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Farm Bill: Budget & Trade Issues

I. Farm Bill Budget, Spending
II. Doha
III. Canadian (Brazilian?) Corn Case
IV. Johanns on the Farm Bill

I. Farm Bill Budget, Spending

Alexei Barrionuevo, writing in today’s New York Times, reported that, “With a costly war in Iraq, mounting budget deficits and record-high crop prices, administration officials said this week that farmers should expect to receive smaller agricultural payments in this year’s Farm Bill.

“But wait, say some Congressional leaders, who are clamoring for more dollars for farmers. More money is needed to accelerate research into biofuels like ethanol, which is considered crucial to reducing the country’s reliance on imported oil and for buttressing the Midwest economy.”

Photo by The New York Times

The Times article went on to explain that, “Amid soaring crop prices, fueled in part by global droughts and rising demand for corn-based ethanol, subsidies are expected to drop by $7 billion this year, to about $13.5 billion. Agriculture officials expect demand for corn in particular to continue to be strong as dozens of ethanol plants come online this year. That will mean farm payments are expected to be lower for at least a few years.

“In this new environment, some trade specialists see an opportunity for Congress to cement those savings by lowering the financing structure. That could give the United States greater leverage in negotiations at the World Trade Organization, which remain stalled over agriculture payments. Whether Congress will vote to lower those ‘baseline’ levels ‘is the question that a lot of discussion and debate will be devoted to over the next 30 to 60 days,’ Agriculture Secretary Mike Johanns said.”

Mr. Barrionuevo then pointed to some key changes in the agricultural economy that have occurred since the last Farm Bill was drafted, Sec. Johanns highlighted many of these changes in his presentation on Monday to the American Farm Bureau: “Mr. Johanns said the Agriculture Department would propose a leaner farm bill later this month to reflect ‘very stark’ differences between the situation facing farmers this year and in 2002, the year of the last bill. Before the 2002 farm bill, American agricultural exports had dropped for five consecutive years. Back then, Congress had a budget surplus and had been making emergency supplemental payments to a struggling farm sector. Congress ultimately allocated $7.4 billion more a year for farm programs, a 75 percent increase over projected spending for the 1996 Farm Bill.

“Today the agriculture sector’s debt-to-asset ratio has fallen from 15 percent in 2002 to 11 percent, the best in recorded history, Mr. Johanns said. And the Agriculture Department is projecting $77 billion in farm exports next year, up from about $53.3 billion in 2002.”

The Times also indicated that, “Congress is also expected to allocate more for conservation programs and for fruit and vegetable growers — so-called specialty crops — that are requesting billions of dollars in indirect payments to help their industries better compete globally.

“But no area is drawing more attention in this year’s farm bill debate than energy. Congress is already floating several energy-related proposals that would provide tax credits to spur investment in cellulosic biomass, expand the national ethanol market by raising the renewable-fuel standards and make ethanol pumps more available to drivers.”

Concluding, the Times article noted that, “[M]r. Harkin [Senate Agriculture Committee Chairman Tom Harkin (D-Iowa)] is among those in Congress who view farm bill spending as critical to maintaining the momentum of biofuels, which have reinvigorated rural economies.

“‘The demand for corn and for soybeans is going to be strong over the next few years,’ Mr. Harkin said. ‘But it is nice to have a safety net. Those kinds of savings should be used to provide some transitional support for farmers to begin to grow some energy-related crops.’”

II. Doha

Yesterday’s “Washington Insider” (posted at DTN, link requires subscription) also noted how higher commodity prices are impacting the Farm Bill debate, but added that, “It has been easy in recent months for many producers and farm groups to overlook the importance of completing the Doha negotiations. With cash prices for a number of commodities approaching historic highs and renewable fuel production expanding at a rate few would have expected only a year ago, attention has shifted to domestic markets and efforts to continue to enlarge — and supply — these industries.”

The DTN piece explained that, “For many policy observers, the Doha Round of trade negotiations fell off the radar screen months ago, when talks were suspended after a long series of missed deadlines and limited progress. But the message that all hope is lost apparently did not reach top government officials, who continue to work tirelessly to resuscitate the stalled talks and hopefully bring a final agreement to fruition.”

In conclusion, “Washington Insider” stated that, “The stalemate in the Doha negotiations reflects in part criticism by some WTO members that our proposed caps on ‘trade distorting’ domestic support did not go far enough. The United States has indicated a willingness to modify that proposal, but only if greater market access from the EU and others can be assured. In the meantime, projected farm program outlays are already far below recent years (reflecting high market prices), and lawmakers are floating ideas for the 2007 farm bill.

“Washington Insider believes that this could provide an opportunity for Congress or the administration to attempt to break the Doha stalemate by proposing a farm bill that reduces or eliminates the price-dependent programs that are already expected to provide producers few if any benefits in the years ahead. This is just another reason why producers should continue to watch carefully the continuing efforts to revive the Doha talks.”

With respect to Doha momentum, Dow Jones writer William Echikson reported on Tuesday that, “European Union Trade Commissioner Peter Mandelson will meet again later this month with the chief U.S. trade negotiator Susan Schwab to attempt to restart global trade negotiations, the European Commission said Tuesday.”

Financial Times writer Alan Beattie reported yesterday that, “If the bugle calls of transatlantic concord sounding in Washington this week are to be followed by a sustained advance in the Doha talks, it will involve some delicate sidestepping around the battlelines.

“One expression comes up repeatedly in trade negotiators’ comments on the apparent EU-US detente: the devil will be in the detail. And the detail of the farm talks suggests that it will be hard to get to consensus between the US and the European Union, let alone the rest of the World Trade Organisation’s member countries, without one or both crossing lines they have publicly drawn in the sand.

“When the talks collapsed last year, these lines had been clearly marked out. The US proposed a 66 per cent average cut in farm tariffs, eyeing not just Europe’s protected markets but those around the world. The US trade representative’s office has repeatedly said it would under no circumstances go below the counter-proposal from the Group of 20 developing countries led by Brazil, which suggested an average 54 per cent cut.

“The EU’s initial offer was for an average 39 per cent cut, in return for which it wanted sharp reductions in America’s trade-distorting farm subsidies. On Susan Schwab’s first full day as US trade representative last June, she flatly ruled out a compromise.”

However, Mr. Beattie went to offer this broader context: “Officials say the concentration on a single average number is misplaced. The actual reduction in protection depends on the formulas used for cutting tariffs and negotiations over how many so-called ‘sensitive products’ that WTO members can use for exempting certain crops and commodities from the general tariff cuts. Indeed, many of the technical discussions that have been going on in recent weeks have focused on these exemptions. By pinning down specific totals of access to its markets for politically sensitive products such as beef and poultry, the EU may manage to buy off elements of its protectionist farm lobby.

“Ann Tutwiler, head of the trade and development programme at the Hewlett Foundation, a research institute, said: ‘If the two sides find a deal that can be sold as part of a bigger package, they could convince the farm lobby that they will have to accept it because makes the whole puzzle fit together.’”

Mr. Beattie also noted that, “On the farm subsidies side, the EU and other countries are pressing the US to cut the total amount of those payments deemed to distort trade. In truth, the US could probably cut a big chunk from its current offer without causing farmers too much pain.”

Meanwhile, an article posted yesterday at BusinessInAfrica Online, that was datelined from Addis Ababa, indicated that, “African trade ministers are due to hold an extraordinary session here next Tuesday to adopt a common stand on the way forward regarding the Doha Round of global trade negotiations under the World Trade Organisation (WTO)”.

And the Associated Press reported yesterday that, “France on Thursday warned EU Trade Commissioner Peter Mandelson against making further concessions on agriculture amid a global push to revive the stalled Doha round of trade negotiations.

“During a meeting with Mandelson in Paris, Foreign Minister Philippe Douste-Blazy ‘firmly reminded’ the top Brussels trade negotiator that his existing offer to cut tariffs on farm goods ‘constituted a red line and exhausted the European Union’s room for negotiation,’ a ministry statement said.”

Dow Jones writer Juliane von Reppert-Bismarck added yesterday afternoon that, “Top European Commission and French officials Thursday agreed the European Union must work to revive ailing global trade talks, but that the E.U. will stay within the limits of existing farm policy during negotiations for a deal.

“In meetings between European trade chief Peter Mandelson and a lineup of top French ministers including Prime Minister Dominique de Villepin and Trade Minister Christine Lagarde, the two sides discussed Europe’s potential role in salvaging a global trade deal at the World Trade Organization.

“Both sides agreed a deal would boost Europe’s economy. But both agreed Mandelson will have no new powers to reform E.U. farm policy as a way to reach a deal.”

Wall Street Journal writer John Harwood reported in the “Washington Wire” section of today’s Wall Street Journal that, “Former Clinton aide Dan Tarullo says Bush must ‘become personally involved’ to restart Doha trade talks. Though Bush’s negotiating authority expires in June, trade representative Schwab says ‘content will dictate over chronology’ in talks with Europe, Brazil and India.”

An item posted yesterday at The Economist Online (“Just do it”) added this perspective regarding the recent U.S. – EU meetings on Doha in Washington this week, “Ms Schwab [U.S. Trade Representative Susan Schwab] likened the negotiations to ‘three-dimensional chess’. Mr Mandelson [EU Trade Commissioner Peter Mandelson] talks more positively about the ‘end-game’. Afterwards he said: ‘We came to Washington today looking for new impetus for the Doha negotiations and I believe we found it.’ According to the Financial Times, Mr Mandelson believes he has a unique personal relationship with America’s president. Perhaps, like Tony Blair, he uses the same brand of toothpaste.”

The Economist went on to note that, “And so by the spring, the talks must show enough of a pulse to convince Congress that there is a deal worth sparing.

“For that to happen, the Americans will first have to agree to screw down the limit on their trade-distorting farm subsidies, from about $22 billion to something like $15 billion-17 billion. Mike Johanns, the agriculture secretary, has been touring farm states, reminiscing about his childhood on an Iowa dairy farm and preaching the need for reform. Thanks to a boom in biofuels, America’s farmers are enjoying high prices, but their cotton and rice handouts face stiff legal threats at the WTO and their corn subsidies this week came under attack from Canada. Mr Johanns will soon unveil his proposals for replacing today’s farm programmes, which expire this year, with better ways to nurture cultivators.

“If the Americans agree to pluck more of the feathers from their farmers’ beds, the next move will fall to the Europeans. They seem ready to cut their agricultural tariffs by about half on average, but still want to spare too many ‘sensitive’ products, such as beef and poultry, from the full force of the chop. If a compromise is reached, the third dimension of the chessboard includes Brazil, which is nervous about dropping industrial tariffs, and India, which has deep trepidation about opening its farm sector.”

With respect to Brazil, Reuters news reported yesterday that, “The United States on Thursday said it wants Brazil to lobby its peers in the G-20 group of developing nations to try to achieve a breakthrough in the stalled Doha global trade talks.

“‘We encourage Brazil to play a leadership role in moving the G-20 towards a successful Doha outcome — one that opens markets in both developed and developing countries and creates new trade flows,’ U.S. Ambassador to Brazil Clifford Sobel said.”

III. Canadian (Brazilian?) Corn Case

On the flip side of issues regarding Brazil, a Dow Jones News article from yesterday (posted at DTN, link requires subscription), reported that, “Brazil’s Foreign Affairs Ministry is considering joining the government of Canada in challenging U.S. corn subsidies before the World Trade Organization, the local Estado de Sao Paulo newspaper reported Thursday.

“While any WTO challenge takes a long time to unfold, the timing of this case with the beginning of the farm bill debate in Congress may bring the question of U.S. farm subsidies into sharper focus.

“The newspaper reported that foreign affairs official Roberto Azevedo, of the ministry’s economic department, said Brazil could join Canada in a dispute against Washington. Azevedo said the government is in its early phase of studying a potential joint dispute. No dates were given for a decision, Azevedo told the newspaper.”

Dow Jones writer Dwayne Klassen reported yesterday that, “Canadian Corn Producers, or CCP, is encouraged by the request made by Canada for World Trade Organization consultations with the U.S. on subsidies provided to U.S. farmers under the farm bill, especially those provided to U.S. corn growers, according to an industry member. However, some also believe that the Canadian government should have just gone directly to litigation.

“‘I would say that we are encouraged by the Canadian government’s request to hold WTO consultations with the U.S. over their use of corn subsidies,’ said Ryan Brown, general manager of the Ontario Corn Producers’ Association.

“‘With the collapse of the Doha Round of WTO trade negotiations, a successful challenge of these U.S. subsidies (through WTO consultations and, if needed, WTO litigation) is the only viable long-term solution to level the playing field for both corn producers and corn users in Canada.’

“Corn producers in Canada have for the last couple of years wanted the Canadian government to launch a WTO complaint against the U.S. farm bill, he said. ‘The fact that the Canadian government has finally gone ahead and taken this consultation route is definitely a step in the right direction,’ Brown said.”

IV. Johanns on the Farm Bill

Associated Press writer Betsy Blaney reported yesterday that, “The nation’s farm policy must shift away from only protecting producers’ pocketbooks to withstand international scrutiny now that most U.S. cotton is exported, Agriculture Secretary Mike Johanns said.

“Eighty percent of U.S. cotton goes to markets outside the country, and to ignore that when writing the 2007 farm bill could invite further World Trade Organization complaints, Johanns told hundreds of U.S. producers Wednesday at the Beltwide Cotton Conferences.

“‘We have to grab hold of the issues and craft farm policy the way that leads us to the future and tries to recognize that we have to have a policy that can withstand challenge,’ Johanns said. ‘You have no safety net if close to 80 percent of your market is at risk.’”

To hear more from Sec. Johanns on trade issues and farm policy, click here (MP3- 30 seconds) and here (MP3 25- seconds).

Yesterday, U.S.D.A. posted a transcript of a news conference that was held following the remarks that Secretary Johanns had made at the Beltwide Cotton Conference.

In part Secretary Johanns reminded his audience that there are W.T.O. compliant ways to support American agriculture.

In response to a reporter’s question, Sec. Johanns noted that, “[T]here are many ways to support agriculture…[O]ur conservation payments are not subject to WTO challenge. They are outside the parameter. I’m going to take a somewhat complex body of law here and a trade lawyer probably would throw a law book at me, but generally if you tie your program to price and/or production — in other words, if you get paid more with more production or if a program kicks in because of a certain price, you’re likely to have a bullseye on your back relative to WTO.

“If it’s not tied to price or production — in other words, it’s for a conservation purpose or it’s just a direct payment — then it’s outside the rules of the WTO…So it can be done…”

-Keith Good