Transcript US Farm Policy and the WTO Joe Glauber Chief Economist, USDA 14 November 2011

US Farm Policy and the WTO
Joe Glauber
Chief 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, 1985-96
Uruguay Round
“Counter Reformation” and consequences
for US trade policy
Doha
Current farm policy debate
Conclusions
Reforms in farm policy, 1985-95
Lower support prices
Moves towards greater planting flexibility
Moves towards decoupling payments from
plantings
Conservation programs
But
– Marketing loans introduced
– Export subsidies
1996 farm bill
Freeze loan rates
Eliminate set asides; [almost] full planting
flexibility
Replace deficiency payments with fixed
transition payments
Eliminate honey and wool; phase out dairy
support
But:
– 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 1990s
1995/96 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
box
US 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
legislations
Dairy program is extended
Ag Risk Protection Act 2000 => $6 billion
increase in crop insurance spending
2002 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 amber
WTO members critical of increase in
spending
– Brazil investigates soybeans and cotton
support; brings cotton case to WTO in 2003
20
09
f
20
08
20
07
20
06
20
05
20,000
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
Million dollars
US amber box support
25,000
URAA limits
15,000
10,000
5,000
0
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
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Source: WTO submissions; Orden et al. 2011
US
EU
Japan
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 challenges
Aug 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 Agreement
July 2004
Tradeoff of market access concessions in
developing countries for concessions for
US domestic support policies
US gets new blue box for CCPs but w/
additional disciplines
Developing countries get Special
Products, Special Safeguard Mechanism
Percentage of Global Imports Potentially Affected
by Special Product Designation
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
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
Billion $
60
50
48
40
30
22.6
20
19
17
15
14.5
10
0
Base
Oct 2005
proposal
Jul 2006
Ministerial
Offer
Feb 2007
Jul 2007
Potsdam
Actual
Overall Trade Distorting Support = Amber + Blue + de minimis
Jul 2008
Lamy text
DDA texts as of Dec 2008
AMS cap reduced by 60% => $7.6 billion
Blue box capped at 2.5% VOP => $4.8 bil
De minimis reduced to 2.5% of VOP
Product specific caps for amber and blue
box payments
Overall 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% ACRE
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%
Product specific AMS >
commitments
corn
Source: FAPRI Jan 2011
Current farm bill debate
Budget
Dissatisfaction with direct payments
Base versus planted acres
Role of crop insurance and “shallow
losses”
Projected Outlays
Selected programs
Mil $
25,000
Crop Insurance
Conservation
MLG+CCP+ACRE
Direct
20,000
15,000
10,000
5,000
0
Source: CBO Baseline—March 2011
$7.7 b avg
$6.0 b
$0.7 b
$4.9 b
Budget proposals
Administration: $33 billion cut over 10
years
Ag Committees: $23 billion cut over 10
years with $15 bil coming from commodity
programs
Super Committee: ???
Dissatisfaction with Direct Payments
Need for payments questioned in times of high prices
Benefits accrue largely to landowners
Wide differences between planted and base acres
Payment limitation issues
But…
For many producers, DPs are the only payments
received over past several years
Minimally trade distorting; notified as green box
Tie to conservation compliance
Base versus Planted Acreage
Mil Acres
100
90
80
70
60
50
40
30
20
10
0
Wheat
Upland
cotton
Corn
Base
Soybeans Minor feed
grains
Planted
Other
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
Marketing loan benefits
Counter-cyclical payments
Crop insurance premium
subsidies
Green
Product-specific amber
Non-product specific amber
Non-product specific amber
Green
Product-specific amber
Blue
Policies > 70%: non-product
specific amber
Policies ≤ 70%: green
Crop insurance delivery costs
(A&O + underwriting gains)
Green
Green
ACRE payments
Supplemental disaster (SURE)
Livestock disaster payments
Dairy price support
Milk Income Loss Contract
Sugar
Conservation Reserve Program
Environmental Quality Incentive
Program
Product-specific amber
Non-product specific amber
Product-specific amber
Product-specific amber
Product-specific amber
Product-specific amber
Green
Green
Product-specific amber
Non-product specific amber
Product-specific amber
Product-specific amber
Product-specific amber
Product-specific amber
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 (nonproduct-specific amber)
Tie DP to cost of production (green =>
amber/blue)
Margin-based dairy program (potentially
blue/green at least for base level
protection)
Conclusions
Since 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 fall
Budget pressures present opportunity to make significant
changes in farm policy, but likely outcome will favor
policies that are tied to prices and actual plantings
Shift of green box programs to amber box