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For U.S. farmers WTO would impact loan rates, prices

U.S. farmers could see their marketing loan rates decline by 10 percent and target prices by 4 percent to 6 percent if the U.S. proposal for a 60-percent reduction in the amber box ceiling for a new WTO trade agreement became law.

Trade ministers from 50 countries apparently made little progress in the latest Doha Round negotiations in Geneva June 30-July 1, talks aimed at breathing new life into the talks. But U.S. producers still need to know what's at stake if some miraculous breakthrough does occur.

“The current ceiling for the amber box or most trade-distorting subsidies for the United States is $19.1 billion,” says Gary Adams, vice president for economics and policy analysis for the National Cotton Council. “That's basically the marketing loan and the old Step 2 payments. We've never reached that in the United States.

“The 60 percent reduction in the ceiling that the U.S. government tabled in Geneva last October would reduce the ceiling from $19.1 billion to $7.6 billion. The question is what could that mean for the next farm bill?”

If the $7.6 billion ceiling had been in place, U.S. amber box spending would have exceeded it in seven of the last eight years, Adams told participants in the Mississippi Farm Bureau's summer Commodity Conference.

One of the problems with the amber box ceiling is that it also includes something called “aggregate measures of support.” Each year, USDA has to estimate the subsidy equivalent of border measures or the impact of quotas on such commodities as dairy products and sugar.

The WTO says these quotas and tariffs are the equivalent of a payment to the producers, supporting high domestic prices compared to world prices. In an average year, that comes out to about $5.5 billion. Thus, before the United States spends a dollar on marketing loan gains for grains, oilseeds and cotton, it already has $5.5 billion of the $19.1 billion claimed by dairy and sugar.

U.S. trade negotiators have also been attempting to shift counter-cyclical payments, which were enacted since the amber box ceiling was put in place in 1994, to the blue box, or less trade-distorting spending. Even if the move is successful, U.S. farm programs could be up against it in declining markets under a new WTO trade agreement.

“When prices are low, marketing loan gains might still exceed the new ceiling — if it, in fact, became law,” Adams said.

Speaking at a press conference at the June 30-July 1 WTO ministerial in Geneva, Agriculture Secretary Mike Johanns said U.S. farm program benefits would be significantly reduced by the U.S. proposal, refuting claims by the European Union's trade minister that the United States could actually increase spending under its scheme.

Noting the reduction in the amber box ceiling from $19.1 billion to $7.6 billion, Johanns said: “I can tell you that in 2005 we estimate that these programs will cost about $12.5 billion. So even if you go beyond that to what we are actually going to use, this is a real cut.

“Now how could anybody argue that that is not a meaningful reduction when we are saying that, literally, the very heart of the U.S. farm program is directly impacted by the cut we have put on the table? It will require the reform of the U.S. farm program.”

At yet another press conference, Susan Schwab, the new U.S. trade representative, said the U.S. proposal is actually more far-reaching than that of the European Union, which has said it would reduce its amber box ceiling by 75 percent.

“The United States is by no means the largest user of domestic subsidies in agriculture,” she said. “In fact, the European Union subsidizes at a rate that is three times that of the United States.”

If U.S. subsidies at the end of the current round were at the same rate as the EU, adjusted for differences in production, and the EU reduced its amber box ceiling by 75 percent so that at the end of the process it wasn't at a 3 to 1 ratio or a 2 to 1 ratio with the United States, but a 1 to 1 ratio, the U.S. cut in the amber box would be 34 percent, not 60 percent, she noted.

“So to give you a sense of how incredibly committed we are and how it's reflected in the statistics, that is a specific example relative to where, for example, the EU's domestic subsidies are.”

Cotton farmers could feel even more pain from the WTO because of continuing efforts by some blocs of countries in the WTO to single out the commodity for special treatment. As cotton producers know all too well, the U.S. cotton program has been the target of a well-orchestrated media campaign aimed at its destruction.

“The National Cotton Council has rebutted much of this, but some of the African countries aided by organizations like Oxfam and the European Union have continued to push for the WTO to do something more and in a shorter timeframe for cotton,” says Adams. “That might be as little as 1 percent more and a day sooner — it all has to be worked out.”

A 10 percent cut would reduce the marketing loan rate for cotton from 52 cents to 46.8 cents per pound. A 4 percent to 6 percent reduction in the target price would lower the latter from 72.4 cents to 68.06 cents to 69.51 cents per pound. Thus, producers could receive 9.39 cents to 10.84 cents instead of 13.7 cents when market prices were low enough to trigger a full counter-cyclical payment.

Farm-state congressmen and other farm organizations have said they continue to support the 60-percent amber box ceiling reduction — if other countries agree to equal increases in market access, the third of the Doha Round's “three pillars” of domestic support, export competition and market access.

Georgia Sen. Saxby Chambliss issued a statement on July 12 after media reports said he was wavering in his support for the U.S. proposal.

“My remarks yesterday (July 11) to the American Soybean Association have been misinterpreted,” the statement said. “My position has not changed. I support the USTR's existing offer. The European Union needs to come to the table and offer a serious market access proposal that will result in new trade flows.

“Otherwise they are imperiling the talks, and the losers from a failed Doha Round will not only be farmers and ranchers in the United States but developing countries around the world.”

American Farm Bureau President Bob Stallman also expressed his organization's continued support for the U.S. offer and the frustration of his members at the continued lack of progress in the Doha Round.

“It is naïve and unrealistic for other nations to expect U.S. agriculture to make real cuts in domestic supports without them also agreeing to reduce tariffs and open their markets,” he said. “It has been clearly shown that the use of tariffs by other nations to protect their producers and markets is far more damaging to developing nations and the world economy as a whole than the use of domestic supports.”

He said Farm Bureau “strongly believes in the benefits of securing a multilateral, rules-based trading system. I must emphasize, however, that we will not support an agreement that fails to provide our farmers the opportunity to improve their incomes through greater market access equivalent to the reductions in our domestic support programs.”

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