US farm bill discussions reignite; cotton programme changed

17 June 2013

(See more recent update on the topic here)

Both chambers of the US Congress discussed their separate versions of a potential 2013 Farm Bill in mid-May, following a long lull in activity from the two chambers on the subject. The Senate legislation already cleared its agriculture committee on 14 May, with the equivalent House panel expected to do the same. The farm bill is the main legislation governing US agricultural policy over a five-year period. In 2012, the two chambers of Congress reached a stalemate on forming new legislation, and agreed instead to extend by a year the existing Farm Bill. To avoid another extension, the two chambers will have to work out any differences before the new end-September deadline. This year's updated Senate version would lead to US$24.4 billion in cuts over the next decade, while the House version aims to reduce spending by up to US$39.7 billion over the same period.

Cotton "reference price" cut

The upcoming Farm Bill also represents an opportunity to resolve the long-running WTO dispute between Washington and Brasilia on the US' support of its cotton farmers. The WTO had ruled against the US in the row, authorising Brazil to retaliate for certain industrial goods and intellectual property rights. The two sides later came to a deal to delay retaliation, in exchange for a US annual payment to Brazil of US$147 million and pledges to reform the non-WTO compliant measures in the next Farm Bill.

Under the agreement, Brazil will continue to receive the payments until the passage of successor legislation, when a new agreement will be formalised between the two countries to resolve the dispute. One of the main measures under discussion to resolve the WTO dispute is the Stacked Income Support Program (STAX), a supplemental crop insurance initiative. Observers of the farm bill process, however, note that the latest STAX proposal has been revised, allowing the programme to operate without a reference price - the price which guarantees payouts regardless of market-based losses - and function as a normal insurance programme.

Harry de Gorter, agricultural trade expert at Cornell University, indicated that the reference price set in earlier 2012 versions of the House bill would have been the most trade-distorting element of the proposed change in cotton policy. The House reference price would have led to large payouts if prices fell.

Brazilian Ambassador to the WTO Roberto Carvalho de Azevêdo had echoed similar sentiments in a 2012 letter to the US Congress, urging legislators to find a less trade-distorting solution. An unnamed Brazilian trade official told Bridges that not having a reference price was essential in the new House proposal. The exclusion of a reference price also resolves the earlier disagreements between the House and Senate on the subject. Projections indicate that the US would spend nearly US$1.5 billion between 2014-18.

While the 2012 House bill had included a reference price, the Senate had not, and officials close to the process had indicated that the Senate version would likely have prevailed.

Projections from the Congressional Budget Office on the costs of the bill indicated that the US would spend identical amounts on STAX between 2014-18, regardless of which chamber's version is used: nearly US$1.5 billion.

ICTSD reporting

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