2002 U.S. Farm Bill Revisited:Impacts, Implications of the WTO
Ruling and the U.S. Budget
12th Annual Farming for Profit!
Moose Jaw, SK, Canada
June 27, 2005Flynn Adcock and Parr Rosson
Center for North American Studies
Dept. of Agricultural Economics
Texas A&M UniversityCNAS CNAS
Overview
• Program Spending & Summary of FSRIA Provisions
• Implications of Budget Reconciliation
• Implications for WTO Obligations
• Case: U.S. Farm Bill, Canadian Cattle Feeding, and BSE CNAS
U.S. Farm Program Spending
CNAS
U.S. Federal Budget Outlays byFunction, FY 2005
Physical Resources includes: transportation, community and regional development, etc.Source: Budget of the U.S. Government; www.whitehouse.gov/omb/budget/fy2003/pdf/hist.pdf
National Defense18.8%
Human Resources64.0%
Physical Resources5.3%
Net Interest7.2%
Agriculture1.2% Other
3.4%
Total Estimated Outlays: $2.48 Trillion
Health, Medicare, Social Security
CNAS
CCC Net Outlays, FY 1980 – 2006E
Source: Commodity Credit Corporation Budget, USDA
2.75 4.
0411
.65
1 8.8
57 .
321 7
.68
2 5.8
42 2
.41
1 2.4
61 0
.52
6 .47
1 0.1
19 .
741 6
.05
1 0.3
36 .
034 .
65 7 .26
1 0.1
41 9
.22
3 2.2
72 2
.11 5
.68
1 7.4
31 0
.56
2 4.0
71 9
.81
1980 1985 1990 1995 2000 2005E$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Billion Dollars
CCC Net Outlays, (2000 $) FY 1980 – 2006E
Source: Commodity Credit Corporation Budget, USDA; Bureau of Economic Analysis, U.S. Dept. of Commerce
$ 5.1 $ 6
.8$ 1
8 .6
$ 28 .
9$ 1
0 .8
$ 25 .
4$ 3
6 .3
$ 30 .
6$ 1
6 .5
$ 13 .
4$ 7
.9$ 1
2 .0
$ 11 .
3$ 1
8 .2
$ 11 .
4$ 6
.5$ 5
.0 $ 7.6 $ 1
0 .5
$ 19 .
6$ 3
2 .3
$ 21 .
6$ 1
5 .1
$ 16 .
4$ 9
.8$ 2
1 .9
$ 17 .
4
1980 1985 1990 1995 2000 2005E$0.0
$10.0
$20.0
$30.0
$40.0
Billion Dollars
$5. 1
$25.
8
$22.
4
$12.
5
$10.
5
$6. 5
$10.
1
$9. 7
$16.
1
$10.
3
$6. 0 $7
. 3
$10.
6
$19.
2
$32.
3
$22.
1
$15.
7
$17.
4
$10.
6
$24.
1
$19.
8
1986 1991 1996 2001 2006E$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Billion Dollars
Wheat Corn Other Feed Grains
Rice Cotton Other
CCC Net Outlays, By Commodity FY86 – 06E
Source: Commodity Credit Corporation Budget, USDA
FSRIA Provisions
CNAS
Summary of Provisions
• FSRIA Signed May 13, 2002
• Effective for Crop Years 2002-07
• New Spending from $45.1-$51.7 Billion (2002-2007)
• Major Increases in Environmental, Conservation, & Energy
• Institutionalizes Previous Ad-hoc Funding for Commodity Programs CNAS
FSRIA Titles• Title I: Commodity Programs*• Title II: Conservation*• Title III: Trade*• Title IV: Nutrition• Title V: Credit• Title VI: Rural Development• Title VII: Research & Related Matters• Title VIII: Forestry• Title IX: Energy• Title X: Miscellaneous*
CNAS
Farm Bill Spending, 2002-07
• Total Cost: $273.9 Billion
• Commodity Programs: $98.9 Billion
• Conservation: $21.3 Billion
• Food & Nutrition: $149.6 Billion
• Total Over Baseline: $51.7 Billion
• Average Annual Cost: $8.6 Billion (over baseline) CNAS
Farm Bill Program Spending by Title, Budget Authority, FY 2002-2007
Excludes funding for discretionary programs which is provided through annual appropriations.
Total Estimated Outlays: $273.9 Billion (March 2002 Baseline)
Source: The 2002 Farm Bill: Overview and Status , Congressional Research Service
Commodities36.1%
Conservation 7.8%
Trade0.8% Food Programs
54.6%
Miscellaneous0.7%
CNAS
FSRIA Provisions
• Commodity Programs-Sources of Payments to Producers
– Direct Payments (AMTA/PFC) - Continuation
– Marketing Loan Gain (MLG) or Loan Deficiency Payments (LDP) - Continuation
– Initiated New Counter-cyclical Payments (CCP) - reinstates Target Prices* CNAS
FSIRA Provisions (cont.)
• Soybeans & Peanuts Covered Under All Payment Provisions
• Dry Peas, Lentils, and Chickpeas now Covered under Marketing Loan Program
• Required Country of Origin Labeling at Retail for Meats, Seafood, Produce, Peanuts (MCOOL Provisions Postponed for all but Seafood)
• CCP (counter-cyclical payments) for Dairy farmers CNAS
U.S. Loan Rates
2002 Farm Bill
2004 – 07 Rate
2002 Farm Bill
2002 – 03 Rate
1996 Farm Bill
2001 Rate
Crops
N/A
N/A
N/A
N/A
0.093
5.26
1.21
1.65
6.50
0.5192
2.58
1.71
1.89
355.0355.0Peanuts ($/ton)
11.7211.94Lentils ($/cwt)
7.437.56Small Chickpeas ($/cwt)
6.226.33Dry Peas ($/cwt)
0.0930.096Minor Oilseeds ($/lb)
5.005.00Soybeans ($/bu)
1.331.35Oats ($/bu)
1.851.88Barley ($/bu)
6.506.50Rice ($/cwt)
0.520.52Upland Cotton ($/lb)
2.752.80Wheat ($/bu)
1.951.98Sorghum ($/bu)
1.951.98Corn ($/bu)
Wheat loan rates will be announced by class: hard red spring, hard red winter, soft red winter, soft white wheat, and durum.
FSIRA Provisions (cont.)
• Wool, Mohair, & Honey Get Marketing Loan Payments
• Conservation Reserve Program (CRP) Acreage to Expand from 36.4 ma to 39.2 ma
• Environmental Quality Incentive Program (EQIP): 6 fold increase, $400 million in 2002 increasing to $1.3 billion in 2007
Farm Bill Payments• Direct Payments = Payment rate x (Base acres
x .85) x Farm Program Yield
• Counter-cyclical Payments (CCP)– Secretarial Action Required to Implement Target price-Effective price (Higher of Market price or loan rate
plus Direct payment rate) Counter-cyclical payment rate ($/unit)
• CCP = CCP rate x (Base acres x .85) x Updated Farm Program Yield CNAS
Potential Impacts of Farm Bill
• U.S. Dry Pea and Lentil Planted Area Expected to Rise– Marketing Loan
Program
– Favorable Lentil Prices/Falling Alternative Crop Prices
– Relatively Low Input Costs
– Long-term Benefits from including in Crop Rotation
• Most Growth in ND, WA, MT
U.S. Peas and Lentil Production
Source: Vegetables and Melons Outlook, ERS, USDA
195
293
215
286
223
370
211
406
392
355
329
336
367
385
760
920
1990
1995
2000
2005
0 200 400 600 800 1000
1,000 MT
Dry Edible Peas Lentils Others
Potential Impacts of Farm Bill
U.S. Wheat, Barley, and Canola Production
Source: Vegetables and Melons Outlook, ERS, USDA
84
64
7774 72
6771
76 78
69 68
59
49
7165 64
1990 1995 2000 20050
20
40
60
80
100
Million MT
Wheat Barley Canola
• Wheat Production up from Recent Low in 02/03 MY
• Barley Production down from Highs of Early 1990’s – Less than ½ of CN
• Canola Crop Grew from near Zero in 90 but has fallen since 2001 – Very Small compared to Canada
Potential Impacts of U.S. Budget Reconciliation
• Research by TAMU AFPC in early 2005• Impacts are dependent on which parts of the
program are adjusted• Reducing Direct Payments (de-coupled) would
have the greatest impact on income because fixed• Counter-Cyclical and Loan Deficiency/
Marketing Loan Gain Payments are not fixed but based on market conditions
• Simulation results show that loan rate reductions would be least harmful to producers
• Cuts to CRP were not analyzed
Implications of WTO Obligations and the Cotton Case
CNAS
WTO Issues/ImpactsWTO Issues/Impacts
Direct payments – Green Box (don’t count)
MLGs/LDPs – commodity specific Amber Box
CCPs – noncommodity specific Amber Box
Amber Box limit is $19.1 billion annuallyNoncommodity specific support is not included
when calculating the AMS as long as it is <5% of the value of agricultural productionThese amber box payments are referred to as
“de minimis” (trifling amount)If >5% then full amount counts CNAS
WTO and the New Farm Bill
$0
$5
$10
$15
$20
$25
96 97 98 99 00 01 1996-02 2002-07
AMS AMS (before de minimis) WTO Limits
Aggregate Measure of Support (AMS) refers to the $19.1 billion annual spending cap on Amber box payments. Source: FAPRI
Billion Dollars
WTO Issues/Impact (Continued)
Farm Bill Adjustment Authority Related to Doha Round (WTO) Compliance
Potential for Year 1 cut in support ceiling of 20%, from $49.1B to $39.3B
Will have to Adjust Export Credit Guarantees to Comply w/6 Month Maximum
Changes to Some Programs to Make More “Green” CNAS
Implications of WTO Cotton Case
• Findings against U.S. cotton-related programs
• Step 2 of Cotton Program Likely Gone
• Restrictions on what crops can be planted on program acreage (fruits/vegis) may be lifted
• Findings against Export Credit Guarantee Program as well – Some Changes as Early as Next Month
• These Findings will be considered during Budget Reconciliation and for 2007 Farm Bill
Case Example: Beef and Cattle
CNAS
U.S. Farm Bill, Canadian Cattle Feeding, and BSE
• Investment in Prairie Province Beef Industry
• Availability of Cheap U.S. Corn and Export of this Corn to the Canadian Cattle Feeding Industry
• Concern over the Potential Impacts of MCOOL
• Dynamics Changed with Discovery of BSE
• Ban on Canadian Cattle Exports to U.S. and Low Canadian Prices Led to More Investment in Prairie Beef Industry
• Canadian Industry May be Stronger when Normal Trade Resumes – But With Uneven Benefits
U.S. Feed Grain Exports to Canada
Source: U.S. Trade Internet System, www.fas.usda.gov/ustrade
$98.
0 $109
. 0
$106
. 3
$98.
1
$98.
6
$99.
9
$109
. 8
$159
. 0
$114
. 4
$102
. 7
$89.
3
$85.
0
$87.
5
$94.
9
$101
. 0
$103
. 9
$0.0
$1.0
$2.0
$3.0
$4.0
$5.0Million Metric Tons
$0.0
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
$180.0US$/MT
Corn Other Corn Unit Value
Alberta Direct Fed Steer Price, Jan 01 – Jun 05
Source: Alberta Agriculture, Food and Rural Development, www.agric.gov.ab.ca2001 are monthly averages, source CANFAX, calculated by LMIC
JanFeb
Mar
AprM
ayJun
JulAug
SepOct
NovDec
$20
$40
$60
$80
$100
$120CN$/CWT
2001 2002 2003 2004 2005
Alb/Sask Cattle on Feed, Jan 01 – Jun 05
Source: CanFax, www.canfax.ca
JanM
aySep
300.0
500.0
700.0
900.0
1100.0
1300.0
Thousand Head
2001 2002 2003 2004 2005
Summary and Conclusions
• U.S. Farm Spending, while High, is Low Compared to Rest of U.S. Budget
• Farm Spending Less than Mid-80s in Real Terms
• Most of Farm Bill Spending in Food/Nutrition Programs – 36% in Commodity Support
• Direct Payments are Green Box; MLG/LDP and CCP are Amber Box
• Inclusion of LDP for Lentils/Peas Spurred the Greatest Shift in Production
• Budget Reconciliation Impacts are Unclear CNAS
Summary and Conclusions (Continued)
• Doha Round, Cotton Case, and Budgetary Concerns to Impact Next Farm Bill
• Inclusion of Fruits and Vegetables in the Program and/or as Crop Alternative for Program Acres???
• MCOOL Less of a Threat than BSE
• Canadian Cattle Industry Likely Stronger Post-BSE but Cow/Calf Producers will Need Greater Recovery Time
• U.S. Farm Bill Impacts on Canada Appear to be Less than Other Factors such as BSE or Canadian Policy Changes
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