New farm bill likely to follow pattern

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WOOSTER, Ohio – Congress is in the midst of hammering out the next farm bill, but except for minor tweaks, the new policy is likely to follow patterns of the previous two farm bills.

“The present policy holds the advantage of momentum,” observed Ohio State ag economist Carl Zulauf at OSU’s ag policy and outlook meeting in Wooster Nov. 14. “There are a lot of critics of farm policy, but the critics can’t agree on an alternative.”

‘Very generous.’ Zulauf highlighted key provisions in the House’s proposed farm bill, which passed the full House in early October. H.R. 2646 basically marries the 1991 and 1996 farm bills, blending fixed rates and target prices in a proposal that Zulauf calls “very generous” to agriculture.

The House version increases farm income support by 5 percent to 10 percent. “It makes permanent the temporary economic assistance of the last three years and increases support above that level,” Zulauf said. “Everything went up.”

The Senate, however, was in the middle of debate at the time of Zulauf’s comments, so he could only speculate as to the legislation’s contents. The Senate ag committee voted its measure out of committee the next day, Nov. 15.

Although the current farm bill doesn’t expire until 2002, Zulauf expects a new farm bill to come together before year end. Congress seems to want it done this year, he said, before budget limit fears spread.

The big uncertainty is how both versions will fare in the conference committee. The Senate wants a five-year, not a 10-year, bill, and would also place more emphasis on conservation measures.

Budget limits loom. Zulauf said the push to pass a farm bill this year recognizes that national concern over budget deficits will mount in coming months. He said the United States is facing a budget deficit of between $100 billion and $150 billion, as compared with a comfortable $150 billion surplus prior to the events of Sept. 11.

Recent spending bills have authorized $40 billion for security spending and another $10 billion to $20 billion to the airline industry, with more funding targeted to the airlines.

“A budget deficit is unlikely to continue, but if it does, agriculture will be at the top of the cutting list,” Zulauf said. “Congress is prepared to cut farm programs if budget deficits continue.”

The ag economist said the bottom line is, the longer the United States goes without a farm bill, the larger the budget obstacles loom.

“The question now is how big of a deficit do we run?” Zulauf said.

The Office of Management and Budget releases its new budgetary estimates for next year Feb. 1.

WTO wrinkle. At the same time Congress debates the farm bill, U.S. farmers face another wrinkle in the fabric of farm policy: a new round of trade talks by the World Trade Organization.

Trade representatives from around the world met last week in Quatar and agreed to hold the first round of trade negotiations since the Uruguay Round was completed under the former General Agreement on Tariffs and Trade (GATT).

The old GATT had only 35 members, but the newer trade policy governing body encompasses 145 member-countries.

The implications for U.S. farmers are large, said a second Ohio State ag economist, Ian Sheldon. For the first time, the Uruguay Round placed restraints on “distorting” farm programs, Sheldon said, meaning U.S. domestic farm policy also comes under international jurisdiction.

Agricultural tariffs average 62 percent, Sheldon said, as compared with the global industrial sector’s average tariff of 10 percent to 15 percent. Creating that average, however, are such extremes as an average tariff of 110 percent in Korea and Japan and a low of 25 percent in North America.

The United States has the lowest import tariffs in the world, Sheldon said.

Push for liberalization. He cited research that claims that reducing tariffs by even one-third would boost world economy by $600 billion. The World Bank claims trade liberalization would lift 300 million out of poverty by 2015.

Sheldon added, however, that transparent tariffs are the easy trade limits to negotiate. The trickier negotiations involve export subsidies, which ultimately drive down prices. The European Union, for example, accounts for 90 percent of export subsidy expenditures worldwide.

Sheldon likened pending talks in this arena as a “fist fight,” with the United States and the Cairns Group (New Zealand, Australia, Canada and others) in one corner as favoring eliminating export subsidies, and the European Union and Japan in another corner, favoring a small reduction in such subsidies.

Sheldon said it will be more difficult to reach consensus in the new round if economic heavyweights like the United States and the European Union throw their weight around and fail to consider issues of the developing countries, which are the majority.

And back in the United States, President Bush does not hold “trade promotion authority,” the new buzzword for “fast track” authority. Fast track authority gives an administration the authority to negotiate new trade policy without Congressional approval or changes.

No date has been set for the new round of talks, but it is likely to take several years before reaching any consensus on trade changes – assuming any consensus can be reached.

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U.S. economy troubled

WOOSTER, Ohio – The signs of a downturn in the U.S. economy were evident as summer slipped into September, but the terrorist attacks on Sept. 11 has sent U.S. domestic economy into a tailspin that threatens economies around the world.

“We’ve exported our slow-down to the world economy,” said Ohio State ag economist Carl Zulauf, explaining that lower U.S. consumer demand for computers, for example, has negative impacts for Southeast Asia.

Looking at the economy with a post-Sept. 11 perspective shows a great deal of uncertainty, Zulauf said, adding that the full economic ramifications of Sept. 11 will not be known for a long time.

The uncertainty includes the range of the economic ripples and the reaction of consumers to a recession, Zulauf said.

“People in this country under 30 have never lived through an economic downturn,” he reminded those attending a Nov. 14 ag policy and outlook meeting in Wooster.

Already this year, the Federal Reserve Board has cut interest rates 10 times, he said.

“What do we do if the economy doesn’t pick up?” Zulauf asked, then admitted he was better at asking questions than giving answers.

– Susan Crowell

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