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Corn+Soybean Digest

MU FAPRI Analysis Shows U.S. Trade Proposals At WTO Create Different Outcomes For Crop And Livestock Farms

COLUMBIA, Mo. - Negotiators for U. S. agriculture at the World Trade Organization (WTO) meeting in Hong Kong must play a finely tuned game of give and take.

"What the United States wants is more market access and less subsidized competition," said Pat Westhoff, international policy analyst with the University of Missouri Food and Agricultural Policy Research Institute (FAPRI). "What other countries ask is that the U.S. sharply reduce domestic price and income supports to our farmers. Those countries argue that our subsidies give U.S. producers an unfair advantage in the world market."

FAPRI, an agricultural policy analysis group, has studied scenarios of what would be lost and what would be gained from changes in world trading rules. The assumptions are based on a U.S. proposal released Oct. 10 by the U.S. Trade Representative.

Major elements of the USTR position include a 60 percent reduction in allowed levels of domestic supports for U.S. farmers, tariff reductions of up to 90 percent, and elimination of export subsidies.

The U.S. proposal could require significant changes in U.S. farm programs, Westhoff said. "One way to stay within the proposed subsidy limits would be to reduce crop-loan rates and milk-support prices by 11 percent and target prices by 7 percent."

According to the FAPRI study, if the U.S. did reduce domestic support as outlined but did not gain the sought-after market access, different commodity producers would be affected at different levels. Under that scenario, corn growers would lose $15.33 in gross returns per acre. However, if other countries also changed their policies in line with the U.S. proposal, the loss would be only $5.65/acre.

Reducing domestic support causes a smaller change for soybean growers. With reduced domestic support and no increased trade, their gross income would drop $8.37/acre. Even with increased market access, the loss is $6.45/acre.

The FAPRI report indicates U.S. net farm income increases $1.3 billion a year with increased foreign market access.

Not all commodities reap increased benefits. "Rice and cotton represent the extremes, with rice growers having a lot to gain with more open trade," Westhoff said. If domestic support is dropped, rice growers' gross returns drop $23/acre. With market access, such as reducing tariffs in Japan, gross returns jump $44/acre.

Cotton producers losing domestic support would see gross returns decline $37/acre. In contrast to other crops, increased market access would have almost no impact on cotton producer returns.

The 35-page FAPRI report, "Potential Impacts on U.S. Agriculture of the U.S. October 2005 WTO Proposal," is available on the MU FAPRI website Click on report 16-05.

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