While much of the world halted its business for the Christmas and New Year holidays, waiting patiently on hold were the new US Farm Bill and the long-negotiated World Trade Organization’s new agreement. If you have slept since you last pondered those agricultural policy issues, let’s get up to speed on what is lying in wait for your attention.

It is widely know in the world of agriculture that the 2002 Farm Bill expired last September and its replacement is still being considered in Congress. Within the next few days members of a Conference Committee will reconcile the House and Senate versions, but over-riding issues will include its impact on the federal budget and how it will be accepted internationally as slow progress is made toward a world trade agreement. That analysis is offered by agricultural economists Bashir Qasmi and Evert Van der Sluis of South Dakota State University.

They point out that the World Trade Organization does not have a deadline for reaching agreement, and the Farm Bill negotiators really don’t have a deadline until the harvest of crops next fall, when 1920’s style parity price supports would go into effect. Reflecting back to the 1996 Farm Bill, the economists say it tried to comply with international trade agreements that were designed to reduce export subsidies, price supports, and implement policies that were less trade distorting. However, as commodity prices fell, its safety net soon gave way to record high levels of financial assistance that were closely tied to production and accused of promoting production to the point of lowering world prices.

Subsequently, the 2002 Farm Bill increased financial assistance distributed to farmers and added more programs that were seen as promoting production and lowering prices. Within the current farm policy debate are budgetary considerations that indicate the Farm Bill proposals are not sustainable over time and growing demands for social programs will soon eliminate some farm program elements.

On a parallel track, but beginning several years ago, the world’s trading nations have been attempting to enhance trade that is widely recognized as fair. To achieve their goals, there have been efforts in several directions:
1) Market Access discussions are directed at reducing tariffs that are applied to goods entering a nation and currently average 51% around the world and can be as high as 300% on a given product.
2) Domestic Support for farmers vary around the world and may include social payments, or government supported research, and such things as federally subsidized crop insurance in the US. Assistance has declined recently as higher commodity prices have prevailed.
3) Export Subsidies have been widely used to eliminate burdensome supplies that reduce market prices, but also include food aid donations to needy countries. There have been some suggestions to totally eliminate all such programs.
4) Special Treatments are a package of considerations for developing countries that would allow them to engage in some level of trade protection for the benefit of their citizens and farm economies.
5) Non-Trade Concerns try to reconcile differences in environmental regulations, rural development, labor standards and food security.

The current discussions on world trade appear to the economists to be stalled in the differences between developed and developing nations. In particular, the US sees a substantial negative impact on land values should farm programs be dissolved. The developing world does not want to give up its mechanisms to protect its farmers. As a result:
1) A weak agreement would erode the effectiveness of the World Trade Organization and more trade barriers would be created.
2) The lack of a world agreement would give Asian and Pacific nations the incentive to create their own protective trade alliance.
3) The lack of a world agreement would spur a multitude of bi-lateral agreements around the world and undermine the WTO.

The researchers believe that the lack of progress toward an international agreement will give the Congress the incentive to include trade programs in the new Farm Bill that will not be internationally acceptable. They look at the current high market prices and lack of need for federal price support programs and see the opportunity for more liberal trade policies. But they say any decline in commodity prices will close that door, particularly with a continued increase in energy prices and land values.

Summary:
Concurrent deliberations on US farm policy and world trading rules have seen little effort at being integrated, particularly in the area of reducing farm price support programs. Even while commodity prices are high and price supports unneeded, Congress has taken little interest in reconciling US farm program and trade policy with US trading partners. The international trade discussions have been painfully slow and if unsuccessful, the WTO would be weakened by independent trade agreements, and by US policy that may retain certain provisions to protect agriculture from higher energy prices and land values.