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Doha: Down But Not Out

I. Doha
II. Budget Issues
III. Farm Bill Issues
IV. Canada Corn Action
V. Senate Hearing

I. Doha

Renewable energy issues, increased production of corn-based ethanol plants and the higher market price of some program crops, such as corn, have garnered more attention in the 2007 Farm Bill debate over the past three months.


Some Suggest Congress Should Play a Larger Role in the Doha Talks

The possibility of a new price plateau for a key program crops like corn and the resulting implications for subsidy payments, safety net provisions and rural development issues will likely be a leading factor in the Farm Bill debate.

Simultaneous to the unexpected change in commodity market dynamics, has been the suspension and resulting stagnation in the Doha Round of W.T.O. trade negotiations. Not long ago, the Doha talks were viewed as one of the most significant features of the upcoming farm policy debate.

Despite this issue reprioritization, recent developments suggest that the Doha talks could yet resuscitate and could potentially impact the debate over trade promotion authority and may still play a meaningful role in the formulation of next Farm Bill.

Yesterday, Reuters news reported that, “The top trade negotiators of Europe and the United States are likely to meet again soon to discuss suspended global trade negotiations, the European Commission said on Tuesday.

“European trade chief Peter Mandelson and U.S. counterpart Susan Schwab met in Washington on Monday and said afterwards that some progress had been made.”

The article added that, “‘Contacts between senior officials from the U.S. and EU will now continue and intensify and negotiators in Geneva (where the WTO is based) will continue their work,’ the Commission said in a statement.

The item concluded by noting that, “The EU and other WTO countries are pushing the United States to go further with cuts to farm subsidies. Washington has said it wants the EU and some big developing countries to improve on their offers for cutting tariffs on agricultural imports.”

Wall Street Journal writer Greg Hitt reported today that, “In a fresh sign of the intensifying efforts to revive moribund global trade talks, U.S. Trade Representative Susan Schwab will travel to Geneva late this week for consultations with Pascal Lamy, head of the World Trade Organization.

“The one-day visit Friday follows a series of round-robin discussions Ms. Schwab has held with major players in the so-called Doha Round of talks. In the last two weeks, Ms. Schwab has conferred directly with top trade officials from Brazil, Europe and Japan, and has reached out by telephone to India’s lead negotiator. A senior U.S. trade official said the meeting with Mr. Lamy will help lay the groundwork for additional discussions to be held later this month at an international conference in Davos, Switzerland. The official said there have been no breakthroughs, but suggested major players have shown ‘more willingness’ to begin hammering out details.”

Dow Jones writer Elizabeth Price reported earlier this week that, “The U.S. and E.U. Monday said behind-the-scenes talks had given ‘fresh hope’ for a successful end to the Doha trade liberalization talks, even as time runs short for a deal to come during President George W. Bush’s term in office.”

The article added that, “[EU Trade Commissioner Peter Mandelson] and U.S. Trade Representative Susan Schwab told reporters that leaders agreed a Doha deal is possible, but that a breakthrough must come by March for there to be enough time to put it before the U.S. Congress, which must also consider whether it will renew Bush’s authority to negotiate trade agreements which expires at the end of June. Trade pundits say good prospects for a Doha deal would make Congress more likely to renew negotiating authority.”

And a recent Dow Jones news article noted that, “President Bush and European Commission President Jose Manuel Barroso said Monday they are committed to unlocking the World Trade Organization’s Doha Round of trade talks.

“‘We talked about the importance for Europe and the United States to resolve any differences we have when it comes to the Doha Round,’ Mr. Bush said after meeting with Mr. Barroso in the Oval Office.

“Mr. Barroso said the Doha talks, which stalled last summer amid a raft of disputes are at ‘a defining moment.’ The Doha talks are designed to cut global barriers to trade in manufacturing, services and farm products.”

The article added that, “‘The best way to help impoverished nations is to complete the Doha round, to encourage the spread of wealth and opportunity,’ Mr. Bush said.”

Along these lines, a recent Policy Outlook report (“Breaking the Doha Deadlock- Congress Could Play a Pivotal Role”) which was written by Sandra Polaski, the director of the Trade, Equity, and Development Project at the Carnegie Endowment for International Peace, noted that increased wealth in the developing world could also enhance U.S. agricultural exports.

In part, the Carnegie report stated that, “Because the WTO negotiations represent by far the largest potential deal on the U.S. trade agenda, Congress would do well to evaluate the current state of those talks and the role of U.S. policy in creating the deadlock. If it wants a new deal at the WTO, Congress may have to take an active role in breaking the impasse. This would have the additional advantage of restoring bipartisanship to trade policy making, as it would require cooperation between the Republican administration and the Democratic-controlled Congress.”

Ms. Polaski added that, “Further, the exaggerated U.S. trade proposal on agriculture is not necessary to advance the interests of U.S. farmers. Prospects for U.S. agricultural exporters are already bright under current global trading rules and would grow still more under offers that other countries have tabled in the Doha Round.”

“In much of the developing world, countries that were net agricultural exporters a generation or even a few years ago are now net importers. This growth is occurring under current trade rules and current tariff policies of developing country governments. The United States has consistently been the top exporter of agricultural goods to developing countries as a group. In 2005, the United States exported three times as much as Brazil, the next largest exporter, into these countries’ markets. The claim that developing country agricultural markets are closed to U.S. exports and must be pried open during the Doha Round is simply not supported by the facts,” the report explained.

On page four of the report, Ms. Polaski highlighted the importance of income growth in the developing world to the long-term expansion of U.S. agricultural exports: “It is counterproductive for the United States to insist on terms that could lower the incomes of poor farmers in developing countries by displacing their production or causing prices to drop for the commodities they produce. Only as large numbers of low-income households grow their way out of poverty will U.S. agricultural exporters see sustained increases in sales to developing countries. For countries with large portions of their populations in farming, which is to say most developing countries, governments must carefully manage policies to allow those farmers to become more productive and other sectors to grow. As incomes rise, both rural and urban households will buy more and better food until their dietary needs are satisfied. This pattern has been consistent over time and is illustrated by the recent experience of China and India.”

In conclusion, the Carnegie report indicated that, “Although the U.S. proposal has caused the impasse on agriculture—and a moderated U.S. proposal is the only way to break the stalemate—such a move would be quickly reciprocated in the Doha talks. The European Union has signaled that it is prepared to improve its offer to open its agricultural markets from a current proposal of tiered tariff reductions that would produce an overall average cut of 39 percent to a more ambitious formula that would yield an average cut of about 50 percent. This level of cuts by the EU would be unprecedented in world trade negotiations and would put pressure on other wealthy countries to agree to do the same. Developing countries have offered to cut their own tariffs, on average, by about 55 percent of the reductions offered by the developed world. If their legitimate concerns on special products are met, it is quite possible that they would agree to an overall formula of tariff cuts that is somewhat more ambitious.”

“It is time to recognize that a very favorable, if incremental, deal is available in the Doha
Round. Congress can drive progress to achieve that deal by undertaking a sensible reform of agricultural subsidies in the farm bill and by accepting the fact that developing countries need time and policy space to improve their poor farmers’ productivity and incomes before they are forced to compete with first world agriculture. Sound and equitable policies on both fronts are also in the interest of the U.S. economy. There is a win-win deal waiting to be grasped,” the report said.

***

Larry Dreiling, writing last week at the High Plains Journal webpage, provided an additional link between W.T.O. trade issues and U.S. domestic farm policy.

In his article, Mr. Dreling highlighted recent comments made by Dr. Barry Flinchbaugh, professor of agricultural economics at Kansas State University: “Flinchbaugh said. ‘The Doha round is not dead but is in intensive care and it may not get out. While that’s fine for some of us but we still have to follow the rules of the WTO.’

“One of the rules Flinchbaugh refers is that fruits and vegetables get a piece of the action in this new farm bill.

“‘From that we’ll have to follow the good old American principle called the bribe,’ Flinchbaugh said. ‘In order to keep the decoupled payment in the green box we’re going to have to bribe fruit and vegetable people so that exemptions can be removed. That will take at least $1 billion and maybe even $2 billion.’”

II. Budget Issues

However, additional Farm Bill resources for fruit and vegetable growers could be hard to come by during the ’07 Farm Bill debate as increases in market prices may lower projected budget baseline allocation estimates.

As Martha Angle explained in yesterday’s Congressional Quarterly Midday Email update, “The Congressional Budget Office plans to release a new Budget and Economic Outlook report Jan. 24, the morning after President Bush’s State of the Union Address.

“CBO’s report establishes baseline spending and revenue projections for the next 10 years. Using existing spending and tax law, it projects the expected path of federal revenues and outlays and resulting budget deficits or surpluses.”

Yesterday’s “Washington Insider” section of DTN (link requires subscription) provided this excellent summary on the Farm Bill budget issue, “Perhaps the biggest unanswered question regarding the next farm bill is exactly how much money the House and Senate Agriculture committees will be provided to pay for agricultural programs covered by the legislation. That number is a key piece of information needed before panel members can fit new policies into new financial constraints.

“Some Washington Insider sources are saying the Budget committees might be able to scrape up a few billion dollars in additional spending for the Ag panels. Others are more pessimistic about the amount that will be available. These sources note that even if the Budget committees approve a higher spending authorization for agriculture, that new money could be eaten up in short order by disaster assistance, new conservation initiatives and market-boosting programs for fruit and vegetable producers.

“Budget chairmen have not set a timetable for releasing a funding level for agriculture, but that number is much anticipated before release and will be well scrutinized afterward.”

Brownfield’s Tom Steever noted on Monday that, “[American Farm Bureau Federation (AFBF) President Bob Stallman] said he expects the Congressional Budget Office to establish a lower budget baseline for commodity programs initially. He said that’s because of higher prices created by renewable fuels.”

However, the Washington Wire Blog reported yesterday (David Wessel, The Wall Street Journal) that, “The federal budget deficit was about $85 billion in the three months of fiscal 2007 — October, November and December — the Congressional Budget Office estimates. That is about $35 billion less than in the comparable period last year. Revenues ran 8% over year-ago levels in the first quarter of the fiscal year, substantially outpacing the 1% growth in outlays. CBO is to release its new budget projections for the current fiscal year and the next 10 years later in January.”

III. Farm Bill Issues

* Editorial Board. The Kansas City Star. January 8. “The policy of linking subsidies to output is ruinous to the Treasury and encourages gluts, which are then exported. That drives down world prices for basic commodities, making it harder for farmers in poorer countries to survive.”

* Jane Roberts. The Memphis Commercial Appeal. January 7. “By economists’ best guesses, cotton acreage in the Mid-South this year could be down as much as 20 percent as farmers rush to cash in on decade-high corn prices.

“While cotton still will be king, it’s reign here has grown considerably iffy. Changes in agricultural subsidies and a fast-deflating domestic textile industry have taken a serious toll on demand. Since June, March cotton has dropped from 63 cents a pound to 54.42 Friday afternoon.

“‘We’re going to lose substantial acreage to corn in the Mid-South,’ said Billy Dunavant, chairman of Memphis-based Dunavant Enterprises Inc., among the largest cotton merchants in the world.”

* Dawn House. The Salt Lake Tribune. January 8. “Subsidies to U.S. farmers are paid with no logic: Payments are small or nonexistent during droughts or other hard times but large when harvests are bountiful.

“That assessment came from U.S. Agriculture Secretary Mike Johanns during the closing day of the American Farm Bureau Federation convention at the Salt Palace.”

“‘There’s got to be better ways for equal distribution,’ he said.

“Johanns said government payments will be more equitable in the 2007 farm bill, but he did not give details.”

* Editorial Board. Wisconsin State Journal. January 5. “America’s policy of subsidizing dairy farmers, at a cost to taxpayers that has reached as high as $1.8 billion a year, should get an overhaul in the 2007 federal farm bill.

“Wisconsin, home to more dairy farmers than any other state, should take the lead by promoting reforms to move the country toward a freer marketplace in which farmers produce to meet consumer demand rather than to collect a government check.”

* Dale Hildebrant. Farm and Ranch Guide. January 5. “Many criticized the 2002 Farm Bill since it allocated $73.5 billion over its life, but [former Texas Congressman and long-time member of the House Committee on Agriculture, Charlie Stenholm] admits he gets satisfaction from the fact that the program came in under budget.

“‘We are not spending what we could have spent,’ he said. ‘We are spending less on the five Title One commodities, wheat, corn, soybeans, cotton and rice, because it’s working. The market prices are up on corn, wheat and soybeans. There will be no counter-cyclical payments this year. That’s bad if you were expecting it, but it’s good if you are trying to explain it to the other members of Congress that might be listening more to the Wall Street Journal.’”

IV. Canada Corn Action

Peter Shinn of Brownfield reported yesterday that, “Canada’s formal request for World Trade Organization (WTO) consultations over the current U.S. farm program surprised, but didn’t faze, House Agriculture Committee Chairman Collin Peterson of Minnesota. Peterson, who spoke to Brownfield on his way back from an address to the American Farm Bureau Federation annual meeting Monday in Salt Lake City, said the move appears to have more to do with internal Canadian politics than U.S. agriculture policy.

“‘Well, I think the government up there has some political problems,’ said Peterson. ‘I had been under the understanding they weren’t going to move ahead with this, but I think this is probably more politics than anything.’

“Peterson also said he didn’t believe the Canadian request for consultations would ultimately result in a WTO decision against the U.S. farm program. ‘It’s out there and we’ll have to deal with it, but I just can’t imagine that this is going to go anyplace,’ he said.” (Related Brownfield audio on this story is available here).

V. Senate Hearing

The Senate Agriculture Committee will hold a hearing this morning at 9:30 Eastern (“A full committee hearing to discuss agriculture and rural America’s role in enhancing national energy security”).

To view a list of witnesses and opening statements, and to listen to the event live, just click here.

-Keith Good