US Farm Bill Discussions Reignite; Cotton Programme Changed

16 May 2013

Both chambers of the US Congress are discussing their separate versions of a potential 2013 Farm Bill this week, following a long lull in activity from the two chambers on the subject. The Senate legislation already cleared its agriculture committee on Tuesday, with the equivalent House panel expected to do the same in the coming days.

The farm bill is the principal legislation governing US agricultural policy over a five-year period. A new bill was expected last year when the 2008 law expired on 30 September 2012. The two chambers of Congress were unable to reach a compromise on the legislation, however, and agreed instead to extend the existing Farm Bill by an additional year. In order 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 current House version aims to reduce spending by up to US$39.7 billion over the same period. More details on the terms of the proposed Farm Bill will follow in next week's Bridges, after the House Agriculture Committee completes its markup process.

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 (DS267), arguably one of the most immediate concerns for Geneva-based negotiators.

The WTO had ruled against the US in the high-profile row, and had authorised Brazil to retaliate against its northern neighbour in certain industrial goods and intellectual property rights. The two sides later came to a deal that put the planned retaliation on hold, in exchange for the US providing Brazil with annual payments of US$147 million and pledges from Washington 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, at which point a new agreement would be formalised between the two countries to finally resolve the dispute.

One of the main measures under discussion for resolving 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 substantially revised, allowing for the programme to operate without a reference price - the price at which farmers would receive guaranteed payouts regardless of market based losses - and instead function as a normal insurance programme.

Harry de Gorter, an agricultural trade expert at Cornell University, indicated to Bridges 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 and would have been potentially trade-distorting in such cases, de Gorter argued in a paper for ICTSD - the publisher of Bridges - last year.

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 resolution to the dispute.

A Brazilian trade official speaking on condition of anonymity told Bridges that not having a reference price was one of the most important things in the new House proposal.

The exclusion of a reference price also resolves the earlier disagreements between the House and Senate on the subject. 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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