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Farm Bill Has International Trade Impact, Study Says

Farm Bill Has International Trade Impact, Study Says

New programs could have an effect on the type of commodity and volume produced

With the Farm Bill wrapped up in rumors of "fiscal cliff" bundles and seemingly no passage in sight, ag economists Bruce Babcock of Iowa State University and Nick Paulson of the University of Illinois have a little more time to comb through potential issues with the proposed bill.

The two economists recently published a study on the potential effects of the 2012 Farm Bill commodity programs on developing countries with the International Centre for Trade and Sustainable Development, finding that 2012 Farm Bill policies could cause a big splash in international trade.

New programs could have an effect on the type of commodity and volume produced

One issue, Babcock and Paulson found, was that new programs – such as the STAX and Supplemental Coverage Option shallow loss programs – could alter planting decisions.

"The problem with designing programs that cover the risks that crop insurance does not is that they have the potential to influence farmer’s planting decisions," Babcock and Paulson write. "If the influence is great enough, then program-induced changes in U.S. crop acreage will be reflected in trade flows and world prices, and have the potential to harm farmers in developing countries."

The economists say that harm to developing countries could come in with shallow loss programs, if prices drop below those estimated by the Congressional Budget Office.  In this situation, U.S. wheat and cotton acreage would be higher.

Paulson and Babcock also note that the programs in the proposed bill are nothing short of confusing – an issue further exacerbated by drought.

"It is fair to say that there never has been a more complicated set of programs being considered at any one time by Congress. The complexity comes about both in terms of the payment formulas and because farmers are going to have to make a one-time choice about program options with a poor understanding of how the programs actually work," they note.

To read the full report, click here.

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