US Farm Policy and the WTO
Joe GlauberChief Economist, USDA
14 November 2011
On the collapse of the WTO G6 ministerial July 2006
“This is neither desirable nor inevitable. It could so easily have been avoided. What stands between us and the modalities of an agreement are not vast numbers or enormous sums…the United States was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in the room and, as a result, felt unable to show any flexibility on the issue of farm subsidies…Actions have consequences and this action has led to the Round being suspended”
- EU Commissioner Peter Mandelson
Outline
Reforms in US agricultural policy, 1985-96Uruguay Round“Counter Reformation” and consequences for US trade policyDohaCurrent farm policy debateConclusions
Reforms in farm policy, 1985-95
Lower support pricesMoves towards greater planting flexibilityMoves towards decoupling payments from plantingsConservation programsBut– Marketing loans introduced– Export subsidies
1996 farm billFreeze loan ratesEliminate set asides; [almost] full planting flexibilityReplace deficiency payments with fixed transition paymentsEliminate honey and wool; phase out dairy supportBut: – marketing loans for wheat and feed grains– No mechanism to lower support prices
Uruguay Round provides minimal disciplines on domestic support
Uruguay Round Agreement on Agriculture– 20% reduction in total amber box support
from 1986-88 base– Minimally distorting policies exempt from
reduction commitments (green box)– Supply limiting policies exempt from reduction
commitments (blue box)– Peace Clause
Broadly consistent with US farm policy
Trade Policy views-mid 1990s1995/96 record high prices– 1995 AMS: $6.2 b (well under cap of $23.1b)
With planned dairy phaseout under farm bill, AMS projected to fall to $1.2 billion by 2000 (Nelson 1997)With deficiency payments gone, no need for blue boxUS well positioned for next trade round– Lower AMS– Eliminate blue box– End peace clause
The “counter-reformation” in US farm policy
Collapse in prices in late 1990s => ad hoc legislationsDairy program is extendedAg Risk Protection Act 2000 => $6 billion increase in crop insurance spending2002 Farm Bill– Raised loan rates; extended to pulses– Reintroduced counter-cyclical payments– Updated payment bases– Peanut reform
With consequences…
Amber box spending soars:– Almost $17 bil in 1999 and 2000– Marketing loan payments $8-9 bil/yr
US notifies ad hoc market loss assistance payments as amberWTO members critical of increase in spending– Brazil investigates soybeans and cotton
support; brings cotton case to WTO in 2003
US amber box support
0
5,000
10,000
15,000
20,000
25,000
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
f
Mill
ion
dolla
rs
URAA limits
Doha sharpens incongruities between US trade policy goals and US farm policy
US 2002 proposal– Reduced combined amber and blue to 5% of
value of agricultural production– No extension for peace clause
Unlike Uruguay Round, US is isolated on domestic support issues– EU CAP reforms– Japan rice reforms
Total AMS as percent of binding
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
0%10%20%30%40%50%60%70%80%90%
100%
USEUJapan
Source: WTO submissions; Orden et al. 2011
Reversals in US trade policy
Perceived need to accommodate policies:– Changes in blue box to accommodate
countercyclical payments– Extension of peace clause to protect itself
from WTO challengesAug 2003: US-EU agreement (Blue box for CCPs in exchange for EU demands on sensitive products and export subsidies)– G20 forms—no more Blair House– C4 cotton initiative
Cancun collapse
Framework AgreementJuly 2004
Tradeoff of market access concessions in developing countries for concessions for US domestic support policiesUS gets new blue box for CCPs but w/ additional disciplinesDeveloping countries get Special Products, Special Safeguard Mechanism
Percentage of Global Imports Potentially Affected by Special Product Designation
China
Korea
Taiwan
Turkey
Malays
ia
Indon
esia
India
Thaila
ndBraz
il
Philipp
ines
Venez
uela
South
Africa
Colombia
Argenti
na0%
10%20%30%40%50%60%70%80%90%
100%
5 percent of tariff lines 12 percent of tariff lines
Average trade over 2002-08, tariff lines ranked by import level
October 2005 US Proposal
Domestic support offer– Cut AMS cap by 60% => $7.6 bil– Cap blue box at 2.5% of vop => $4.8 bil– Cut OTDS by 53% => $22.6 bil
While offer on AMS and blue box recognized as significant, OTDS is seen as insufficient and far above applied levels
US offers on OTDS
Base Oct 2005 proposal
Jul 2006 Ministerial
Feb 2007 Jul 2007 Potsdam
Jul 2008 Lamy text
0
10
20
30
40
50
60
48
22.619 17 15 14.5
Offer Actual
Billion $
Overall Trade Distorting Support = Amber + Blue + de minimis
DDA texts as of Dec 2008
AMS cap reduced by 60% => $7.6 billionBlue box capped at 2.5% VOP => $4.8 bilDe minimis reduced to 2.5% of VOPProduct specific caps for amber and blue box paymentsOverall trade distorting support = AMS + Blue box + de minimis capped at $14.5 bil
2008 farm bill
Introduced area revenue plan (ACRE)– producers allowed to switch from CCP
program– Blue box => amber box
Supplemental disaster assistance (SURE) – Amber box
DDA implications:– Increased amber support– Decreased blue box
Probability of exceeding DDA commitments in 2018
Baseline No ACRE 100% ACREProduct specific AMS > commitments corn 10% 0% 22%
soybeans 2% 0% 18%
wheat 7% 0% 27%
cotton 8% 8% 0%
Total AMS > $7.6 bil 21% 18% 35%
OTDS > $14.5 bil 23% 17% 34%
Source: FAPRI Jan 2011
Current farm bill debate
BudgetDissatisfaction with direct paymentsBase versus planted acresRole of crop insurance and “shallow losses”
Projected OutlaysSelected programs
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
0
5,000
10,000
15,000
20,000
25,000
Crop InsuranceConservationMLG+CCP+ACREDirect
Source: CBO Baseline—March 2011
Mil $
$7.7 b avg
$4.9 b
$0.7 b
$6.0 b
Budget proposals
Administration: $33 billion cut over 10 yearsAg Committees: $23 billion cut over 10 years with $15 bil coming from commodity programsSuper Committee: ???
Dissatisfaction with Direct Payments
Need for payments questioned in times of high pricesBenefits accrue largely to landownersWide differences between planted and base acresPayment limitation issues
But…For many producers, DPs are the only payments received over past several years Minimally trade distorting; notified as green boxTie to conservation compliance
Base versus Planted Acreage
Whe
at
Upland
cotto
nCorn
Soybe
ans
Minor f
eed g
rains
Other
0
20
40
60
80
100
Base Planted
Mil Acres
Shallow losses
Source: American Farm Bureau Federation, Oct 17, 2011
Classification of Domestic Support Programs for WTO Notification
Program Under URAA Under Doha agreement
Direct payments Green GreenMarketing loan benefits Product-specific amber Product-specific amberCounter-cyclical payments Non-product specific amber BlueCrop insurance premium subsidies
Non-product specific amber Policies > 70%: non-product specific amberPolicies ≤ 70%: green
Crop insurance delivery costs (A&O + underwriting gains)
Green Green
ACRE payments Product-specific amber Product-specific amberSupplemental disaster (SURE) Non-product specific amber Non-product specific amberLivestock disaster payments Product-specific amber Product-specific amberDairy price support Product-specific amber Product-specific amberMilk Income Loss Contract Product-specific amber Product-specific amberSugar Product-specific amber Product-specific amberConservation Reserve Program Green GreenEnvironmental Quality Incentive Program
Green Green
Conservation Stewardship Program
Green Green
Nutrition Programs Green Green
Program proposals
Transfer $ from DPs to ACRE/shallow loss programs (green => product-specific amber) Extend Supplemental Disaster (non-product-specific amber)Tie DP to cost of production (green => amber/blue)Margin-based dairy program (potentially blue/green at least for base level protection)
ConclusionsSince mid-1990s, US farm policy has developed with little attention given to WTO disciplines (contrasts with other major subsidizers)US trade policy has sought to accommodate farm policy changes (blue box for CCPs); but at a price (SP/SSM)High prices have kept AMS levels low, but potential for breaching limits remains non-trivial if prices fallBudget pressures present opportunity to make significant changes in farm policy, but likely outcome will favor policies that are tied to prices and actual plantingsShift of green box programs to amber box