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Senate Farm Bill: Funding Ideas Continue

Reuters writers Maria Luisa Palomino and Teresa Cespedes reported this morning that, “World Trade Organization chief Pascal Lamy said on Thursday he believed the framework of a global trade deal was achievable before the end of the year, with agreement possible even on the thorniest issues…Many analysts think the next few weeks are critical for the fate of the Doha round of trade talks, which began in late 2001. Without a breakthrough soon, the talks could be shelved until 2009, or possibly longer.”

I. Farm Bill
II. Biofuels

I. Farm Bill

DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “Senate Finance Committee Chairman Max Baucus, D-Mont., is planning to pay for the trust fund for a permanent agriculture disaster program in his farm-bill-related agricultural tax package by allocating part of the tariff income that the Agriculture Department gets each year, lobbyists said Wednesday. The lobbyists had been briefed by Baucus’ staff.

“Under Section 32 of Agricultural Adjustment Act Amendment of 1935, the Agriculture Department already gets an appropriation equal to 30 percent of the import duties collected on all items entering the United States under the customs laws, plus any unused balances up to $300 million. Section 32 was enacted to widen market outlets for surplus agricultural commodities as one way of strengthening farm prices, but the measure is used mostly today by appropriators to pay for child nutrition programs. The rest of the tariff income goes to the Treasury Department. It is unclear whether Baucus will increase the amount of total tariff income that the Agriculture Department gets or redesignate part of the Section 32 money for disaster aid.”

“Durum wheat is harvested in Balma, near Toulouse, France. (Caroline Blumberg/Bloomberg News)” (Via The International Herald Tribune Online)

For a more detailed look at Section 32, see this Congressional Research Service Report by Geoffrey S. Becker, “Farm and Food Support Under USDA’s Section 32 Program” (February 23, 2007).

The DTN article also stated that, “Meanwhile, the other senators who sit on the Finance Committee may be lining up to ask Baucus to include provisions in the agricultural tax package that will benefit their states, according to an aide to Sen. Debbie Stabenow, D-Mich., who sits on both the Agriculture and Finance committees. Chris Adamo, a Stabenow legislative counsel, told the United Fresh Produce Association Thursday that Baucus had not included any provisions to help the specialty crop industry, but that Stabenow wants help for that industry if she is going to vote for Baucus’ provision in committee.”

Along these lines, Congressional Quarterly writer Catharine Richert reported yesterday that, “Fruit and vegetable growers lobbying Senate members for more funding in the 2007 farm bill have an ally in Michigan Democrat Debbie Stabenow, who is leading an effort to ensure that they receive upward of $3 billion in new money.

“Stabenow is gathering signatures on a letter in support of setting aside cash for the produce industry. The cash could come from a $10 billion bill, which is being drafted by the Finance Committee, that would create new tax breaks for farmers.”

The CQ item indicated that, “The House-passed bill includes $1.6 billion in new funding for the produce industry, and some senators would like to double that figure by asking the Finance Committee to find the extra cash.

“The money could appear in the form of a tax credit for produce farmers. Finance Chairman Max Baucus, D-Mont., also could simply promise to cut federal spending or raise taxes to provide the additional funding.”

And U.S. Secretary of Agriculture Mike Johanns, in a speech delivered yesterday to the United Fresh Produce Association, talked to his audience about USDA’s Farm Bill proposal and noted that, “But that’s why, ladies and gentlemen, that’s why the USDA proposals looked at farm policy as a whole instead of focusing on individual titles first. We asked ourselves, what did we hear in those forums? What are the priorities? Where is agriculture headed? How can we help modernize and move this very important industry so it remains competitive, not only here in the United States but on a global scale. How can we make this a more equitable Farm Bill and less vulnerable to international challenge, because, after all, all of our commodity programs, again referring to the program crops, are under challenge now.

“We decided that specialty crops needed to be a priority. Sales at the farm gate of specialty crops and tree nuts by U.S. producers, get this, reached $37 billion last year. They have grown 23 percent just since 2002. Your industry deserves a fair share of support from our government as we think about farm policy for today and in the future.”

Stefanie Monge, writing in today’s Omaha-World Herald, highlighted a separate speech delivered by Sec. Johanns and noted that, “Agriculture Secretary Mike Johanns used his appearance Thursday at a meeting of the Midwest International Trade Association in Omaha to promote free-trade agreements with other countries and the administration’s goals for the 2007 farm bill.”

The article stated that, “The House of Representatives passed a farm bill in July, before Congress’ August recess. The Senate is expected to complete work on its version later this month or in early October.

“Johanns wants to lower the cutoff for receiving commodity subsidies from $2.5 million in adjusted gross income to $200,000. The House set the cutoff at $1 million.

“There are significant numbers of people living on Park Avenue, an affluent neighborhood in New York City, who are currently receiving farm subsidies, Johanns said.

“It’s important to ‘maintain a strong safety net for farmers,’ he said, but the purpose of government subsidies is to help what he called real farmers, not investors.”

As the Senate debates the details of the 2007 Farm Bill and as Secretary Johanns continues to speak about a “more equitable Farm Bill” that is “less vulnerable to international challenge,” the “Washington Insider” section of DTN (link requires subscription) indicated yesterday that, “Brazilian news outlets are reporting that government officials plan to ask the World Trade Organization to open an arbitration panel against more U.S. farm subsidies. Specifically, Brazil wants the WTO to investigate the legality of U.S. subsidies for sugar, rice, wheat and ethanol.

“In July, Brazil and the United States began consultations on a wide range of U.S. farm subsidies. Shortly afterward, Argentina, Australia, Canada, Costa Rica, the European Union, Guatemala, India, Nicaragua, Mexico and Thailand joined the talks on the side of Brazil. The discussions have the goal of determining whether U.S. subsidies exceeded our international trade commitments during each of the past 10 years or so.

“If the parties to the talks fail to agree on the subsidy question, Brazil and the others could request that the WTO establish a formal Dispute Settlement Panel. That request could come before the end of September.

“Given the slow pace with which the WTO moves on these matters, it could be months, even years, before the case moves through the entire process, including the expected appeals by the losing side. Nevertheless, a Dispute Settlement procedure getting under way at the same time this year’s farm bill is being concluded likely will have an effect on Congress as it is asked to reauthorize many of the same subsidies that are under scrutiny at the WTO.”

As this particular case looms, and as the potential for other WTO cases regarding U.S. farm subsidies remains a possibility, some have noted that a revenue-based domestic support program would help insulate the U.S. from future international trade litigation.

For example, Forrest Laws, writing on Wednesday at the Delta Farm Press webpage, reported that, “Proponents say an RCCP [Revenue-Based Counter-Cyclical Program] would help farmers weather droughts and other yield-robbing phenomenon by making counter-cyclical payments when total crop revenues (yield times price) are down rather than when the national average selling price of a commodity falls below the target price.

“Such payments, which would be based on a national target revenue, would cost only marginally more than the current program and could help the U.S. government withstand challenges in the World Trade Organization, supporters say.”

After a very detailed look at several issues regarding a revenue-based approach, the DFP article stated that, “Critics also say the RCCP might not be the panacea for challenges to the U.S. farm program in the world trade arena. The National Corn Growers Association has said it believes RCCP payments would be assigned to the World Trade Organization’s ‘Green Box’ category that allows unlimited payments.

“Galvin [Timothy J. Galvin, former administrator of USDA’s Foreign Agricultural Service and a congressional staffer for 20 years] disagrees. ‘As proposed, the revenue counter-cyclical program would seem to fail at least three of the conditions specified in the Uruguay Round Agreement on Agriculture because the proposed payments are directly related to the ‘type’ (corn), ‘volume of production’ (farm-level yield), and ‘prices’ (national market price) of the commodity.

“‘In addition, the program’s use of regional, variable costs of production in arriving at net income may be construed as relating to the ‘factors of production employed.’

“Another problem may be that payment received in prior years from loan deficiency and counter-cyclical payment programs will be counted as net revenue in the years prior to implementation.

“‘However, the Uruguay Round Agreement is quite clear that ‘any payments from government income insurance or income safety-net programs or similar schemes’ must be excluded in determining gross or net income in previous years for purposes of making payments under a green box revenue insurance program,’ says Galvin.”

In other news developments regarding future WTO challenges to U.S. farm programs, DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “If agricultural commodity prices stay high and countercyclical farm subsidy payments are low, it will be difficult for other countries to mount successful cases against U.S. farm programs in the World Trade Organization, a lawyer for Brazil in its successful case against the U.S. cotton program said Wednesday at a congressional briefing.

“Speaking at a seminar for congressional staffers sponsored by Oxfam America, Scott Andersen, the managing partner in the Geneva office of the American law firm of Sidley Austin Brown & Wood, noted that a WTO dispute resolution panel ruled the U.S. cotton program had caused ‘serious prejudice’ to Brazilian cotton farmers because a variety of U.S. cotton subsidies had ‘numbed’ U.S. farmers to market signals and caused overproduction that led to lower world prices.”

Nonetheless, the DTN item noted that, “The reduced likelihood of successful cases against U.S. farm programs in the WTO in the next few years may take some of the pressure off Congress to change current farm programs, but Andersen, who is a former USTR official and legal adviser to the U.S. Mission to the WTO in Geneva, said Congress should still reform the programs so the United States would not face cases if prices plummet and subsidies increase.”

II. Biofuels

Two significant factors impacting the price of program crops are biofuel production and U.S. energy policy.

Along these lines, Associated Press writer Christopher Leonard reported yesterday that, “Corn farmers are pushing for more ethanol production as the industry creates an enormous new market for their crop, giving corn prices the kind of lift they haven’t seen in years. But the corn farmer’s win is the hog farmer’s loss. Meat, dairy, and other food producers are pushing back against the ethanol boom as higher grain prices cut into their already slim profit margins.”

The AP article added that, “The tension between grain producers and food producers is roiling agricultural markets around the world as high oil prices [related article] spur governments to subsidize food-based fuels like ethanol and biodiesel.

“The Mexican government this week put a cap on tortilla prices after prices shot up between 20 and 30 percent over uncertainty that there would be enough U.S. corn available for export. Brazil will ask the World Trade Organization to formally investigate U.S. farm subsidy programs — including payments for ethanol production. Brazil is the second-largest producer of ethanol in the world after the United States, but is the No. 1 exporter of the fuel, which in Brazil is mainly made from sugarcane.

“The political waves — and their effect on government policy — can mean life or death for the budding biofuels business. Ethanol and biodiesel served a niche market before the U.S. government imposed a mandate — called the Renewable Fuel Standard — requiring the U.S. to use 7 billion gallons of renewable fuels by 2012.

“This fall, Congress will consider a new fuel standard that could boost production as high as 36 billion gallons by 2022. But the future of that bill is uncertain because of the food fight shaping up between grain producers and livestock lobbyists.”

As food price pressure becomes more of an issue, not only in the U.S. but in the EU as well, policy makers are taking action to address some of the concerns.

An item posted yesterday at the International Herald Tribune Online stated that, “The European Union’s top agricultural official called Thursday for increased production of crops like wheat, oats and barley to counter widespread shortages on the world market, as consumer groups protested in Italy against price increases that have made food less affordable.

“The EU’s agriculture commissioner, Mariann Fischer Boel, urged governments to back a plan allowing grain farmers across the 27-nation bloc to plant crops on all their fields because of low supplies and high prices [more details available here].

“Fischer Boel recommended that a rule requiring farmers to keep 10 percent of their fields fallow to prevent overproduction be put on hold for one year.”

The IHT article indicated that, “An EU spokesman, Michael Mann, said he hoped governments would back efforts to increase production so that farmers now planting this year’s winter grain crops could expand their work.”

And in the U.S., Reuters writer Missy Ryan reported on Tuesday that, “The government will decide in coming months whether to release land from a long-term reserve to expand U.S. crop production and keep grocery prices in check, Agriculture Secretary Mike Johanns said on Tuesday.

“‘It’s always been an option on the table; it’s back on the table for (2008),’ Johanns told reporters.

“‘It’s something we would consider … we’re certainly not near a decision point,’ he said. Johanns said he expected a decision for 2008 in the next 60 to 90 days.”

The Reuters article added that, “Some 36.8 million acres, or roughly 10 percent of U.S. cropland, is in the Conservation Reserve, which pays owners to idle fragile land.

“But reserve lands are under scrutiny as robust demand for corn-based fuel ethanol has pushed corn, wheat and soybean prices to record-high levels this year. U.S. and European wheat futures hit all all-time highs this month.”

Meanwhile, Brazil’s President has also weighed in on the fuel vs. food debate; Dow Jones News writer Malin Rising reported yesterday that, “Brazilian President Luiz Inacio Lula da Silva downplayed the upward effect of ethanol production on food prices during a visit in Denmark, Thursday.

“Speaking at the Danish-Brazilian Business Conference during a state visit to Copenhagen, the president said that ‘contrary to what some have suggested, it is perfectly possible to combine fuel ethanol production with food production.’”

The article noted that, “The Organization for Economic Cooperation and Development Tuesday issued a report urging countries to reject subsidies for biofuels, as the current rush to bolster alternative energy sources would lead to higher food prices and possibly destroy natural habitats.

“It said that politicians are rigging the market to favor untried technology that will have only limited impact on climate change.”


The Dow Jones article also indicated that Lula addressed the issue of the Doha round of WTO trade talks, saying, “During his visit to Denmark, Lula also commented on the World Trade Organization Doha talks, saying they ‘could be concluded,’ and that the main obstacles were political.

“He said the upcoming election in the U.S. might mean the U.S. government wouldn’t want to take the risk of slashing farm subsidies.”

And Reuters writers Maria Luisa Palomino and Teresa Cespedes reported this morning that, “World Trade Organization chief Pascal Lamy said on Thursday he believed the framework of a global trade deal was achievable before the end of the year, with agreement possible even on the thorniest issues.

“Many analysts think the next few weeks are critical for the fate of the Doha round of trade talks, which began in late 2001. Without a breakthrough soon, the talks could be shelved until 2009, or possibly longer.”

Keith Good