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“Analysis from Washington”- By Dan Morgan- Farm Bill Markup

Farm Bill Markup

By Dan Morgan- Dan is a special correspondent of The Washington Post and a Transatlantic Fellow at the German Marshall Fund of the United States. “Analysis from Washington” is posted exclusively at FarmPolicy.com.

Near 10 o’clock Thursday night, members of the House Agriculture Committee rose and gave themselves a round of applause. Empty water bottles and bags of Virginia peanuts littered desks. Home-bound planes had long since departed. But they had a farm bill.

That result had not been a certainty 48 hours earlier. Dozens of issues were unsettled, and there was a larger question: Could a parochial group of farm-bloc lawmakers write a bill with enough of a reform imprint to satisfy the Democratic leadership?

The sausage-making progressed slowly on the third floor of the Longworth building. Iowa Democrat Boswell had an amendment to preserve historic barns; Texas Republican Michael Conaway wanted to include goat meat in country-of-origin labeling rules. “They’re sensitive animals and don’t like to be left out,” he joked.

Behind closed doors off to the side, deals were hammered out on payment limits, milk forward contracting and the labeling of hamburger meat made from foreign-born cows. Mingling almost anonymously in the throng outside was a boot-clad Charlie Stenholm, top Democrat on the committee in 2001 and now a consultant for the cotton industry. Somewhere off stage was Larry Combest, a lobbyist for rice, corn, cotton, sugar and crop insurance interests. Committee Chairman Collin Peterson (D-Minn.) kept announcing he’d consulted him.

It looked like Gucci Gulch — without the Gucci. Broad-shouldered farm lobbyists conferred in groups on the status of their provisions. There was at least one Stetson, but not an alligator briefcase in sight.

When it was over, Peterson had a bill he said, was “popular with the leadership” and could survive the gauntlet of the House floor.

He may well be right, though Wisconsin Democrat Ron Kind, leader of the reform effort, promised the battle was just beginning. Speaker Nancy Pelosi blessed Peterson’s bill as a step in the right direction. Despite reservations from the cotton industry about changes in payment limits, the farm bloc will join lobbyists for the fruit and vegetable (blessed with $1.8 billion in new money) to protect the legislation on the floor.

Still, Kind is right on one thing: The bill is not in its final form “by any stretch of the imagination.”

These are some of the big hurdles ahead.

BIG BUSINESS AND THE WTO. In the hubbub surrounding the markup, few noticed some important news: The U.S. business community came out for reduced agricultural subsidies.

In a letter to House and Senate leaders, it called on Congress to “enact long-needed reforms” in farm policy that will “create a dynamic opportunity for U.S. trade negotiators to increase the pressure on our trading partners to offer substantial new market access opportunities that would benefit American farmers, manufacturers and services providers.”

It was signed by several of the biggest guns in corporate America, including the Business Roundtable (representing Fortune 500 giants), U.S. Chamber of Commerce, National Retail Federation, National Association of Manufacturers and Information Technology Industry Council.

(Other groups, such as the Motion Picture Association, headed by former Agriculture Secretary Dan Glickman, declined to join the effort.)

All of these groups have a huge stake in the Non-Agricultural Market Access (NAMA) talks on global trade, known as the Doha Round.

The high tech sector needs countries such as India to lower its tariffs so it can sell more computers, chips, fiber optic cable and computer screens to the exploding markets of the developing world.

But nothing will happen in NAMA without a deal on agriculture first. Developing countries insist that the U.S. and the European Union create a level playing for their farmers by reducing farm subsidies and tariffs. Business has now signaled that its patience with U.S. agriculture is limited.

“This is a big deal for us,” said James Ratchford of the Information Technology Industry Council. “We don’t want to be slamming another industry sector, but we’re getting to the point where something has to change.”

U.S. negotiators have offered to cut Overall Trade Distorting Support (OTDS) to agriculture to $17 billion a year. That’s less than an initial offer, but not enough, according to India and Brazil. WTO officials, in an effort to end the impasse, last week came back with a suggestion that a deal could be had if the United States cut its OTDS to $13-16.4 billion. (OTDS includes countercyclical payments, market loan gains, subsidies on crop insurance premiums, and the sugar and dairy programs.)

But even Senate Agriculture Chairman Tom Harkin of Iowa – a trade moderate who has repeatedly reminded farm groups that the U.S. has treaty obligations under the WTO – said the proposal “would face a difficult road” in the U.S. Congress.

Ironically, the U.S. OTDS is currently running well below the range proposed by the WTO, thanks to high commodity prices. But the farm bloc in Congress has adamantly opposed further concessions.

Still, Congress can’t ignore the WTO. Existing U.S. farm program are facing serious legal challenges for allegedly violating limits set by the Uruguay Round of trade talks. Canada is challenging the whole gamut of subsidies, and the WTO could rule this week on whether the U.S. government has complied with a 2005 WTO ruling that U.S. cotton subsidies were illegal under the Uruguay Round.

If the U.S. is found not to have complied, Brazil could be authorized to retaliate against U.S. products, such as pharmaceuticals.

The current farm bill ignores the WTO problem, and may make it worse. A little noticed $1.2 billion provision would protect the cane and beet industries from shrinking in the face of unrestricted Mexican sugar imports that are allowed under the North American Free Trade Agreement, starting Jan. 1. USDA would be required to purchase sugar volumes equivalent to the Mexican imports at prevailing prices and sell the sugar at a loss to ethanol plants. In effect, beet and cane growers would be assured of keeping their market share and acreage allowances even as imports rose.

Price guarantees for wheat and soybeans—deemed trade distorting by WTO—would rise. Another trade distorting provision—banning the planting of fruits and vegetables on acreage qualifying for direct payments—is continued.

If Big Business is serious about pushing back, it could inject an interesting new element into the farm bill debate.

THE WAYS AND MEANS AND FINANCE COMMITTEES. The budget to pay for the farm bill is held together with baling wire, and could come apart.

Peterson’s bill would spend more money over the next 10 years than is allowed by budget rules. So he has to depend on the kindness of strangers to fully fund his bill. Pelosi has directed Ways and Means Committee Chairman Charles Rangel to come up with $4 billion to pay for increased funding for nutrition programs. This fix will require the approval of House Rules Committee Chairman Louise Slaughter, representing a major apple growing district in New York State.

House Agriculture Committee Republicans, led by Virginia’s Bob Goodlatte, made clear Thursday that they won’t support a bill that relies on a tax increase, if it comes to that. Democratic critics of farm subsidies on Ways and Means, such as Kind, object to helping Peterson pay for a bill that leaves subsidies virtually unchanged.

It isn’t clear whether the Senate Finance Committee will go along with the House’s funding gambit.

Budget “gimmickry” (the word used by Agriculture Secretary Mike Johanns), could also draw fire from fiscal conservatives. According to USDA, the bill relies on budget devices such as the timing of farm payments and crop insurance subsidies in 2017 to “save” more than $1 billion. But those savings are only on paper because the bill will come due soon after the farm bill expires.

THE U.S. SENATE. Harkin has sung a very different tune than Peterson all through the spring and summer. “We need new ideas,” he has said. “It’s an ideal time to do some reform and reorganize our priorities,” he told reporters on June 21. “We can’t let a minority segment drive this whole bill.”

Harkin has kept his plans close to his vest, though he has hinted he wants to make changes in the automatic allowance that farmers get based on their planting history, and shift more resources to conservation.

“I want to do a good bill, a reform bill, and we’ll see what happens in September,” he said.

Under the Constitution, the Senate has an equal say with the House on legislation. Stay tuned.

By Dan Morgan