Trade winds blow farm bill off course

COLUMBUS – A recent U.S. proposal to reduce farm subsidies to jump start World Trade Organization (WTO) negotiations may shape the 2007 farm bill.
It all depends on whether or not the proposal is accepted, what programs are reduced, and to what extent they are reduced, or even possibly eliminated.
Blame Bush. The Bush administration would like to cut farm programs, said Ohio State ag economist Luther Tweeten, and that could be accomplished by changing farm commodity programs through the Doha round (of WTO negotiations).
“The Bush administration wants to use these negotiations as leverage to go to Congress and say here’s what the rest of the world would do, here’s what we have to do, and then Congress would be asked to go along with these changes in farm commodity programs,” Tweeten said.
The idea is that any cuts in payments and protections to farmers would be more than offset by greater access to markets abroad, he explained.
On the table. The current proposal calls for the United States to reduce its domestic farm programs – those that distort farm production and international trade – by 60 percent.
If such a proposal were to be approved, the potential exists for a radical change in the 2007 farm bill.
“If the administration gets an agreement that substantively constrains U.S. farm policy, then we will be writing this next farm bill with a constraint that has never before existed,” said Carl Zulauf, also an Ohio State agricultural economist .
Box management. Basing the new bill on WTO negotiations is a growing concern because the move could substantially rewrite farm policy by shifting programs, reducing programs or eliminating programs to stay within the boundaries of WTO limits.
“I refer to it as box management. You’ve got the amber box, you’ve got the blue box, you’ve got the green box,” said Zulauf. “And it’s managing those boxes of the WTO that is going to become very critical.”
In the past, Zulauf said, there were no boxes or the limits were so large, the U.S. didn’t have to worry about them.
“That’s not going to be true in 2007,” he said.
Explain yourself. The U.S. must report to the WTO how it classifies each of its programs and not exceed its expenditures to maintain those programs, said Zulauf.
“If you exceed the box limit then other countries can claim you are in violation of the WTO agreement and can seek damages because of that.”
Who gets hurt. If programs in the amber box are reduced, loan deficiency payments, countercyclical payments and dairy and sugar supports will likely be impacted.
“Somebody’s going to lose something if we cut domestic amber box programs. Either someone is not going to get as much money as before, or you are going to shift spending programs to green box programs,” said Zulauf.
“But if you pay farmers for conservation reasons, what criteria do you use? It’s got to meet the minimally trade distorting criteria and the benefits from conservation programs are not likely to be distributed among farmers in the same way as benefits from the current production-related programs.”
Ready or not. Both economists believe that it’s smart for farmers and agribusinesses to prepare for a change.
“Growers have to be prepared for the possibility that the level of farm supports would be cut somewhat, but it wouldn’t be terribly drastic and it’d be a gradual change, probably over a period of several years,” said Tweeten.
Approximately 20 percent to 25 percent of the current land price is dependent on current commodity programs, so there would be some adjustment in farm prices for land because of the change in the programs, Tweeten said.
Any changes in programs tend to show up rather quickly in farm rents, he added, something farmers need to realize.
Farmers need to be thinking about the question, ‘What do I need to do to put myself in a position to be able to deal with the changes that may occur?’, Zulauf said.
“You can’t afford not to start thinking about this question.”