What is in this article?:
- Lining up farm policy with trade policy
- WTO and crop insurance
- The stalled Doha Round of trade policy negotiations have left in place WTO policies that came into effect in 1995 and give the 2012 farm bill considerable, but not unlimited, flexibility.
WTO and crop insurance
The calculation of the cost of crop insurance for WTO purposes is straight forward – the value of indemnities minus the producer paid premiums. For the 2011 crops with almost all claims accounted for, total indemnities were $10.8 billion and producer paid premiums (excluded the amount paid by the government) were $4.4 billion for costs as measured by the WTO of $6.4 billion. This is by far the highest year ever; 2002 was the next highest year at $2.9 billion when market prices were lower and fewer acres were covered. Depending on the current drought in the Midwest, the costs could be higher for 2012, but still under the 5 percent of total value of production. If crop insurance were moved to the Amber Box, there would be room in that category since other costs are expected to be low.
This does not mean that the WTO commitments can just be ignored. If the new ARC and STAX programs were to have major outlays due to lower revenues for major crops, costs in the Amber Box could build very quickly. That is not the most likely outcome from economic models used by CBO, USDA and agricultural universities, but favorable weather around the world and downward pressure on market prices after several high-price years is a plausible scenario.
While it is easy to get lost in details of WTO accounting for agricultural policies, the larger picture should be kept in mind. Developed countries are seen as subsidizing their agriculture to the disadvantage of developing countries. Domestic support programs by a large exporter like the U.S. receive more scrutiny than others. As the costs for crop insurance, ARC, STAX, target prices that may be in the House plan and other programs begin to escalate, other countries will more closely analyze U.S. programs and possibly find reasons to file complaints.
The Senate reduced funding by $1.0 billion per year for the General Sales Manager (GSM) 102 export credit program that was found in the 2002 WTO case to be a prohibited export subsidy. USDA has been reducing the scope of the program and increasing fees to shrink the program to $3.0 billion per year agreed to by Brazil and the U.S., but the program has remained popular with importing countries.
USDA and the U.S. Trade Representative Office will be meeting again in July with Brazilian government representatives to talk farm policy. Brazil is expected to be critical of the direction of the 2012 farm bill, but the points they make should provide insights on how the policies will be viewed in the wider WTO policy debate. The interim agreement between the two governments ends at the end of 2012 or when the new farm bill is passed by Congress. Some groups in the Brazilian government have already called for the reconstitution of the technical group charged with determining how the Brazilian government could retaliate.
Ross Korves is an Economic Policy Analyst with Truth About Trade and Technology.