Alabama economist: Farm supports not threatened despite WTO talks

Paraphrasing the late Mark Twain, an Alabama Cooperative Extension System economist believes reports of the demise of subsidies have been greatly exaggerated.

While it's true World Trade Organization negotiations likely will lead to the reduction of some types of subsidies, “there is still a long way to go before subsidies are eliminated,” he says.

“I'm not saying this is necessarily a good or a bad thing, just that it's the way things stand for now,” says James Novak, an Extension economist and Auburn University professor of agricultural economics and rural sociology. “I've heard discussions by two Bush administration officials on this same issue, and that is basically what both of them have concluded.”

On the other hand, he believes “U.S. cotton export subsidies are probably done for.”

Likewise, so-called amber-box payments, which are designed to support prices and are directly related to production levels, will probably be slated for reductions. Based on current international agreements, U.S. spending for amber-box subsidies is capped at $19.1 billion.

Even if amber-box subsidies underwent significant reductions or were eliminated entirely within the next few years, Novak believes the federal government would offset these income losses with other programs designed to support farm income without having trade-distorting effects.

These could include ad hoc disaster payments; crop insurance, with a greater emphasis on insuring farm income; so-called green-box supports, payments that would reward farmers for adopting sound conservation practices; and direct payments, based on the decoupling approach enacted with the 1996 farm bill.

Other options might include a flexible set-aside approach similar to what was outlined in the 1990 farm bill that would provide financial incentives for farmers to take land out of production to promote environmental stewardship.

Novak believes the most immediate solution would involve some kind of blue-box approach, which would allow farmers to move away from amber-box subsidies without causing too much hardship in terms of lost income. Blue-box supports are considered minimally trade distorting — a watered down version of amber-box supports.

For now, WTO negotiations have ground to a snail's pace, despite a compromise offer by U.S. Trade Representative Rob Portman calling for reductions of U.S. trade-distorting subsidies by 53 percent. Likewise, amber-box subsidies would be reduced by 60 percent.

Under Portman's proposal, even less trade-distorting blue-box subsidies also would be capped at 2.5 percent of the value of agricultural production — caps that would include conservation-oriented measures that encouraged farmers to limit production.

For their part, the European Union would be required to cut its trade-distorting supports by 75 percent, Japan by 53 percent.

Finally, developing countries would also have to make reductions in their agricultural tariffs during the next five years, at least 55 percent for the lowest tariffs and 90 percent for the highest.

How U.S. farm programs ultimately will be affected by these negotiations depends on a number of factors, Novak says.

“To complicate the picture of what might happen, we have a weakened presidency, growing protectionist sentiment, and budget problems,” he says.

For now at least, Novak says the important thing for farmers to remember is that even if these negotiations lead to significant subsidy reductions, farmers are probably a “long, long way” from seeing all supports eliminated.

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