Post on 18-Jan-2016
Legislative Issues, WTO, & U.S. Legislative Issues, WTO, & U.S. Farm PolicyFarm Policy
Presented by Chip ConleyPresented by Chip Conley
Democratic Economist Democratic Economist
House Agriculture CommitteeHouse Agriculture Committee
International Agreements and US International Agreements and US Farm PolicyFarm Policy
Uruguay RoundUruguay Round– Reduction CommitmentsReduction Commitments– Policy ChangesPolicy Changes– How we got thereHow we got there
Doha RoundDoha Round
-Framework Agreement-Framework Agreement
-Deficit Reduction-Deficit Reduction
-Policy Implications-Policy Implications
US Farm Policy AMS Base: US Farm Policy AMS Base: Cut by 20% 1995-2000 Cut by 20% 1995-2000
Billion US$Billion US$ 1986-88 Avg1986-88 Avg
TotalTotal 23.923.9
CornCorn 7.27.2
DairyDairy 5.35.3
WheatWheat 3.43.4
CottonCotton 1.71.7
SugarSugar 1.11.1
SubtotalSubtotal 18.7 (78%)18.7 (78%)
How Did We Get There?How Did We Get There?
Deficit reduction requirements cut farm program Deficit reduction requirements cut farm program spending.spending.
1985 Farm Bill, $4.5 billion, 1986-881985 Farm Bill, $4.5 billion, 1986-88
1987 Reconciliation Act, $3.2 billion,1988-90.1987 Reconciliation Act, $3.2 billion,1988-90.
1990 Farm Bill, $4.5 billion, 1991-95.1990 Farm Bill, $4.5 billion, 1991-95.
1993 Reconciliation Act, $3.2 billion,1994-98.1993 Reconciliation Act, $3.2 billion,1994-98.
1996 Farm Bill, $12.8 billion, 1996-2002.1996 Farm Bill, $12.8 billion, 1996-2002.
Rising commodity prices from 1986-88 reduced Rising commodity prices from 1986-88 reduced direct payments.direct payments.
Farm Program Policy ChangesFarm Program Policy ChangesLoan Rates, $/buLoan Rates, $/bu
0.00
0.50
1.00
1.50
2.00
2.50
3.00
1985 1988 1991 1994 1997 2000 2003
Wheat Corn
Farm Program Policy ChangesFarm Program Policy ChangesCotton Loan Rate, cents/lbCotton Loan Rate, cents/lb
46
48
50
52
54
56
58
1985 1988 1991 1994 1997 2000 2003
Farm Program Policy ChangesFarm Program Policy ChangesMilk Support Price, $/cwtMilk Support Price, $/cwt
9.00
9.50
10.00
10.50
11.00
11.50
12.00
1985 1988 1991 1994 1997 2000 2003
Doha Round Framework: Doha Round Framework: Domestic SupportDomestic Support
““Substantial reductions” for developed Substantial reductions” for developed countries’ aggregate measure of support countries’ aggregate measure of support (AMS) TBN. (AMS) TBN. Reductions in overall AMS (Amber, Blue, Reductions in overall AMS (Amber, Blue, de minimis) and in 1) Amber box and in 2) de minimis) and in 1) Amber box and in 2) de minimis.de minimis.De minimis capped at 5% of value of De minimis capped at 5% of value of overall production and to be reduced by overall production and to be reduced by amount TBN.amount TBN.First year 20% cut in overall AMS.First year 20% cut in overall AMS.
11stst Year 20% Down payment, U.S. Year 20% Down payment, U.S.
Billion US$Billion US$ PermittedPermitted 20012001
TotalTotal 49.149.1 21.521.5
Amber BoxAmber Box 19.119.1 14.414.4
De minimisDe minimis
Non-product specificNon-product specific
Product specificProduct specific
1010
1010
6.66.6
0.20.2
Blue Box (CCP)Blue Box (CCP) 1010 NA (5.0)NA (5.0)
Green BoxGreen Box 50.750.7
With 20% reductionWith 20% reduction 39.239.2 21.521.5
How Do We Get There?How Do We Get There?
DEFICIT REDUCTION- while agreement DEFICIT REDUCTION- while agreement is being negotiated.is being negotiated.
Farm Bill in 2007.Farm Bill in 2007.
Attention to what will result in reductions to Attention to what will result in reductions to various boxes and likely commitments.various boxes and likely commitments.
Taxpayer supported-products vs. Taxpayer supported-products vs. consumer supported-products.consumer supported-products.
Selection of base period.Selection of base period.
Budget OutlookBudget Outlook
Budget situation and outlook has Budget situation and outlook has determined outlook for farm policy.determined outlook for farm policy.
Federal deficits from 1981 to 1995 have Federal deficits from 1981 to 1995 have led to cuts in agriculture spending in deficit led to cuts in agriculture spending in deficit reduction legislation.reduction legislation.
Resulted in lower price and income Resulted in lower price and income supports while Uruguay Round agreement supports while Uruguay Round agreement was being negotiated.was being negotiated.
Budget OutlookBudget Outlook
Federal surpluses in 1998 through 2001 Federal surpluses in 1998 through 2001 have provided funding for emergency have provided funding for emergency market loss and crop loss assistance and market loss and crop loss assistance and the Agricultural Risk Protection Act.the Agricultural Risk Protection Act.
2001 projected 10-year federal surplus of 2001 projected 10-year federal surplus of $5.6 trillion provided $79 billion additional $5.6 trillion provided $79 billion additional funding to write 2002 Farm Bill, along with funding to write 2002 Farm Bill, along with $1.3 trillion tax cut. $1.3 trillion tax cut.
Projected Surplus/Deficit(-)Projected Surplus/Deficit(-)CBO March 2005 BaselineCBO March 2005 Baseline
-500
-400
-300
-200
-100
0
100
200
$ b
illio
ns
2004 2006 2008 2010 2012 2014
2006 Congressional Budget 2006 Congressional Budget Resolution, $ BillionResolution, $ Billion
Fiscal YearFiscal Year 20062006 2006-152006-15
Tax CutsTax Cuts -18-18 -106-106
Entitlement CutsEntitlement Cuts 11 3030
Iraq Supp 2005 & 2006Iraq Supp 2005 & 2006 -62-62 -99-99
Net Discretionary ChangeNet Discretionary Change -2-2 4444
Additional Debt ServiceAdditional Debt Service -3-3 -36-36
TotalTotal -84-84 -167-167
Projected Surplus/Deficit(-)Projected Surplus/Deficit(-)Resulting Deficit w/CBRResulting Deficit w/CBR
-500
-400
-300
-200
-100
0
100
200
$ b
il
2004 2006 2008 2010 2012 2014
Budget Outlook, $ BillionBudget Outlook, $ Billion
Fiscal YearFiscal Year 20062006 2006-152006-15
CBO 2005CBO 2005
March BaselineMarch Baseline
-298-298 -980-980
Cong. BudgetCong. Budget
Resolution 2006-10Resolution 2006-10
-84-84 -167-167
Extend CBR 2011-15Extend CBR 2011-15 00 -1,685-1,685
Resulting DeficitResulting Deficit -383-383 -2,493-2,493
Projected Surplus/Deficit(-)Projected Surplus/Deficit(-)Resulting Deficit w/ CBR ExtendedResulting Deficit w/ CBR Extended
-500
-400
-300
-200
-100
0
100
200
$ b
il
2004 2006 2008 2010 2012 2014
Expected Additions to DeficitExpected Additions to Deficit Omitted Items, $ Billion Omitted Items, $ Billion
Fiscal YearFiscal Year 20062006 2006-152006-15
Further Cost of Iraq WarFurther Cost of Iraq War -18-18 -334-334
AMT RepairAMT Repair 00 -612-612
Additional Debt ServiceAdditional Debt Service -0-0 -224-224
Resulting DeficitResulting Deficit -401-401 -3,827-3,827
Projected Surplus/Deficit(-)Projected Surplus/Deficit(-)Resulting Deficit w/Omitted ItemsResulting Deficit w/Omitted Items
-500
-400
-300
-200
-100
0
100
200
$ b
il
2004 2006 2008 2010 2012 2014
Magnitude of Future Deficit Magnitude of Future Deficit Reduction, $ BillionReduction, $ Billion
Fiscal YearFiscal Year 20042004 20052005 2004-132004-13
Resulting DeficitResulting Deficit -412-412 -398-398 -3,776-3,776
House-passed House-passed Budget 2003Budget 2003
-324-324 -230-230 -1,021-1,021
ReconciliationReconciliation -88-88 -168-168 -2,775-2,775
Comparison to 2004 House BudgetComparison to 2004 House Budget$ Billion$ Billion
Fiscal YearFiscal Year 20042004 2004-132004-13
ReconciliationReconciliation -88-88 -2,775-2,775
House-passed House-passed Reconciliation ‘03Reconciliation ‘03
-7-7 -259-259
Multiple of Multiple of House-passedHouse-passed
1313 1111
Comparison to 2004 BudgetComparison to 2004 BudgetReduction for Ag, $ BillionReduction for Ag, $ Billion
Fiscal YearFiscal Year 20042004 2004-132004-13
House-passed Ag House-passed Ag Reconciliation ‘03Reconciliation ‘03
-0.6-0.6 -18.6-18.6
Agriculture’s share Agriculture’s share of Reconciliationof Reconciliation
9%9% 7%7%
Future Agriculture Future Agriculture ReconciliationReconciliation
-8-8 -193-193
Policy ImplicationsPolicy Implications
How to reduce farm program spending.How to reduce farm program spending.
WTO compliance by category (Amber, WTO compliance by category (Amber, Blue, Green boxes).Blue, Green boxes).
Fruit and vegetables, specialty crops, Fruit and vegetables, specialty crops, planting prohibition.planting prohibition.
Land values.Land values.
Policy Implications:Policy Implications:How to Reduce Ag SpendingHow to Reduce Ag Spending
Farm Commodity Programs are now direct Farm Commodity Programs are now direct payment programs.payment programs.Few efficiencies to be gained as in 1990 Few efficiencies to be gained as in 1990 Flex Acres 15% reduction in deficiency Flex Acres 15% reduction in deficiency payments.payments.Reductions likely to be in commodity Reductions likely to be in commodity (A/B/G), conservation direct payments (A/B/G), conservation direct payments (Green), crop insurance premium (Green), crop insurance premium subsidies (de minimis).subsidies (de minimis).
CCC Outlays by Payment TypeCCC Outlays by Payment Type
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
$ m
illio
ns
2005 2007 2009 2011 2013
Total
Payments
Net Lending
Price support
Export
GSM
Policy Implications: Policy Implications: WTO DimensionWTO Dimension
Policymakers must consider trade negotiation Policymakers must consider trade negotiation proposals in deficit reduction.proposals in deficit reduction.
Previous US proposal to reduce AMS to 5% of Previous US proposal to reduce AMS to 5% of value of Ag production implied Amber Box limit value of Ag production implied Amber Box limit of $9.5B, 50% less than $19.1B. of $9.5B, 50% less than $19.1B.
Current “Substantial Reduction” is suggested to Current “Substantial Reduction” is suggested to mean 40-50% reduction. Amount TBN.mean 40-50% reduction. Amount TBN.
Dairy and sugar pose major challenge: small Dairy and sugar pose major challenge: small budget impact, significant AMS impact.budget impact, significant AMS impact.
Commodity Program Costs Commodity Program Costs 1999-01 Avg1999-01 Avg
0
5,000
10,000
15,000
$m
illi
on
BudgetCosts
AMS
Sugar Dairy
All other
Meeting WTO AgreementMeeting WTO Agreement
Dairy and Sugar must be considered in Dairy and Sugar must be considered in AMS reduction, if not budget reduction.AMS reduction, if not budget reduction.
These are not just Market Access issues.These are not just Market Access issues.
Cutting AMS will have disproportionate Cutting AMS will have disproportionate impact on farm income vs. budget cuts.impact on farm income vs. budget cuts.
How reductions are made has broad policy How reductions are made has broad policy implications.implications.
Specialty Crop IssuesSpecialty Crop Issues
WTO panel ruled Direct Payments may WTO panel ruled Direct Payments may not be Green Box because of fruit and not be Green Box because of fruit and vegetable planting prohibition.vegetable planting prohibition.Specialty crop interests seek CCC funds in Specialty crop interests seek CCC funds in Ose-Dooley bill, mostly Green box. Likely Ose-Dooley bill, mostly Green box. Likely accommodation in next farm bill.accommodation in next farm bill.Shifting funds from program crops to Shifting funds from program crops to specialty crops while reducing overall specialty crops while reducing overall spending.spending.
Land ValuesLand Values
Values/ rental rates have kept rising Values/ rental rates have kept rising through low price years 1998-2002.through low price years 1998-2002.
Farm bill continued policy that resulted in Farm bill continued policy that resulted in farmer incomes being higher when prices farmer incomes being higher when prices are low.are low.
International competitive issue: US vs. International competitive issue: US vs. Brazilian soybeansBrazilian soybeans
Real Estate Values vs. Prices Real Estate Values vs. Prices Received, 1990-92=100Received, 1990-92=100
0
200
400
600
800
1,000
1,200
1,400
1,600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
$ p
e A
cre
0
20
40
60
80
100
120
140
Ind
ex, 1
990-
92=
100
Real Estate Value Prices Received
Real Estate Values vs. Prices Real Estate Values vs. Prices ReceivedReceived
0
20
40
60
80
100
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
$ p
er
Ac
re
0
20
40
60
80
100
120
140
Ind
ex
, 1
99
0-9
2=
10
0
$Change/A Prices Received
Land Values & U.S. Land Values & U.S. Competitiveness: US$/buCompetitiveness: US$/bu
USUS
HeartlandHeartland
BrazilBrazil
Parana/MGParana/MG
ArgentinaArgentina
ProductionProduction 5.115.11 4.16/ 3.894.16/ 3.89 3.933.93
VariableVariable 1.711.71 2.78/3.172.78/3.17 1.901.90
FixedFixed 3.403.40 1.38/0.721.38/0.72 2.022.02
Internal transportInternal transport 0.430.43 0.850.85 0.810.81
Freight to Freight to RotterdamRotterdam
0.380.38 0.570.57 0.490.49
Price at RotterdamPrice at Rotterdam 5.925.92 5.58/5.805.58/5.80 5.235.23
Source: Economic Research Service, USDASource: Economic Research Service, USDA
Summing UpSumming UpFramework agreement models Uruguay Framework agreement models Uruguay Round but with pressure for greater overall Round but with pressure for greater overall reductions, especially domestic supports, reductions, especially domestic supports, perhaps 40-50%.perhaps 40-50%.
Deficit reduction pressure will likely Deficit reduction pressure will likely continue for several years, continued cuts continue for several years, continued cuts in agriculture programs.in agriculture programs.
Policymakers must be mindful of how cuts Policymakers must be mindful of how cuts are effected to reflect WTO commitments.are effected to reflect WTO commitments.
Summing UpSumming Up
Price support levels (Amber) likely to be cut Price support levels (Amber) likely to be cut the most, CCP’s (Blue) some, Direct the most, CCP’s (Blue) some, Direct payments (Green) less.payments (Green) less.
Dairy and sugar programs will need to be Dairy and sugar programs will need to be addressed carefully.addressed carefully.
Specialty crops and planting prohibitions Specialty crops and planting prohibitions will likely need to be addressed.will likely need to be addressed.
Summing UpSumming Up
Land values will likely decline, both as a Land values will likely decline, both as a result of reduced gov’t assistance and to result of reduced gov’t assistance and to meet competitive challenge with other meet competitive challenge with other countries.countries.