03/18/05 Subsidy debate and world trade, Pt.1

As both houses of Congress spent time these past two weeks shaping up their proposed fiscal year 2006 federal budgets as an answer to the President's proposal, the talk from the ag budget perspective has been how much, if at all, to cut farm program payments. The most extreme case of this has been the President's proposals on reducing farm subsidies, which in some opinions would reopen the 2002 Farm Bill. The Senate and House appear to be on their way to approving budgets that would reduce ag spending by smaller amounts than the President's proposal, and prevent a revisit and potential revision of current farm payment programs. Now there has been speculation as to why the Bush Administration has offered a proposal so radical on farm subsidies. The answer could be the growing attempts to get an ag trade reform deal approved among World Trade Organization members by the end of this year. That is because several developing nations & nations like Brazil, China, India among others & are saying to move the Doha round forward, the U.S. must commit to cutting or eliminating farm subsidy payments in any new Farm Bill. And one way to expedite the Doha round negotiations is speed up the time frame to either reopen the current Farm Bill or start debate on the 2007 Farm Bill. Marcos Jank of the Brazilian Institute for International Trade Negotiations points specifically to cuts in U.S. counter-cyclical payments as an example of the developing nations concerns. JANK: And one thing that needs to be clear to the U.S. is that is the U.S. does not decouple subsidies, it will be very difficult to conclude the round. And going to a further extreme, International Food Policy Research Institute fellow David Orden says what would really please the developing nations is elimination of U.S. counter-cyclical payments. ORDEN: The counter-cyclical payments are much more contentious than the fixed payments in terms of not being decoupled from production so there will be more sort of institutional benefit in a global trade negotiation way for buying out the countercyclical payments. However, much of the uproar from the ag community over the proposals to reduce farm subsidies in the U.S. is in its potential effect on debt management. Many producers and ranchers rely on U.S.D.A. farm payment programs to help pay off debt. So needless to say rural bankers are now keeping a close eye on how things play out in Washington D.C., concerned about borrower's ability to pay. That issue, and why the subsidy reduction issue could also be turned back on W.T.O. developing nations, is discussed in our next program.