congress may have to rewrite the Farm Bill in the next few years the US is held to be in violation.
Posted by Stu Ellis on March 24, 2008 12:29 AM to farmgate