Farm Bill proposals could rile trading partners, if prices fall - study

14 December 2012

FOR IMMEDIATE RELEASE

Contact: Ammad Bahalim, Programme Officer on Agriculture
Tel. +41 22 917 85 61; abahalim@ictsd.ch

(Geneva, 14 December 2012) Trading partners could be riled by new US farm bill proposals if prices fall, a new study finds.

Proposed new minimum prices under revamped farm insurance programmes could buoy cotton acreage by nearly 13 percent and wheat by 6 percent, say study authors Bruce Babcock (Iowa State University) and Nick Paulson (University of Illinois).

The proposals could provide American farmers with an unfair advantage while harming producers in countries that trade with the US, such as Argentina, Brazil, China, India and Pakistan, says the study, which is published by the International Centre for Trade and Sustainable Development in Geneva. Brazil, for example, fought and won a dispute at the World Trade Organization on American subsidies for cotton, acreage for which is expected to expand if prices fall.

“If US farmers begin to base their planting decisions on government support rather than on the basis of market signals, then it is possible that farmers in developing countries will receive lower prices than they otherwise would because of the supply-enhancing aspects of the new US farm bill,” say Babcock and Paulson.

The proposed changes could distort markets by encouraging farmers to produce what the government is subsidising, rather than what consumers need or want, the authors warn. American farmers may respond by planting more of the crops favoured by government policy. An increase in US farm output may rile trading partners.
While other analyses have modelled the effects of the proposals if farm prices remain high, Babcock and Paulson examine what would happen if they were to fall instead. The authors find that the strengthened crop insurance schemes would transfer significant funds to farmers - and that the proposals for minimum prices in the House farm bill could distort trade and production.

“The proposed farm bill changes represent a step backwards in terms of efforts to only provide farmers with support that does not distort their planting decisions,” the authors conclude.
The study is online here (http://www.ictsd.org/themes/agriculture/potential-impact-of-proposed-2012-farm-bill-commodity-programs-on-developing)

Notes to editors:

1. The International Centre for Trade and Sustainable Development (ICTSD) is a nonpartisan think tank, based in Geneva, which - by empowering stakeholders in trade policy through information, networking, dialogue, well targeted research, and capacity building - seeks to influence the international trade system such that it advances the goal of sustainable development. www.ictsd.org

2. The World Trade Organization (WTO) is an organisation based in Geneva, Switzerland, which is responsible for liberalising and regulating international trade in goods, services and other areas. It has 153 Members.

3. For over two years, Washington has been providing Brazil with US$ 147.3 million in compensation for US cotton subsidies that have been repeatedly ruled illegal at the World Trade Organisation. For more information, see http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm.