Inside US Trade | Vol. 19, No. 21
A new U.S. farm policy bill now being developed in the House Agriculture Committee is almost certain to continue programs that compensate farmers for dips in commodity prices that have opened the U.S. to charges of distorting the world market much as European export subsidies do. Committee Staff Director William O'Connor said last week that the panel would develop these countercyclical programs in line with existing obligations the U.S. has in the World Trade Organization, not future ones.
"My guess is we will write a bill that [accords] with the treaty obligations that exist today. I think we will deal with the [new] WTO agreement [on agriculture] when it arrives," O'Connor told a European Institute Forum on May 18. He did say it might be "possible" to revisit U.S. policy later, but only if the agriculture negotiations yield substantial benefits to U.S. farmers and agribusiness.
O'Connor spoke as the European Union was preparing to present a proposal at a negotiating session of the WTO's agriculture committee this week that said countercyclical farm programs should be subject to reduction commitments, especially if EU export subsidies are also subject to further reductions (Inside U.S. Trade, May 18, p. 1). The EU is looking at how the new farm bill would set U.S. domestic support policies as a determinant of how the EU approaches agriculture liberalization, agriculture representatives said.
O'Connor indicated last week that the opinion of U.S. industry groups will be a significant factor in how the committee approaches countercyclical supports in drafting a new farm bill. In testimony to the committee over recent months, nineteen of twenty one agriculture groups called for continued or increased payments under the $8.1 billion marketing loan assistance and loan deficiency payment programs, he said.
"Usually you get a pretty good idea when the agriculture committee hears that kind of consensus," O'Connor said. "I strongly suspect that you're not going to see a policy come out of Congress absent a countercyclical element."
O'Connor said House Agriculture Committee chairman Larry Combest (R-TX) is looking for passage of a farm bill by the end of the year. With substantive negotiations at the WTO unlikely to start until after the November ministerial at Qatar, the policy set in the farm bill could be a key influence of how far the U.S. is willing to go in heeding trading partners' calls for reductions in trade distorting support, industry sources said.
Because the EU has tied reductions in its export subsidies to reductions in U.S. countercyclical support, and developing countries have tied tariff reductions to changes in U.S. and EU agricultural subsidies, the U.S. policy becomes a key factor in the potential for progress in the agriculture negotiations, industry sources said. That puts not only U.S. policy, but also the potential for far-reaching agriculture liberalization largely in the hands of agriculture state lawmakers and their constituents.
O'Connor said the House agriculture committee would look to hold hearings on a draft bill in early July, and an early fall conference with the Senate, which O'Connor characterized as divided on farm policy. The Bush Administration is not expected to weigh in until the bill is drafted in July, at which point it will have the officials in place to do the necessary analysis. Before then, the Administration is not likely to do anything more than provide very general statements, O'Connor said.
If the House Agriculture Committee falls short of its goal of revamping farm policy, it would seek to allocate the $79 billion in additional funds budgeted over the next eleven years for farm programs. This would include not only countercyclical programs, but also conservation and export promotion programs.
Additionally, the committee is looking to pass a separate bill for emergency assistance to farmers for the 2001 crop that would be presented to the President for signature in August, O'Connor said.
U.S. non-recourse marketing assistance loans and loan deficiency payment programs give farmers of such key commodities as oilseeds, wheat, corn and other grains post-harvest loans not less that 85 percent of the average market price for their crops over the previous five years. But if commodity prices fall below that level, farmers are not required to repay the full loan amount but only to repay the loans based on the Agriculture Department's estimate of current competitive prices, and world prices for rice and cotton.
However, Clinton Administration Agriculture Secretary Dan Glickman last year froze the per-bushel prices on which the loans were based, which prevented them from being adjusted downward as crop prices continued to slide. As a result, the difference between market prices and what farmers receive in loans or loan deficiency payments has increased.
The loan deficiency payment program compensates farmers on the same basis as the loan program, even if they did not receive the loans. Farmers who are eligible to receive the loans but did not, are eligible to receive loan deficiency payments equal to the difference in current commodity prices and the loan values set according to the above formula. Yearly payments are capped at $150,000 per individual.
Industry sources said the current debate among commodity groups on U.S. countercyclical programs centers on what per-bushel rate is used for various commodities. U.S. soybean producers are seeking, at a minimum, to keep in place rates set during the Clinton Administration, which are considered higher than for other commodities. Other commodity producers are pushing to increase loan rates enough to match the rate given to soybean growers. In addition, agriculture groups are seeking to have new commodities, such as lentils and chickpeas, brought under the program.
The National Corn Growers, however, are proposing to replace the Marketing Loan Program and Loan Deficiency Payment program with a different countercyclical program tied to target incomes. In addition, the corn growers and other groups are calling for continuation of Agricultural Market Transition Payments, which are payments established in the 1995 farm bill that are meant to aid farmers in the transition to greater reliance on the market.
O'Connor said after his speech that the Committee and the Administration were in discussion over whether these payments should be classified as trade-distorting, and thus subject to limits under the WTO Agriculture Agreement's amber box, or classified as exempt under the green box.
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