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On Tuesday, members of the House Agriculture Subcommittee on General Farm Commodities and Risk Management “voted 18-0 to base the new farm bill on an extension of current crop support rules” (Reuters).

Brownfield’s Bob Meyer reported yesterday that, “Wisconsin Congressman Ron Kind [is] among those quite disappointed by the House Ag Subcommittee decision to extend the current commodity title through the next farm bill. The group completely ignored the changes suggested by Kind’s FARM 21 plan. ‘Reform is going to occur one way or the other,’ the La Crosse Democrat says, ‘I’d rather have Congress deal with some of the reform proposals rather than have it done for us by outside entities through these challenges with the World Trade Organization.’

“Kind agrees with comments that the subcommittee decision is a starting-point; he says there is a lot of interest in seeing a strong conservation title, reform of the nutrition programs, more for biofuels production. Kind says the only way these things can be accomplished is by reforming the commodity subsidy programs, ‘I hope the Committee, I hope Chairman Peterson keep an open mind.’”

To listen to a Brownfield interview with Rep. Kind, just click here (MP3).

In the six-minute interview, Rep. Kind used a phrase that Secretary of Agriculture Mike Johanns often delivers and stated that; it was time “take this bulls eye off the backs of our farmers.” Kind and Johanns use this phrase in reference to potential risks associated with WTO litigation asserting that current Title I commodity supports may not be in compliance with WTO covered agreements.

Graph from The Wall Street Journal Online.

Rep. Kind also noted that the market prices for some program crops are currently strong and that this price environment would be conducive to a change in the direction of Title I.

With respect to WTO litigation and farm subsidies, recall that on June 8, an announcement from the Canadian government stated that, “Canada has requested that a World Trade Organization (WTO) dispute settlement panel be established on the issue of U.S. agricultural subsidies.”

More specifically, the announcement noted that, “The majority of U.S. agricultural subsidies derive from Farm Bill programming. It is Canada’s view that these programs are trade distorting and require reform. Canada believes that it is an opportune time to press the U.S. to comply with its WTO obligations given that it is in the process of rewriting its Farm Bill.” (For more details on this case, just click here).

The Associated Press reported yesterday that, “The United States blocked a World Trade Organization investigation of its agricultural subsidies Wednesday, delaying a Canadian complaint that U.S. payments to farmers exceeds WTO rules.

“According to the Geneva-based trade body’s rules, a panel’s establishment can only be blocked once.”

The AP article added that, “Canada alleges that the United States has exceeded in six of the last eight years the $19.1 billion it is permitted to spend on the most contentious forms of agricultural subsidies. Canada also accuses the U.S. of offering export credit guarantees in breach of WTO rules.”

Beyond litigation, the U.S. and key trading partners are also working on a WTO negotiation track that could also potentially lead to some forms of domestic policy reform.

As Reuters news noted yesterday, “Trade powers launched an eleventh-hour effort to rescue global trade talks on Tuesday as negotiators prepared for what the United States called a critical week.

“U.S. Trade Representative Susan Schwab, leaving the first of five days of closed-door talks in Germany with counterparts from the European Union, Brazil and India, told reporters that this was ‘a critical week’ for the talks, and that the U.S. was prepared to do its part to make progress.

Earlier this week the Associated Press documented some specifics of these efforts, noting that, “The U.S. and Brazil disagreed Tuesday over how far the U.S. should cut farm subsidies as part of a global trade pact, officials said, as the World Trade Organization’s four most powerful members began five days of crunch trade talks.”

The article stated that, “Officials with knowledge of what happened in the private meeting said the U.S. and Brazilian positions were closer than the two countries have publicly stated.

“They said the U.S. indicated it was willing to limit its trade-distorting farm subsidies to $17 billion. Brazil is insisting on a figure somewhere below $15 billion, according to the officials speaking on condition of anonymity because of the sensitivity of the negotiations.”

However, “Washington hasn’t publicly moved since offering in October 2005 to restrict its subsidies to $22 billion. [Brazilian Foreign Minister Celso Amorim] said last week Brazil wanted the U.S. to come down to $12 billion,” the article noted.

A separate Associated Press article added that, “The discussions Wednesday started positively, officials said, building on Tuesday’s opening exchanges on the sensitive topic of American farm subsidies. While Brazil and the United States disagreed over how far the U.S. should cut handouts to American farmers, their positions were closer than the two countries have publicly stated.”

The AP story stated that, “Critics of the subsidies say they unfairly deflate international prices, making it impossible for poorer nations to develop their economies by selling their agricultural produce abroad.

“Washington has demanded that Brussels and major developing countries provide greater market access for American farm exports in exchange for the subsidy cuts.”

Outside the official confines of WTO activity, international trade arguments with economic underpinnings, are also being applied to bring political pressure for changes in Title I.

Celia W. Dugger reported in today’s New York Times that, “Eliminating billions of dollars in federal subsidies to American cotton growers each year would reduce American cotton production and exports, raise world prices by about 10 percent and modestly improve the incomes of millions of poor cotton farmers in Africa, according to a new study by Oxfam, the aid group.

“Agricultural economists at the University of California, Davis, who conducted the study for Oxfam, found that a typical farm family of 10 in Chad, Benin, Burkina Faso or Mali — Africa’s major cotton producers — that now earns $2,000 a year would have an extra $46 to $114 a year to spend if American subsidies were removed.

“‘Fifty to a hundred bucks is a lot of money to these people,’ said Daniel Sumner, chairman of the Department of Agricultural and Resource Economics at the university. ‘It’s not right to think that changing U.S. subsidies will turn very poor people into middle-class households by our standards. That’s a generational process. But it’s money in their pocket.’

“The study, to be released today, estimates that the African farmers would receive about half the total gain from higher prices, while the balance would go to those who transport, process and package the cotton, among others.”

The Times article concluded by saying, “Oxfam has acknowledged that cotton farmers in West Africa are contending with many problems beyond American subsidies. Cotton prices have declined, production costs have risen and yields in Africa have stagnated.

“‘Subsidy reform alone will not resolve all the challenges facing the cotton sector,’ Oxfam said. ‘But it could significantly ease the burden on poor cotton farmers struggling to support their families.’”

Beyond trade considerations, budgetary and government spending arguments are also being used to highlight the future direction of Title I.

Brian M. Riedl of the Heritage Foundation authored a report that was released yesterday entitled, “How Farm Subsidies Harm Taxpayers, Consumers, and Farmers, Too.”

In part, the Heritage report stated that, “If Congress takes the path of least resistance and extends current farm policies for another five years, it will have surrendered an enormous opportunity for reform. Most debates over federal programs force lawmakers to balance a program’s social benefits with the costs of financing it, but current U.S. farm policies serve no legitimate purpose. They burden American families with higher taxes and higher food prices. They harm small farmers by excluding them from subsidies, raising land prices, and financing farm consolidation. They increase trade barriers that reduce incomes in America and in lesser-developed countries. They are falsely promoted as saving the family farm and protecting the food supply. In reality, they are America’s largest corporate welfare program.

“This year’s farm bill debate will test whether Congress is serious about reform or will continue business as usual by pandering to special-interest groups that are working to protect their federal largesse. Congress and President Bush should take a more sensible approach to farm policy this year. Instead of rubberstamping the status quo, they should return to the market-based approach embodied in the 1996 Freedom to Farm Act.”

Also yesterday, Citizens Against Government Waste issued a news release, which focused on Title I. The release stated that, “Citizens Against Government Waste (CAGW) today released Making the Grade: CAGW’s Report Card on Farm Bill ‘Reform’ Proposals. The report covers crop subsidies, the most significant part of the Farm Bill, and analyzes the proposed reforms.

“‘CAGW’s Report Card gives taxpayers some user-friendly benchmarks judge the various proposals currently being debated to reform the nation’s archaic farm subsidy system,’ said CAGW President Tom Schatz. ‘We hope that it will help them avoid being sold a pig in a poke as Congress goes about rewriting the Farm Bill.’

“CAGW rates current law, the Bush Administration proposal; the Citigroup ‘buyout’ plan; the Cato Institute ‘buyout’ proposal, the American Farm Bureau Federation and National Corn Growers Association ‘revenue insurance’ plans; and the FARM-21 risk management account proposal. Grading is based on fairness, relief to taxpayers and consumers, rural development, international trade, and benefits to developing nations’ farmers.”

In conclusion, the CAGW report stated that, “There are only two proposals, the Cato Institute ‘Buyout’ and FARM-21’s risk management accounts, which truly qualify as ‘reform.’”

On Tuesday, the Food and Agriculture Policy Research Institute (FAPRI) issued a report entitled, “Impacts of Changes in Direct Payment Rates, Target Prices and Loan Rates,” which according to FAPRI, “examines several proposals that would maintain the current structure of farm programs, but adjust direct payment rates, target prices and loan rates.”

The FAPRI report stated that, “Proposals for the 2007 farm bill commodity title range from modest changes to current farm programs to policies that would represent a more radical departure from the status quo. This report examines several proposals that would maintain the current structure of farm programs, but adjust direct payment rates, target prices and loan rates.

“The point of comparison for the analysis is the stochastic baseline for US commodity markets prepared by the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri–Columbia (MU) in early 2007. The FAPRI baseline assumes a continuation of 2002 farm bill provisions and a continuation of current measures to support the biofuel industry.

“Seven scenarios are compared to the FAPRI baseline. The first six change direct payment rates, target prices, and/or loan rates for a single commodity, holding all other program provisions at baseline levels. The seventh scenario, based on a proposal by the American Soybean Association, changes target prices and loan rates for a number of commodities simultaneously.”

As Rep. Kind insinuated in his interview with Brownfield, variables such as the current price environment might ease the transition to Title I reform. Factors that will likely impact these tangential elements of the debate are noted below.

Dahleen Glanton
reported in the Chicago Tribune earlier this week that, “More than a third of the United States is in the grip of a menacing drought that threatens to make its way into Illinois and other Midwestern states before the summer ends.

“While much of the West has experienced drought conditions for close to a decade, the latest system is centered over Alabama and extends to much of the Southeast, heavily affecting Georgia, Florida, Louisiana, Mississippi, Tennessee, North and South Carolina and Virginia, as well as parts of Arkansas and West Virginia.”

The St. Louis Post-Dispatch noted yesterday that, “After weeks of dry heat, farmers across much of central Illinois say their corn could use a good shower or two.”

The item added that, “And corn is at a critical, moisture-intensive stage, according to Emerson Nafziger, a crop production specialist at the University of Illinois.

“Pollination should begin in most Illinois corn next week, he said, and corn plants need a lot of water for successful pollination.

“‘If pollination doesn’t succeed, that means kernel numbers are low,’ Nafziger said. ‘Of course, kernels are where the yield comes from.’”

Iowa State Agricultural Economist Robert Wisner noted on Monday that, “Corn and soybean prices have become increasingly volatile in the last two weeks, in response to trader uneasiness about dry weather in the eastern Corn Belt as well as in the Ukraine and Russia. With a projected 58% increase in corn to be processed for ethanol in the marketing year beginning September 1, 2007, the corn supply-demand balance for the year ahead looks quite tight. Supplies could become very tight with a 3 or 4 bushel per acre decrease in the U.S. average yield from current USDA projections or foreign weather problems that would strengthen U.S. corn exports.”

Dr. Wisner added that, “The grain trade appears to have been anticipating above-trend corn yields this year, based on recent weekly crop condition reports for the 18 major corn states. The percent of corn rated as good and excellent in the last three weeks has exceeded ratings for the same weeks in the past three years.

“However, the ratings at this early point in the crop year are not necessarily a good indication of yield potential.”

Later this month, USDA will release their Acreage report, which will contain updated estimates from USDA’s Prospective Plantings report that was released in March.

University of Illinois Agricultural Economist Darrel Good noted on Monday that the markets will be interested in three aspects of the USDA’s Acreage report, including, estimates regarding total planted acreage, estimates of planted acreage of individual crops and intentions for harvested acreage of individual crops.

Dr. Good indicated that, “Trade guesses about planted acreage will be released leading up to the USDA report. Our expectation is that total planted acreage fell a little short of March intentions and that harvested acreage forecasts will show a little higher rate of expected abandonment in areas of adverse weather conditions. Both corn and soybean acreage may have been a bit below intentions, but we do not anticipate the report to slow a significant ‘switch’ in acreage between the two crops.

“Even though acreage estimates will be important, yield prospects will continue to dominate corn, soybean, and wheat prices. Continuation of generally dry conditions in eastern and southeastern growing areas is of most concern. Along with actual and forecast weather conditions, the USDA’s weekly report of crop conditions will be monitored closely.”

Meanwhile, Tom Polansek reported in today’s Wall Street Journal that, “Chicago Board of Trade wheat futures charged higher on fears that unfavorable weather would cause yield losses from the southern Plains through the eastern Midwest, traders said.

“Some contracts rose as much as 30 cents higher during the session, which is the exchange-imposed daily price ceiling.

“July wheat closed up 24 cents at $6.05 a bushel.”

The Journal added that, “As of Sunday, the Agriculture Department said winter wheat harvest was 11% complete, below the 34% completion rate seen at the same time last year.”

With respect to dairy prices, USDA’s Economic Research Service noted this week (“Livestock, Dairy, and Poultry Outlook”) that, “Global supplies of milk and dairy products remain tight, keeping international prices high. Domestic demand remains very strong, especially for butter-powder. Market prices will ration demand this year and next, as higher feed prices will likely limit the rate of production expansion.”

Keith Good