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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
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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.
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Emergency Aid Accounted for the Bulk of Payments in 2000
Emergency Assistance
CRP & Other
Production Flexibility Contracts
Loan Deficiency Payments
Total $22 Billion
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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
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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 $US
Bulk Nonbulk Perishables
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U.S. Trade with NAFTA Partners Increasing...
Annual Average($ 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
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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
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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
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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.
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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?
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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?