expected changes to us farm policy resulting from the doha round larry d. sanders february 2006
Post on 18-Jan-2016
214 Views
Preview:
TRANSCRIPT
Expected Changes to Expected Changes to US Farm Policy Resulting US Farm Policy Resulting
from the Doha Roundfrom the Doha Round
Larry D. SandersLarry D. Sanders
February 2006February 2006
Farm Bill Pressures and Farm Bill Pressures and DynamicsDynamics
Twin DeficitsTwin Deficits– Trade DeficitTrade Deficit– Federal Budget DeficitFederal Budget Deficit
Trade Situation & PolicyTrade Situation & Policy Political EconomyPolitical Economy
– DomesticDomestic– InternationalInternational
Trade & Trade Deficit:Trade & Trade Deficit:US Trade Balance, 1990-2005US Trade Balance, 1990-2005
($ million)($ million)
-800000
-700000
-600000
-500000
-400000
-300000
-200000
-100000
0
Trade Balance
NOTE:
1991: $31.1 b.
2004: -$617.1 b.
2005(projected): -712.1 b.
1991: -$31 bil.
10/05: $68 bil.
US Agricultural Trade Balance US Agricultural Trade Balance ($mil/FY; agricultural product only)*($mil/FY; agricultural product only)*
0
10000
20000
30000
40000
50000
60000
70000
91 92 93 94 95 96 97 98 99 0 1 2 3 4 5
IMPORTS EXPORTS
WTO
NAFTA
*NOTE: If fish & forest product added to ag, trade balance would be -$21.1 b.for fy05.
$62.4 b.
$57.7 b
The Proposed Modified BoxesAmber New Blue Green
Payments coupled to production & prices
Payments decoupled from production but coupled to prices
Payments decoupled from production and 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.)
Policies that are trade distorting but exempt from reductions under URA, including direct payments linked to certain production-limiting policies (US crop deficiency payments, EC compensatory payments, etc.)
Policies that are non-trade distorting & are acceptable under URA, including tax-payer-funded and non-trans-fers 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?The Next Farm Bill: 2007? 2008? 2011?
Current farm bill: 6-year act (2002-2007)Current farm bill: 6-year act (2002-2007) Debate for the “next” farm bill already Debate for the “next” farm bill already
engagedengaged Rewrite of FSRIA02 began in 05Rewrite of FSRIA02 began in 05
– Budget ReconciliationBudget Reconciliation– AppropriationsAppropriations
New “enabling” legislation in 07-08-11?New “enabling” legislation in 07-08-11?– 2006 & 2008 election anxiety may encourage a 2006 & 2008 election anxiety may encourage a
2007 farm bill2007 farm bill– Doha Round complications suggest late 07, Doha Round complications suggest late 07,
early 08 or 2011 WTO agreement and new early 08 or 2011 WTO agreement and new farm billfarm bill
FY06 Reconciliation Package 2006-FY06 Reconciliation Package 2006-20102010 (S 1932)(S 1932)
House passed 1 Feb 06; Senate passed Dec 05House passed 1 Feb 06; Senate passed Dec 05 $39.7 b. cuts from all programs $39.7 b. cuts from all programs $2.7 b. cuts from ag programs$2.7 b. cuts from ag programs
– No across-the-board Commodity program cutsNo across-the-board Commodity program cuts– Cotton reform (eliminate Step 2 Aug ’06)Cotton reform (eliminate Step 2 Aug ’06)– Dairy market loss payments MILC extend thru Sep Dairy market loss payments MILC extend thru Sep
‘07‘07– Advance direct payments reduced from 50% to 22% Advance direct payments reduced from 50% to 22%
in ’07in ’07– Watershed Rehab Program cancelled Oct ‘06Watershed Rehab Program cancelled Oct ‘06– CSP spending reduced to $1.95 b. 06-10CSP spending reduced to $1.95 b. 06-10– EQIP spending reduced $30 m. 07-09EQIP spending reduced $30 m. 07-09– Renewable Energy Program spending reduced $20 Renewable Energy Program spending reduced $20
m. ’07m. ’07
FY06 Reconciliation Package 2006-FY06 Reconciliation Package 2006-20102010 (S 1932)(S 1932)
Cuts from ag programs—cont.Cuts from ag programs—cont.– Broadband Rural program cancelled Oct Broadband Rural program cancelled Oct
’06’06– Value Added grants cancelled Oct ’06Value Added grants cancelled Oct ’06– Rural Business Investment program Rural Business Investment program
cancelled Oct ’06cancelled Oct ’06– Rural Business Strategic Investment Rural Business Strategic Investment
grants cancelled Oct ’06grants cancelled Oct ’06– Rural Firefighters/emergency personnel Rural Firefighters/emergency personnel
grants cancelled Oct ’06grants cancelled Oct ’06– Initiative for Future Ag & Food Systems Initiative for Future Ag & Food Systems
cancelled for ’07-’09cancelled for ’07-’09 No cuts: food stamps, child nutrition No cuts: food stamps, child nutrition
Evolutionary…not Revolutionary Evolutionary…not Revolutionary Change?Change?
Never do today what you can put off till tomorrow.Never do today what you can put off till tomorrow. --Matthew Browne--Matthew Browne
Near term program changes marginal; Near term program changes marginal; likely more to come in 2007
ButBut, WTO restrictions likely to coincide with writing of , WTO restrictions likely to coincide with writing of next farm bill; cuts may become dual purposenext farm bill; cuts may become dual purpose– 20-50% cuts for WTO?20-50% cuts for WTO?– $3-$20 billion in cuts for deficit reduction?$3-$20 billion in cuts for deficit reduction?
Production expenses (fuel, fertilizer, interest rates) will Production expenses (fuel, fertilizer, interest rates) will rise faster than commodity pricesrise faster than commodity prices
Budget deficit/debt solution choicesBudget deficit/debt solution choices– Increase taxesIncrease taxes– Cut spendingCut spending– Grow economyGrow economy– Do nothingDo nothing
Review of Past Decade Suggests Mixed Review of Past Decade Suggests Mixed Bag for Farm Bill and Trade Agreement Bag for Farm Bill and Trade Agreement
ImpactsImpacts Theory says:Theory says:
– Lower prices bring increased exports.Lower prices bring increased exports. Conflicted opinions:Conflicted opinions:
– Trade agreements reduce trade barriers & increase Trade agreements reduce trade barriers & increase trade?trade?
– Trade agreements help big agriculture/agribusiness & Trade agreements help big agriculture/agribusiness & harm small farms?harm small farms?
– Big business with co-opted government manipulate Big business with co-opted government manipulate market prices for own gain?market prices for own gain?
Reality check of past decade:Reality check of past decade:– US exports & imports trending upUS exports & imports trending up– Wheat prices & exports trending downWheat prices & exports trending down– Corn & cotton prices trending down & exports trending Corn & cotton prices trending down & exports trending
upup– Agribusiness has done relatively better than farmsAgribusiness has done relatively better than farms
US Wheat price & exports, 1991-2005
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 4 5
0
200
400
600
800
1000
1200
1400
1600
wheat price ($bu)
wheat exports (mil. Bu.)
Line 3
Linear (wheat price ($bu))
Linear (wheat exports (mil. Bu.))
NAFTA
WTO
FAIR 96
FSRIA 02
US Corn price & exports, 1992-2005
0
0.5
1
1.5
2
2.5
3
3.5
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
500
1000
1500
2000
2500
corn price ($/bu; farm)
corn exports
Linear (corn price ($/bu; farm))
Linear (corn exports)
NAFTA
WTO
FAIR 96
FSRIA 02
US Cotton price & exports, 1992-2005
0
10
20
30
40
50
60
70
80
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
0
2
4
6
8
10
12
14
16
cotton price (cents/lb; farm)
cotton exports (mil.bales)
Linear (cotton price (cents/lb; farm))
Linear (cotton exports (mil.bales))
NAFTA
WTO
FAIR 96
F
S
R
I
A
0
2
General Trade Market Analysis for General Trade Market Analysis for 2002 Farm Bill (2002-2005)2002 Farm Bill (2002-2005)
Exports and Imports continue increasingExports and Imports continue increasing Trend for Imports increasing faster than exportsTrend for Imports increasing faster than exports
– Ag trade surplus narrowingAg trade surplus narrowing– Some months of ag trade deficit have occurred within Some months of ag trade deficit have occurred within
past 2 yearspast 2 years– Trend suggests annual ag trade deficit in next 5 Trend suggests annual ag trade deficit in next 5
yearsyears 96-02: 26% increase in imports; 11% decline in 96-02: 26% increase in imports; 11% decline in
exportsexports 02-04: 29% increase in imports; 17% increase 02-04: 29% increase in imports; 17% increase
in exportsin exports Prices down for wheat & corn; mixed for cottonPrices down for wheat & corn; mixed for cotton Export volume up for wheat, corn, cottonExport volume up for wheat, corn, cotton Export value up for wheat, corn, cottonExport value up for wheat, corn, cotton
General Trade Market Analysis for General Trade Market Analysis for 2002 Farm Bill (2002-2005)--2002 Farm Bill (2002-2005)--
continuedcontinued
Summary: Summary: – Complex reasons for trade flowsComplex reasons for trade flows– Farm bill may be part of reason for price declinesFarm bill may be part of reason for price declines– Not likely primary contributor to increase in importsNot likely primary contributor to increase in imports– Cotton export value more than doubled (121% Cotton export value more than doubled (121%
increase) 2002-2004; but, down 16% in 2005 to date increase) 2002-2004; but, down 16% in 2005 to date (Oct-Aug)(Oct-Aug)
– Feed export value increased 9%, but down 5% in Feed export value increased 9%, but down 5% in 2005 to date 2005 to date
– Wheat export value increased 46%; but down 17% in Wheat export value increased 46%; but down 17% in 2005 to date2005 to date
– With Step 2 terminated, expect some decline in With Step 2 terminated, expect some decline in cotton exportscotton exports
The Political Reality of An Election The Political Reality of An Election Year:Year:20062006
Weakened PresidentWeakened President ““Safe” politics & election year jittersSafe” politics & election year jitters The next presidential election (’08) The next presidential election (’08)
may overshadow ’06may overshadow ’06 WildcardsWildcards
Politics: Political Triangle of Ag & Budget Politics: Political Triangle of Ag & Budget PolicyPolicy
JUDICIAL
EXECUTIVE
LEGISLATIVE
INTERESTGROUPS
•New committees•Turf battles•Reconciliation
•Bush Doctrine•Bush Budget•USDA•Trade talks
•Ag groups one voice?•Non-ag groups•Competitors
Federal Reserve
•Fight inflation•Critical of federal deficit•Greenspan retiring
Net Farm Income & Direct Government Net Farm Income & Direct Government
PaymentsPayments
01020
30405060
708090
net farm income
govt payments
NFI-G
1996 Farm Act$ Billion
*Projected
2002 Farm Act
71.5
22.7
Net Farm Income & Direct Government Net Farm Income & Direct Government Payments:Payments:
Assume 20% cut in Govt Payments 1996-2005Assume 20% cut in Govt Payments 1996-2005
01020
30405060
708090
net farm income
adj NFI (20% cut inG)
1996 Farm Act$ Billion2002 Farm Act
2-8% reduction
in NFI 96-05
top related