the 2002 farm bill: implications for north american trade relationships north american trade...
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The 2002 Farm Bill: Implications for North American Trade
Relationships
North American Trade Relationships:Policy Challenges for 2002 and Beyond
Chicago
August 8, 2001
Greg Pompelli
Market and Trade Economics Division
U.S. Policy Trends• Recent U.S. farm policy has emphasized:
– Direct “AMTA” or “PFC” payments.– Elimination of supply controls.– Greater planting flexibility.
• Desires of new policy beneficiaries.
• Policy is increasingly influenced by trade potential and agreements.
• With low crop prices, emergency aid ($25 billion in past 3 years) has been recurring.
Emergency Aid Accounted for the Bulk of Payments in 2000
Emergency Assistance
CRP & Other
Production Flexibility Contracts
Loan Deficiency Payments
Total $22 Billion
Direct Payments Have Helped Support Net Farm Income
$0
$10
$20
$30
$40
$50
$60
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
Calendar Year
$ B
illi
on
Net Farm Income LESS Government Payments Direct Government Payments
Levels of Support (PSE)
0
20
40
60
80
100
Per
cen
t of
Gro
ss
Rec
eip
ts
1986-88 44 33 25 -1
1999 43 17 25 15
2000 38 19 22 18
E.U. Canada U.S. Mexico
Source: OECD.
Forces Shaping the U.S. Farm Bill Debate
• Most farmers agree that:– Planting flexibility, and the ability to maximize
net returns, is desirable.– Some type of income safety net is needed.
• But, issues arise regarding:– How to meet the needs of a diverse array of
farms at reasonable cost...– …And in a manner that is WTO-compliant.
Farm Sector Diversity Provides a Context for the Farm Bill Debate...
• Farm households are heterogeneous in terms of their:– Dependence on farm vs. off-farm income.– Cost structure.– Production options.– Historical access to farm programs.
Most Farm Households Depend on Off-Farm Income
Thousand
dollars per
household
0
50
100
150
200
Farm earnings Off-farm earnings Total household income
occupation/
Limited-
resource
Retirement Residential/
lifestyle
Farming
occupation/
lower-sales
Farming
higher-sales
Large Very large
Small family farms
(sales less than $250,000)
Other family
farms
Average U.S. Household Income
$58,842
Source: USDA’s Agricultural Resource Management Study.
Farms With Sales of Over $100,000 Are Likely to Have Low Costs
0% 20% 40% 60% 80% 100%
Limited Resource
Retirement
Residential/Lifestyle
Farming, low sales
Farming, high sales
Large
Very Large
Low Cost Mid Cost High Cost
Source: USDA’s Agricultural Resource Management Study.
1999 Distribution of Farm
Payments - Percent of farms receiving payments
[Average Household Income]
• Limited resource farms 19.4% [$8,605]
• Retirement farms 29.8% [$40,515]
• Residential lifestyle farms 24.5% [$65,758]
• Farming, low sales farms 46.6% [$34,132]
• Farming, high sales farms 73.4% [$50,964]
• Large family farms 75.9% [$79,693]
• Very large family farms 60.5% [$205,323]
$2,183
$6,395
$3,844
$4,948
$10,889
$17,766$32,087
Average payment per recipient
Changing Supply Chain Relationships
Change the Context for Debate • Changing consumer demand --
• Higher incomes, greater urbanization.
• Food safety, sanitary/phytosanitary issues.
• Changing domestic and global markets --• Trade and transportation issues--particularly as they
shift export destinations and competitiveness.
• Industry consolidation and investment.
• Regulatory issues--particularly as they affect consumption and trade.
U.S. Farm Exports Are Increasingly Destined for the Western Hemisphere
0
10
20
30
40
50
60
70
Asia WesternHemisphere
Rest of the World
199019952000
Percent
Shift to Greater Trade Value in Non-Bulk Affects the Agenda
1989 1990
19911992
19931994
19951996
19971998
1999 2000 f
0
5
10
15
20
25
30
35 Billion $US
Bulk Nonbulk Perishables
U.S. Trade with NAFTA Partners Increasing...
Annual Average($ Billion)
1989-93 1994-99 PercentChange
U.S. Agricultural Exports To Canada 4.3 6.4 50
To Mexico 3.1 5.1 62
U.S. Agricultural Imports
From Canada 3.6 6.8 87
From Mexico 2.5 4.0 61
Trade with NAFTA Partners Increasing Faster than General U.S. Trade
Trade Partner 1989-1993 Average 1994-2000 Average Percent Change
ExportsCanada 4.3 6.6 54.2Mexico 3.1 5.3 68.5ROW 33.6 41.3 22.8
ImportsCanada 3.6 7.1 94.4Mexico 2.5 4.2 66.8ROW 17.4 23.1 33
01020304050607080
1980 1985 1990 1995 2000 2005 2010
U.S. agricultural export value$ billion
Source: USDA Agricultural Baseline Projections to 2010, February 2001.
…Although Export Value Overall Declined in the Late 1990’s
U.S. Competitiveness is an Issue in the Debate
1015
2025
3035
4045
5055
60
1980 1985 1990 1995 2000 2005 2010
Argentina & Brazil
United States
Soybean and soybean meal exports
Mil. Metric tons
Source: USDA Agricultural Baseline Projections to 2010, February 2001.
Farm Bill Considerations in the House of Representatives
• Ag. Committee Chair Combest asked that farm bill proposals address three issues:– What is the market impact of a group’s
proposal, including for other commodities?– What does it cost?– What are the WTO impacts?
Harmonization and Convergence Questions
• How do we remain as competitive as possible in world markets?
• Can U.S. farm policy continue with a one-size-fits-all approach?
• What are the production effects of “decoupled” payments?
• What is the best policy to meet NAFTA and WTO commitments--and to provide farmers with an adequate safety net?