EU Perspective on ACRE
The latest edition of the MAP newsletter (Monitoring Agri-trade Policy), a publication generated by the European Commission (EC), contained a detailed look at the new ACRE provision contained in the 2008 Farm Bill.
According to a Commission news release from yesterday, “The long-awaited 2008 US Farm Bill is the subject of the first ‘Monitoring Agri-trade Policy’ (MAP) edition of 2009. With farmers now signing up for support schemes for 2009/10, we zoom in on the new scheme known as the Average Crop Election Programme or ACRE. Because guaranteed prices under ACRE lock in the increases of the last two years, the new programme looks more attractive than the traditional suite of commodity support schemes. If there is a high take-up and if prices fall, then expenditure could increase sharply over levels seen in recent years. US agricultural policy once again appears to be increasing the trade-distorting component of its domestic support.”
More specifically, the MAP publication indicated that, “Heralded as an innovative new risk management tool, ACRE is yet another countercyclical scheme, this time for revenue. So it is business as usual in that the countercyclical nature of US farm support continues, with a bewildering array of schemes all addressing the same issues. For many observers it represents a significant step backwards in terms of agricultural policy.”
The easy to read report, which is only nine pages long, also included this chart depicting projected Farm Bill expenditures from 2008-2012; as well as this graph depicting federal farm program expenditures from 2000-2007.
Recall that back in December, the Australian Bureau of Agricultural and Resource Economics (ABARE) released a report which analyzed the 2008 Farm Bill; the ABARE report noted that, “The 2008 Farm Bill strengthens US agricultural protectionism at a time when there was an opportunity for real reform. The Bill contains increased support opportunities for most major crops, greater certainty for disaster relief, extension of payment thresholds for dairy, and sugar arrangements that minimise imports.”
Meanwhile, in news regarding the Doha Round of WTO trade talks, Bloomberg news writers Maher Chmaytelli and Lee Spears reported earlier this week that, “An international agreement to open up global trade may not be reached this year as the worldwide recession fuels defensive policies in the U.S. and other industrialized nations, Egypt’s trade minister said.
“‘The news is not positive because there is a sense of protectionism,’ Trade and Industry Minister Rachid Mohamed Rachid said during a panel discussion at the World Economic Forum today, commenting on a meeting of trade ministers and officials held yesterday on the sidelines of the annual conference in the Swiss Alpine resort of Davos.”
The Bloomberg article stated that, “Rachid expressed concern that U.S. President Barack Obama may not agree to concessions that the previous administration of George W. Bush had accepted at preparatory talks held in Geneva by members of the World Trade Organization. Should that happen, Egypt and other developing nations may also backtrack on concessions they have already accepted, he said.
“World Trade Organization Director-General Pascal Lamy yesterday said the WTO was monitoring government actions for new protectionist measures like tariffs and subsidies.”
However, Reuters News reported last week that, “Indian trade minister Kamal Nath said on Thursday [January 29] he was optimistic that the Doha trade talks would be completed in the next few months.”
And a separate Reuters article from earlier this week indicated that, “Britain and China want to see a swift resumption of stalled world trade talks, British Prime Minister Gordon Brown said on Monday.”
Last Friday, EU Trade Commissioner Catherine Ashton stated that, “As we combat the economic downturn, we must continue to keep our markets open and create new opportunities for our businesses to trade and invest. More than anything else, we should resist protectionist pressures and seek an early conclusion to the Doha Round.”
And on Saturday, Xinhua News reported that, “Major WTO members have agreed that more ministerial meetings are needed this year to seek a breakthrough of the long-delayed Doha Round of global trade talks, Swiss Economics Minister Doris Leuthard said on Saturday.
“‘Possibly, a first meeting could even take place before the G20 meeting in April,’ Leuthard said following an informal ministerial gathering of 18 major WTO members on the sidelines of the World Economic Forum annual meeting in Davos.
“Two other ministerial meetings could take place in June and July respectively, Leuthard told a joint press conference held with WTO chief Pascal Lamy.”
In related developments, on Monday, in an address to the International Chamber of Commerce, Director General Lamy stated that, “We still remember the 1930 Smoot and Hawley Act sharply raising US tariffs on more than 20,000 products. We also remember that many other countries retaliated, raising their tariffs on US goods. The Great Depression followed. Whether it is with tariffs or with new, more sophisticated faces of Smoot and Hawley, today we run the risk of sliding down a slippery slope of tit-for-tat measures. It was Mahatma Gandhi who said ‘an eye for an eye makes the whole world blind’.
“Ladies and gentlemen, paraphrasing Gandhi today we could say that ‘if it is a job for a job, then we will have massive unemployment’.
And in comments delivered yesterday to the WTO’s General Council, Director General Lamy stated that, “I believe the fundamental reasons why this [Doha] Round is needed are now even more compelling and urgent than they were at the end of last year. Trade with its multiplier effect must be an integral part of the stimulus packages that are being adopted. A successful outcome of the Doha Development Round can therefore be part of the solution to the economic downturn. It will also send the political signal that in harsh and difficult times, governments are capable of working together to provide the kind of global answer which is so desperately needed.”
In addition to Doha, a separate trade issue has emerged regarding “buy local” measures.
Financial Times writer Frances Williams reported yesterday that, ““Buy local’ measures by governments will jeopardise export sector jobs and risk setting the world on a damaging downward spiral of beggar-thy-neighbour protectionism, the head of the World Trade Organisation has warned.
“Speaking to the Financial Times, Pascal Lamy, WTO director-general, said pressures for economic nationalism were an inevitable response to the global crisis, but in an integrated world economy such measures were much more dangerous than in the past.”
Yesterday’s FT article added that, “Mr Lamy would not comment directly on the Buy American provisions in the US economic stimulus bill, which potentially could be the subject of WTO litigation, but said that Washington, like other governments, had to abide by its international commitments.”
The Associated Press reported today that, “The European Union’s top diplomat in Washington is warning the Obama administration and Congress that protectionist measures under consideration in a massive U.S. economic stimulus bill would backfire if enacted.
“John Bruton, the European Commission’s ambassador to Washington, complained in letters Monday about ‘Buy American’ provisions in the not-yet-approved bill. They would require major public works projects to favor U.S. steel, iron and manufactured goods over imports.”
Today’s AP article explained that, “The provisions are in an $819 billion bill already approved by the House and a different version under consideration in the Senate.”
Neil King Jr. and John W. Miller reported in today’s Wall Street Journal that, “The ‘Buy American’ uproar comes as an early and difficult challenge for the new administration as it tries to navigate between intense domestic and international pressures. By siding with its trade partners in Europe and Asia, the administration could antagonize key allies in Congress as it struggles to win passage of a nearly $900 billion economic-recovery package.”
With respect to Senate action on the stimulus bill, Shailagh Murray and Paul Kane reported in today’s Washington Post that, “Senate Democratic leaders conceded yesterday that they do not have the votes to pass the stimulus bill as currently written and said that to gain bipartisan support, they will seek to cut provisions that would not provide an immediate boost to the economy.”
The Post article stated that, “The most ambitious effort to cut the bill is being led by Sens. Ben Nelson (D-Neb.) and Susan Collins (R-Maine), moderates in their parties who share a dislike of the current version. Collins is scheduled to visit Obama at the White House this afternoon. ‘I’m going to go to him with a list’ of suggested deletions, she said.”
“Among the items that the Collins-Nelson initiative is targeting: $1.1 billion for comparative medical research, $350 million for Agriculture Department computers, $75 million to discourage smoking, $20 million in Interior Department funding, $400 million for HIV screening and $650 million for wildlife management,” the Post article said.
The “Washington Insider” section of DTN reported yesterday (link requires subscription) that, “The longer the economic stimulus bill sits in Congress, the more time it gives those being asked for their votes to look more deeply into the contents. And for many, the closer they look at the details, the greater is their skepticism and even outright criticism.
“Senate Budget Committee Chairman Kent Conrad, D-N.D., told the press that after evaluating the assistance bill, a growing number of senators have concluded that it fails to address the problems confronted by the banking and housing industries that are at the root of the nation’s economic woes. Speaking with reporters last week, Conrad confessed that he ‘would have a hard time voting for this package as it is.’”
House Agriculture Committee Hearing
Jeremy Grant and Nikki Tait reported yesterday at the Financial Times Online that, “The popular backlash against financial derivatives has produced some colourful language from politicians. Collin Peterson, a senior US Democrat, recently said of Wall Street: ‘I trust these guys about as far as I could throw them.’
“Mr Peterson, chairman of the House of Representatives agriculture committee, is chairing debates on a draft bill that he helped to produce that would regulate over-the-counter credit default swaps (CDSs).”
A news release issued yesterday by the House Ag Committee stated that, “Today, the House Agriculture Committee held the first in a series of hearings to review legislation addressing the derivatives markets. The Committee heard today from stakeholder groups about the Derivatives Markets Transparency and Accountability Act of 2009, draft language circulated last week by Chairman Collin C. Peterson of Minnesota. The bill is designed to bring greater transparency to futures markets and to bring a sense of order to the over-the-counter market for swaps and other credit derivatives.
“‘The effort to strengthen oversight and improve transparency in derivative markets, whether regulated or unregulated, whether they are physically based commodities or financial commodities, has been a top priority of this Committee,’ said Chairman Peterson.”
Opening statements from the witnesses who testified yesterday can be found here, and note that the Committee hearings on credit derivatives legislation will continue today at 10:30 a.m.
Grant and Tait also noted in their FT article from yesterday that, “The proposed bill would bring ‘a sense of order’ to the over-the-counter market by requiring transparent, central clearing for OTC derivatives – although exceptions would be allowed, Mr Peterson said in prepared remarks on Tuesday.
“The draft legislation, which is aimed at limiting speculation in the market, would place some limits on futures trades and ban CDS trading unless investors owned the underlying bonds.
“‘It is my intent to move expeditiously … every day we delay is another day where markets operate without the oversight or transparency they desperately need,’ he said.”
Joshua Boak, writing in today’s Chicago Tribune, explained that, “The House Agriculture Committee began hearings Tuesday on a draft bill that forbids traders from entering into ‘naked’ credit default swaps.
“The $30 trillion credit default swap market is a form of insurance against bonds defaulting. A holder of a naked swap does not own the underlying bond, making the transaction a form of speculation.”
Bloomberg writers Matthew Leising and Alan Bjerga explained yesterday that, “Peterson’s draft bill would prohibit a credit-default swap trade unless the investors owned the underlying bonds. As much as 80 percent of the credit-default swap market is conducted by investors who don’t own the underlying debt, according to Eric Dinallo, superintendent of the New York Department of Insurance.”
Dow Jones writer Sarah N. Lynch reported yesterday that, “House Agriculture Chairman Collin Peterson, D-Minn., said Tuesday he is ‘flat opposed’ to allowing the Federal Reserve to regulate credit derivatives.
“‘I have made it clear that the Commodity Futures Trading Commission is the agency that has the knowledge and expertise in these markets,’ Peterson said. ‘I am flat opposed to the Fed having a role in clearing or overseeing these products. If I could have my way, the Fed would not be involved; however that is not the political reality of today.’
“Peterson made his remarks at a hearing to dissect his draft bill on derivatives regulation. The bill seeks to mandate clearing for over-the-counter products and rein in excessive speculation. It was unveiled last week at a time when the CFTC, the Securities and Exchange Commission and the Fed are still engaged in a jurisdictional battle over which agency should have authority over credit-default swap clearing.”
Dow Jones News also reported yesterday that, “U.S. Rep. K. Michael Conaway, R-Tex., raised doubts Tuesday about whether Congress should enact an overall ban on naked credit-default swaps, saying the proposal included in a draft bill gives him ‘pause.’”
“Conaway said he wondered if a ban would simply lead to the creation of another instrument to be traded in its place,” the article said.
A news release issued yesterday by USDA stated that, “Agriculture Secretary Tom Vilsack today announced that a new pilot project will permit producers in Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, and Wisconsin to plant such vegetables as cucumbers, green peas, lima beans, pumpkins, snap beans, sweet corn, or tomatoes for processing on base acres under the Direct and Counter-Cyclical Program (DCP).
“‘This program offers producers in these seven states opportunities to diversity their crop production and better use their base acres. It’s an important step in implementing the 2008 Farm Bill, providing farmers with additional sources of revenue, and supporting the production of healthy fruits and vegetables,’ Vilsack said.
“Authorized in the 2008 Farm Bill, the Planting Transferability Pilot Project (PTPP) allows producers to plant approved fruits or vegetables for processing on a farm’s base acres – these include cucumbers, green peas, lima beans, pumpkin, snap beans, sweet corn or tomatoes. Without the PTPP, planting these crops on base acres would be prohibited. Base acres on a farm will be temporarily reduced each year on an acre-for-acre basis, for each base acre planted with an approved fruit or vegetable on that farm.”
Census of Agriculture
The USDA will release results of the 2007 Census of Agriculture today at 1 pm EST.
A Department news release from yesterday noted that, “Information to be released includes the latest official data on all aspects of U.S. agriculture – including farm numbers, operator demographics, production practices, and farm income and expenditures – at the national, state and local levels.”