Transcript Monsanto Staff Briefing

How Green is the Green Box?
US and EU “green” agricultural policies
William H. Meyers
Howard Cowden Professor of Agricultural and Applied Economics
and Co-Director, FAPRI
University of Missouri
University of Southern Bohemia, 3 November 2010
Agenda
 Historical background
 Political economy of agr policy
 Origins of the “Green Box” in WTO
 Evolution of “green” policies in EU
 Evolution of “green” policies in US
 Where do we go from here?
Old history on origins of market
protection resurgence
Political Economy of Ag Policy
 Why do policies evolve differently in different countries
or in different time periods?
 Why do policies differ from what economic analysis
may suggest?
 If governments don’t just do what economists say, what
actually determines policy decisions?
 Political economy approach views decisions as rational
responses to all pressures from an array of interests in
society
Measures of support 1
 The Producer Support Estimate (PSE) is an indicator
of the annual monetary value of gross transfers from
consumers and taxpayers to support agricultural
producers, measured at farm gate level, arising from
policy measures, regardless of their nature, objectives or
impacts on farm production or income.
 (see http://stats.oecd.org/glossary/detail.asp?ID=2150
for more details and read pages 1-5 of the following
report for basic concepts and read more if you want gory
details
http://www.oecd.org/dataoecd/57/5/43411396.pdf )
Comparison of OECD and Emerging Market
countries 2005-07
PSE comparison in OECD countries
Measures of support 2
 Two other measures that are also used by OECD and
others when discussing comparisons of support and
protection levels are the
 Nominal Protection Coefficient (NPC), which is the
ratio between the average price received by producers at
the farm gate (including payments per ton) and the
border price (also calculated at the farm gate), measures
the level of market protection
 Nominal Assistance Coefficient (NAC), which is the
ratio of the value of gross farm receipts (including
support) and the gross farm receipts valued at border
prices (also calculated at the farm gate), measures what
share of farm receipts that come from the marketplace.
Comparison of PSE, NAC and NPC changes
Measures of support 3
 nominal rates of assistance (NRAs) the percentage
by which government policies have raised gross
returns to farmers above what they would have been
without the government’s intervention (or lowered
them if NRA is negative). Product-specific input
subsidies are included (Anderson et al, 2009).
[Unlike OECD, uses free trade prices not actual
(distorted) prices to aggregate]
 See Anderson, Kym; (2009) “Political Economy of
Distortions to Agricultural Incentives: Introduction
and Summary” Agricultural Distortions Working
Paper #91, World Bank
http://ageconsearch.umn.edu/handle/50306
Comparison of NRAs for high-income countries
Comparison of NRAs for low-income countries
Some patterns analyzed in the literature


The “development pattern”, which relates to the
pattern that as incomes grow, agricultural
protection also grows and policies shift from taxing
agriculture to protection of it.
The “anti-trade pattern”, which finds that importcompeting sectors or products are supported more
or taxed less than exportables.
Some patterns analyzed in the literature

The “anti-comparative advantage pattern”,
which can be seen when protection is lower or
taxation higher on products that have greater
comparative advantage and that protection
increases or taxation decreases when farm incomes,
especially from that product or sector, fall relative
to the rest of the economy.
Some factors analyzed in the literature
 Individual preferences of the citizenry
 Differing ability of stakeholder groups to organize
effectively
 Collective action by lobby groups
 Preferences of politicians or interaction of lobbies
and politicians
 Political institutions and ideology (e.g. US Congress
and Administration vs European Commission and
Parliament)
Some conclusions on changes over time
 Share of ag & share of farmers declines,
 makes subsidies cheaper
 makes interest group organization easier
 makes food cheaper and less consumer resistance
 Trade and trade agreements play a role
 External factors, eg regime change, crisis and budget
problems
 Often gradual but sometimes radical
Agenda
 Historical background
 Political economy of agr policy
 Origins of the “Green Box” in WTO
 Evolution of “green” policies in EU
 Evolution of “green” policies in US
 Where do we go from here?
Origins of the “Green Box” in WTO
 Early in Uruguay Round negotiations, farm groups in
developed countries (high supports) resisted changes
 In 1987 US and EU proposed the idea of exempting
“trade-neutral” and “production-neutral” subsidies
 So “Green Box” was created for subsidies that “do not
cause more than minimal trade distortion”
 By contrast “Amber Box” supports must be cut
according to an agreed schedule and
 “Blue Box” required production limits (such as EU and
US land set aside programs) to avoid cuts
Boxes of support
What is in the “green box”
 Green box subsidies are supposed to
have “no or at most minimal trade or
production distorting effects”
 Cannot be tied to production of
particular commodities or to prices
 WTO places no limits on green box
subsidies
EU Green Box expenditures, 03-05
 Decoupled income support, ~€14 bil
 Investment aids, ~ €7 bil
 Environmental programs, ~ €5.5 bil
 General services, ~ €5.5 bil
 Regional assistance programs , ~ €3 bil
 Etc smaller ones
Evolution of CAP Expenditure
CAP Measures: past and current reform process
Changing Shares in the EU agric. budget for different instruments
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
1990
1995
2000
Direct payments
Price support instr.
Envrionmental payments
Agr.structural support
2005
2010
Historical entitlements
Axis 2: Environment/Land Management
 Measures targeting the sustainable use of agricultural
land: mountain areas, LFA; other areas with handicaps;
Natura 2000 areas; agri-environment and animal welfare;
support for non-productive investments
 Measures targeting the sustainable use of forestry
land: first afforestation; first establishment of agro-forestry
systems, Natura 2000 areas; forest-environment; restoring
forestry production potential and introducing prevention
actions; support for non-productive investments
Pillar II PROGRAMME BALANCE - DG Agri guidance
 Competitiveness objective: total programme
funding at least 15%
 Environment/land management: 25%
 Quality of life and diversification: 15%
 Implementation of the Leader approach: 7%
25
Importance of Axis 2 in Pillar II
US Green Box expenditures 03-05
 Domestic food aid, ~ $45 bil
 General services, ~ $10 bil
 Decoupled income support, ~$5 bil
 Environmental programs, ~ $2 bil
 Etc smaller programs
Farm bill spending, 2008-17
Is it really a “farm” bill?
CCC and FCIC net outlays
Sources: USDA’s Farm Service Agency (CCC) and Department of the Treasury’s Monthly Treasury Statement
(FCIC).
Notes: CCC net outlays include commodity programs, the conservation reserve program, and miscellaneous
programs. FCIC net outlays are for the crop insurance program.
“Mandatory” spending in CBO’s
August baseline: selected programs
FY 2011-FY2020 net
outlays
Commodity programs
$63 billion
Crop insurance
$76 billion
Conservation programs
$64 billion
Supplemental Nutrition Assistance Program
$685 billion
Child nutrition programs
$222 billion
Commodity Credit Corporation net outlays include commodity programs, export programs, one
major conservation program (the conservation reserve program) and some other miscellaneous
programs. CBO projects that net CCC outlays will total $102 billion over the FY 2011-FY 2020
period.
Mandatory conservation program spending includes $39 billion in Natural Resources Conservation
Service programs and $25 billion in CCC-funded programs.
Crop insurance spending by the Federal Crop Insurance Corporation reflects both subsidies to
agricultural producers and program delivery costs.
Agenda
 Historical background
 Political economy of agr policy
 Origins of the “Green Box” in WTO
 Evolution of “green” policies in EU
 Evolution of “green” policies in US
 Where do we go from here?
Pressures to change EU policy
 In early years self sufficiency was driving force –
open ended price support
 But, led to surplus, escalating expense, budget
concerns led to supply controls
 Supply controls not sufficient, pressure from
WTO/environment groups/budgetary concerns
led to shift to direct payments
 Further WTO concerns, and enlargement related
budgetary concerns led to decoupling
 What does future hold? Depends on internal and
external pressures.
Main current programs
 Decoupled farm support payments
 Single farm payment
 Single area payment in NMS
 Pillar II programs
 Investment support – Axis 1
 Environmental programs – Axis 2
 Rural diversification – Axis 3
 other
Agenda
 Historical background
 Political economy of agr policy
 Origins of the “Green Box” in WTO
 Evolution of “green” policies in EU
 Evolution of “green” policies in US
 Where do we go from here?
Pressures to change US policy
 WTO pressures and “free trade” ideology of Reagan




Administration led to Uruguay Round concessions
Budget concerns in 1995 led to shift to direct
(decoupled and declining) payments programs in 95
Farm Bill
Congressional farm lobby increased coupled support
and shift to insurance in 2008 Farm Bill
Current budget pressures and interest in more focus
on revenue insurance
What does future hold? Depends on internal and
external pressures.
Some USDA conservation programs
FY 2008 outlays
FY 2012 projection*
Conservation Reserve Program
(CRP)
$1.99 bil.
$2.09 bil.
Environmental Quality Incentive
Program (EQIP)
$0.95 bil.
$1.35 bil.
Conservation Stewardship Program
(CSP)
$0.31 bil.
$1.15 bil.
Wetlands Reserve Program (WRP)
$0.25 bil.
$0.66 bil.
Farmland Protection Program
(FPP)
$0.07 bil.
$0.15 bil.
All other mandatory programs
$0.19 bil.
$0.46 bil.
Total USDA mandatory
conservation programs
$3.76 bil.
$5.86 bil.
*FAPRI projections, Jan. 2009, largely based on CBO estimates
Conservation Reserve Program
 Established in 1980s; similar to earlier programs
 Pays farmers to take environmentally sensitive land
out of crop production
 Usual term: 10 years
 Farmers get annual rental payment, tied to value of similar
land in local rental market
 Cannot grow crops; can only graze animals when get special
permission
 May have other requirements—seed natural grasses, control
noxious weeds, etc.
CRP benefits and costs
 Program benefits
 Reduce soil erosion
 Enhance wildlife habitat
 Install buffers to protect streams
 Reduce crop supplies to raise crop prices
 Income to beneficiaries
 Program costs
 Program outlays (around $2 bil./year now)
 Reduce farming activity in some areas
 Raises food prices
CRP enrollment
Compiled by FAPRI-MU from past FSA reports
Some current CRP statistics
Farm Service Agency monthly report, Feb. 2010
 31.2 million acres enrolled
 Average rental payment: $53/acre/year
 Leading states






Texas (3.3 million acres, $35/acre/year)
Montana (3.1, $32)
Kansas (2.8, $40)
N. Dakota (2.7, $35)
For map of enrollment patterns, see
…Iowa (1.6, $119)
page 3 of FY 2008 summary report:
…Missouri (1.4, $70)
http://www.fsa.usda.gov/Internet/FSA_
File/annualsummary2008.pdf
Some CRP issues
 “Right” size for reserve
 2008 farm bill sets upper limit of 32 million acres
starting this year
 Should other uses be allowed?
 Grazing
 Growing energy crops like switchgrass
 How to weigh environmental benefits, fiscal cost,
effects on communities and markets
Wetland Reserve Program (WRP)
 In many ways, like CRP
 Removes land from crop production
 Farmers get paid for environmental benefits
 Differences from CRP
 Targeted at restoring, enhancing wetlands
 Uses permanent and 30-year easements, as well as
restoration cost-share agreements
 As a result, up-front per-acre costs are higher
WRP statistics
Compiled from recent NRCS and ERS reports
 2.0 million acres enrolled in FY 2008
 221,000 in Lousiana
 207,000 in Arkansas
 97,000 in Missouri
 80% in permanent easements as of 3/07
 Farm bill limits enrollment to 3.04 mil. acres
Some WRP issues
 Which acres to enroll
 Mix of permanent and temporary easements
 Permanent locks in environmental improvements
 But costs more up front and can reduce local tax base
 Budget issues
 Per-acre cost high relative to CRP and most other
conservation programs
 Spending often limited to “pay” for other programs
Environmental Quality Incentive
Program (EQIP)
 Established in 1996 farm bill, building on several
previous programs
 Pays farmers to address environmental concerns
on their farms
 Build terraces to reduce erosion
 Put in ponds to control run-off into streams
 Improve manure handling facilities
 Cost-share program—farmers pay portion
Some EQIP issues
 Who/what gets funded
 Usually far more applications than dollars
 Regional, livestock vs. crop, big vs. small
 Help past “bad actors” to clean up?
 Budget
 Farm bill sets increasing mandatory funding levels
 But appropriations bills routinely limit and spend “savings”
on discretionary programs
 Senate child nutrition bill limits EQIP spending to boost
school lunch program
Conservation Stewardship Program
(CSP)
 2008 farm bill name for program established in
2002 farm bill
 Like EQIP in many respects
 Pay farmers addressing environmental concerns
 A little different philosophy
 Reward good stewards
 Initially was intended to make payments to everyone
who met certain criteria (open-ended entitlement)
CSP issues
 Funding
 2002 farm bill vision never met, as subsequent bills
limited spending
 As a result, was limited to a few watersheds
 Under 2008 bill, goal is to enroll 12.8 mil. acres/yr.
 Purpose
 To make program more affordable and workable, looks
much more like EQIP than initially envisioned
Farmland Protection Program (FPP)
 Latest name for program dating back to 1990s
 Provides funding to purchase easements
 These limit non-agricultural uses of land
 Federal share up to 50% of easement cost
 Goal is to limit development, retain farms
FPP issues
 Cost per acre can be very high
 Near major city, land can be worth much more for
development than its agricultural value
 Interest in program much higher precisely where it’s the
most expensive to operate
 As a result, funding can’t go very far—how to prioritize?
 Should this be a federal program?
 Lots of arguments for why it should be local
 But proponents argue their areas get little help from
other USDA programs
Some other federal policies related
to conservation & the environment
 Conservation compliance provisions for farm program
benefits
 Farmers have to agree to conservation plans to get direct
payments, marketing loan benefits, etc.
 Minimum standards to limit erosion, such as keeping
some crop residues on surface
 Could include biofuel policies, pesticide regulation,
clean water rules and much more
General issues
 Who pays to reduce negative externalities
 Farmers by way of regulation?
 Taxpayers?
 Value to the public of USDA spending programs
 Conservation programs generally viewed as having
benefits beyond the farm sector
 Increasing skepticism about public value of commodity
programs
Changes in spending caused by 2008 farm bill
(FY 2008-17, billion dollars, CBO estimates, relative to continuation of 2002 farm
bill provisions)
Agenda
 Historical background
 Political economy of agr policy
 Origins of the “Green Box” in WTO
 Evolution of “green” policies in EU
 Evolution of “green” policies in US
 Where do we go from here?
Study on Green Box Subsidies
 Green Box is not always green, as in “environmental”
 Green Box may change
 ICTSD (2009). “Agricultural Subsidies in the WTO
Green Box: Ensuring Coherence with Sustainable
Development Goals”, summary note. Geneva
http://ictsd.net/downloads/2009/10/green-box-810.pdf
Vision for future of EU and US Policy
 “CAP reform beyond 2013: An idea for a longer view”
by Jean-Christophe Bureau and Louis-Pascal Mahe.
 Changing roles and influences
 New role of EU Parliament under Lisbon Treaty
 Commissioner of Agriculture from Romania
 Qualified majority voting in Council of Ministers
 2013 debate for new budget period
 Loss of budget for CAP and more shift to Pillar II?
 Move away from SFP and toward payment leveling?
 US Farm bill 2012 debate starting
 More gridlock? Less budget?
Thank you!
Lisbon Treaty features
 Fewer Commissioners- 27 to 18
 Max of 2/3 of total members in future
 Change in weighting of votes (QMV)
 majority (55%) of states, plus 65% of population
 OR fewer than 4 states oppose it
 Future changes to Treaty based on QMV not
unanimity