Transcript Expected Changes to US Farm Policy Resulting from the Doha Round

Expected Changes to
US Farm Policy Resulting
from the Doha Round
Larry D. Sanders
February 2006
Farm Bill Pressures and Dynamics

Twin Deficits
– Trade Deficit
– Federal Budget Deficit
Trade Situation & Policy
 Political Economy

– Domestic
– International
Trade & Trade Deficit:
US Trade Balance, 1990-2005
($ million)
1991: -$31 bil.
20
04
20
02
20
00
19
98
19
96
19
94
19
90
-100000
19
92
0
-200000
-300000
-400000
Trade Balance
-500000
NOTE:
-600000
-700000
-800000
10/05: $68 bil.
1991: $31.1 b.
2004: -$617.1 b.
2005(projected): -712.1 b.
US Agricultural Trade Balance
($mil/FY; agricultural product only)*
NAFTA
70000
$62.4 b.
WTO
60000
50000
$57.7 b
40000
30000
20000
10000
0
91
92
93
94
95
96
IMPORTS
97
98
99
0
1
2
3
4
EXPORTS
*NOTE: If fish & forest product added to ag, trade balance would be -$21.1 b.for fy05.
5
The Proposed Modified Boxes
Amber
Payments
coupled to
production
& prices
Policies that are
trade distorting &
targeted for
reductions under
the URA (price
supports,
marketing loans,
payments based on
ac or # of
livestock, input
subsidies, etc.)
New Blue
Payments
decoupled
from
production
but coupled
to prices
Policies that are trade
distorting but exempt
from reductions under
URA, including direct
payments linked to
certain productionlimiting policies (US
crop deficiency
payments, EC
compensatory
payments, etc.)
Green
Payments
decoupled
from
production
and prices
Policies that are non-trade
distorting & are acceptable
under URA, including taxpayer-funded and non-transfers from consumers (research,
extension, pest/disease control,
crop insurance, marketing/
promotion, natural disaster
relief, conservation programs,
public stockholding, decoupled
income support, income safety
nets, etc.)
The Next Farm Bill: 2007? 2008? 2011?
Current farm bill: 6-year act (2002-2007)
 Debate for the “next” farm bill already
engaged
 Rewrite of FSRIA02 began in 05

– Budget Reconciliation
– Appropriations

New “enabling” legislation in 07-08-11?
– 2006 & 2008 election anxiety may encourage a
2007 farm bill
– Doha Round complications suggest late 07, early
08 or 2011 WTO agreement and new farm bill
FY06 Reconciliation Package 2006-2010
(S 1932)
House passed 1 Feb 06; Senate passed Dec 05
 $39.7 b. cuts from all programs
 $2.7 b. cuts from ag programs

–
–
–
–
–
–
–
–
No across-the-board Commodity program cuts
Cotton reform (eliminate Step 2 Aug ’06)
Dairy market loss payments MILC extend thru Sep ‘07
Advance direct payments reduced from 50% to 22% in
’07
Watershed Rehab Program cancelled Oct ‘06
CSP spending reduced to $1.95 b. 06-10
EQIP spending reduced $30 m. 07-09
Renewable Energy Program spending reduced $20 m.
’07
FY06 Reconciliation Package 2006-2010
(S 1932)
 Cuts from ag programs—cont.
– Broadband Rural program cancelled Oct ’06
– Value Added grants cancelled Oct ’06
– Rural Business Investment program cancelled
Oct ’06
– Rural Business Strategic Investment grants
cancelled Oct ’06
– Rural Firefighters/emergency personnel grants
cancelled Oct ’06
– Initiative for Future Ag & Food Systems
cancelled for ’07-’09

No cuts: food stamps, child nutrition
Evolutionary…not Revolutionary Change?
Never do today what you can put off till tomorrow.
--Matthew Browne
 Near term program changes marginal; likely more to come
in 2007
 But, WTO restrictions likely to coincide with writing of next
farm bill; cuts may become dual purpose
– 20-50% cuts for WTO?
– $3-$20 billion in cuts for deficit reduction?
 Production expenses (fuel, fertilizer, interest rates) will rise
faster than commodity prices
 Budget deficit/debt solution choices
– Increase taxes
– Cut spending
– Grow economy
– Do nothing
Review of Past Decade Suggests Mixed Bag for
Farm Bill and Trade Agreement Impacts

Theory says:
– Lower prices bring increased exports.

Conflicted opinions:
– Trade agreements reduce trade barriers & increase trade?
– Trade agreements help big agriculture/agribusiness &
harm small farms?
– Big business with co-opted government manipulate
market prices for own gain?

Reality check of past decade:
–
–
–
–
US exports & imports trending up
Wheat prices & exports trending down
Corn & cotton prices trending down & exports trending up
Agribusiness has done relatively better than farms
US Wheat price & exports, 1991-2005
5
N
A
F
T
A
W
T
O
F
A
I
R
9
6
F
S
R
I
A
0
2
1600
4.5
1400
4
1200
3.5
1000
3
wheat price ($bu)
wheat exports (mil. Bu.)
2.5
800
Line 3
Linear (wheat price ($bu))
2
600
1.5
400
1
200
0.5
0
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
4
5
Linear (wheat exports (mil. Bu.))
US Corn price & exports, 1992-2005
N
A
F
T
A
3.5
F
S
R
I
A
0
2
F
A
I
R
9
6
W
T
O
2500
3
2000
2.5
1500
2
corn price ($/bu; farm)
corn exports
Linear (corn price ($/bu; farm))
1.5
1000
1
500
0.5
0
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Linear (corn exports)
US Cotton price & exports, 1992-2005
F
N
A
F
T
A
F
A
I
R
9
6
W
T
O
80
S
R
I
A
0
16
2
70
14
60
12
50
10
cotton price (cents/lb; farm)
40
8
cotton exports (mil.bales)
Linear (cotton price (cents/lb; farm))
Linear (cotton exports (mil.bales))
30
6
20
4
10
2
0
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
General Trade Market Analysis for
2002 Farm Bill (2002-2005)
Exports and Imports continue increasing
 Trend for Imports increasing faster than exports

– Ag trade surplus narrowing
– Some months of ag trade deficit have occurred within
past 2 years
– Trend suggests annual ag trade deficit in next 5 years





96-02: 26% increase in imports; 11% decline in
exports
02-04: 29% increase in imports; 17% increase in
exports
Prices down for wheat & corn; mixed for cotton
Export volume up for wheat, corn, cotton
Export value up for wheat, corn, cotton
General Trade Market Analysis for
2002 Farm Bill (2002-2005)--continued

Summary:
–
–
–
–
Complex reasons for trade flows
Farm bill may be part of reason for price declines
Not likely primary contributor to increase in imports
Cotton export value more than doubled (121%
increase) 2002-2004; but, down 16% in 2005 to date
(Oct-Aug)
– Feed export value increased 9%, but down 5% in 2005
to date
– Wheat export value increased 46%; but down 17% in
2005 to date
– With Step 2 terminated, expect some decline in cotton
exports
The Political Reality of An Election Year:
2006
Weakened President
 “Safe” politics & election year jitters
 The next presidential election (’08) may
overshadow ’06
 Wildcards

Politics: Political Triangle of Ag & Budget Policy
•New committees
•Turf battles
•Reconciliation
LEGISLATIVE
Federal Reserve
•Fight inflation
•Critical of federal deficit
•Greenspan retiring
•Bush Doctrine
•Bush Budget
•USDA
•Trade talks
•Ag groups one voice?
•Non-ag groups
•Competitors
INTEREST
GROUPS
EXECUTIVE
JUDICIAL
Net Farm Income & Direct Government Payments
$ Billion
1996 Farm Act
2002 Farm Act
71.5
net farm income
govt payments
NFI-G
20
05
20
03
19
99
20
01
19
95
19
97
22.7
19
93
19
91
90
80
70
60
50
40
30
20
10
0
*Projected
Net Farm Income & Direct Government Payments:
Assume 20% cut in Govt Payments 1996-2005
$ Billion
1996 Farm Act
2002 Farm Act
19
91
19
93
19
95
19
97
19
99
20
01
20
03
20
05
90
80
70
60
50
40
30
20
10
0
net farm income
adj NFI (20% cut in
G)
2-8% reduction
in NFI 96-05