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Farm Subsidies: Potential WTO Litigation
An article posted on Friday at The Copenhagen Post Online reported that, “Golden fields of rapeseed are becoming an even more common sight in Denmark these days as more and more farmers are finding out just how profitable the plant can be, reported financial daily Børsen…Recent figures from Statistics Denmark show that areas used for growing rapeseed have increased by 54,000 hectares already this year – a full 44 percent more than in 2006. This year has seen such an increase in rapeseed production that the plant now covers nearly 1.8 million hectares and trails only spring barley and winter wheat in terms of growing area.”
I. Farm Bill Issues
II. Biofuels
III. China
I. Farm Bill Issues
On Friday, the “Washington Insider” section of DTN indicated (link requires subscription) that, “News reports from Mexico say that Mexican rice farmers have retained a Washington, D.C., law firm to give legal advice as they work to convince their government to file an unfair trade suit against the United States. Mexico’s National Union of Rice Producers is calling on its government to bring the case to the World Trade Organization for what the growers call the ‘excessive subsidies’ that the United States pays to its farmers. (Graph from The Wall Street Journal Online.)
“Not so long ago, the shoe was on the other foot when U.S. rice growers won a WTO case against their Mexican counterparts.” [Related press release can be viewed here]. “Some industry observers believe the current agitation may represent nothing more than a desire to get even. However, others see a pattern developing with regard to WTO challenges to U.S. farm subsidies. Brazil earlier won a case against U.S. cotton subsidies and has been considering filing a similar action against U.S. soybeans. And Canada has begun a case against U.S. corn subsidies.
“So, one by one, U.S. farm subsidies either are or soon may be coming under attack, just as Congress gets down to the final phases of writing the next farm bill,” the DTN item said.
For more on WTO challenges to U.S. domestic farm support programs, see, Potential Challenges to U.S. Farm Subsidies in the WTO – CRS Report for Congress by Randy Schnepf and Jasper Womach (Updated April 26, 2007).
On page 24 of this CRS report, at Table 4, the authors ranked the level of subsidy support, as a share of cash receipts (over the past 10 years beginning with 1996), for commodities receiving mandatory federal support.
“At the top of the list is rice at 72%, followed by upland cotton at 58%. The other top-ranking crops are sorghum (45%), wheat (34%), barley (30%), corn (25%), sunflower seed (21%), and canola (20%)” (page 23). Soybeans came in at 10%.
The report added that, “While these shares are high, they actually understate the situation because they are 10-year averages. Challenges in the WTO likely would identify the years when the subsidies were at their highest levels relative to market revenues. In FY2000, for example, rice and cotton subsidy payments amounted to 174% of cash receipts, and sorghum, wheat and corn payments were respectively 110%, 101%, and 66% of cash receipts” (page 23).
As international observers monitor U.S. domestic farm policy development and contemplate potential legal action, Associated Press writer Dave Kolpack reported on Saturday that, “A North Dakota State University researcher says the multibillion-dollar farm bill passed by the U.S. House of Representatives is better for northern producers than the current policy.
“The bill would increase net farm income and provide better protection during bad times for North Dakota farmers, NDSU professor Won Koo said during a meeting between Rep. Earl Pomeroy, D-N.D., and agricultural researchers at the school.
“The House proposal provides higher loan rates and target prices for selected northern tier crops — including soybeans, wheat and barley — compared to current law, Koo said. Direct subsidy payments also would be increased.”
Meanwhile, an item posted on Friday at the Argus Leader Online (South Dakota) stated that, “Sen. John Thune said it’s doubtful the Senate will finish work on a new Farm Bill before the current legislation expires at the end of September.
“‘If the Senate hasn’t gotten our work done and reconciled with the House version, there will have to be an extension,’ said Thune, R-S.D. ‘And I think that’s a very likely scenario.’”
The news item added that, “‘I expect much of what comes out of the Senate to look very similar to the House version,’ Thune said. ‘One thing the House bill did not include was a permanent disaster aid title.’”
Rick Joslin, writing in Friday’s Pine Bluff Commercial (Arkansas) reported that, “U.S. Rep. Mike Ross believes America’s continued self-reliance on food is equally critical as its quest to independently fulfill its energy requirements, and that’s a big reason the Prescott Democrat is actively touting the proposed federal 2007 Farm Bill.
“The House of Representatives has approved the measure, but Ross figures a tough test awaits with the pending Senate vote, and President George W. Bush has already pledged he will veto the bill if it’s adopted in its current form.”
This article also indicated that, “Included in the proposed farm bill is funding for job development and training for rural Americans. [North Carolina Democrat Bob Etheridge, who is chairman of the House Agriculture Committee’s Subcommittee on General Farm Commodities and Risk Management] thinks the alternative-energy field could ‘revitalize’ rural America.”
For more complete details on Rural Development issues, see Rural Development and the 2007 Farm Bill – CRS Report for Congress by Tadlock Cowan (August 10, 2007).
This report stated that, “The rural development title of past farm bills generally has supported (1) the infrastructure of rural areas, with traditional support for housing, electrical generation and transmission, water and waste water, and community capacity, (2) agricultural development, and (3) rural business creation and expansion. More recently, policymakers have pushed for programs that support innovative and alternative business development, and innovative mechanisms to finance it. Pressure for such alternative approaches is expected to continue as policymakers recognize the changing structure of agriculture and the great diversity among rural communities, with some rural areas growing and prospering, and others falling further behind as their primary industries (including agriculture) either decline or adapt to a global economy. Such adaptation and dislocation over the past decade has often meant fewer rural employment opportunities and significant population outmigration for many rural communities” (pages one and two).
U.S. farm policy observers generally agree that Rural Development programs are less trade distorting than commodity payments. While the market price of some program crops are strong, and the threat of future WTO litigation remains, lawmakers have not yet been collectively persuaded to undertake any major box shifting (amber box to green box) policy mechanisms that would put a dramatically greater emphasis on Rural Development programs.
II. Biofuels
An article posted on Friday at The Copenhagen Post Online reported that, “Golden fields of rapeseed are becoming an even more common sight in Denmark these days as more and more farmers are finding out just how profitable the plant can be, reported financial daily Børsen.
“Recent figures from Statistics Denmark show that areas used for growing rapeseed have increased by 54,000 hectares already this year – a full 44 percent more than in 2006. This year has seen such an increase in rapeseed production that the plant now covers nearly 1.8 million hectares and trails only spring barley and winter wheat in terms of growing area.
“The increased demand for biodiesel, especially in Denmark’s neighbouring countries, has also meant substantial earnings for the farmers growing rapeseed. With prices rising to meet demand, the additional hectares used for rapeseed this year have been worth an estimated DKK 54 million to the nation’s agriculture.”
Patrick Barta reported in Friday’s Wall Street Journal that, “With oil trading at roughly $70 a barrel, this lowly forest plant [jatropha] is suddenly an unlikely star on the world’s alternative-energy stage.
“The seeds from jatropha’s golf-ball-size fruit contain a yellowish liquid similar to palm oil that can be made into biodiesel — an increasingly important renewable fuel used in Europe, the U.S. and elsewhere.
“But unlike other biodiesel crops, jatropha can be grown almost anywhere — including deserts, trash dumps, and rock piles. It doesn’t need much water or fertilizer, and it isn’t edible. That means environmentalists and policy makers don’t have to worry about whether jatropha diverts resources away from crops that could be used to feed people.”
The article added that, “These qualities are crucial at a time of intensifying concern over the environmental and social consequences of a global alternative-energy boom. It takes huge quantities of land, water and chemicals to grow crops to make ethanol and biodiesel. And as more governments set targets for their consumption, fears are rising that the world won’t be able to meet the demand without significant environmental damage.
“Goldman Sachs recently cited jatropha as one of the best candidates for future biodiesel production. A Bear Stearns analysis last year found that U.S. farmers only have the capacity to replace about 7% of the country’s gasoline with corn-based ethanol, despite a new federal renewable-fuels target of 15% by 2017. To reach that goal, the U.S. would likely have to find a lot more land.
“India, by contrast, has millions of acres of wasteland that isn’t fully utilized due to low water tables and infertile soil. Jatropha advocates figure the crop can cover much of that area without causing environmental distress.”
Marisol Bello reported recently at the USA Today Online that, “Looking out at a mound of tree tops, limbs and leaves just discarded from a harvest of 45-foot high pines, Devon Dartnell sees fuel, lots of it, to run Georgia’s 8 million vehicles.
“‘See this?’ he asks, pointing to rotted trees and scattered underbrush on a 300-acre tree farm. ‘This is very usable for biofuels.’
“Dartnell, the biomass program manager for Georgia’s Forestry Commission, is thinking about one fuel in particular: ethanol.
“With its 25 million acres of forest second only to Oregon, Georgia is setting itself up to lead the ethanol revolution. The state not only wants to produce and sell corn ethanol, which until recently has been confined to Midwestern corn-growing states, it wants to lead the way for cellulosic ethanol, which is made from organic matter such as trees, plants, peanut shells and sugar cane.
“Amid concerns over high oil prices and the environmental impact of fossil fuels, Georgia is among a handful of states outside the Corn Belt that are joining the gold rush for ethanol, an alcohol fuel that many hope can lessen the country’s dependency on gasoline.”
Meanwhile, a short item published in yesterday’s Washington Post stated that, “Federal regulations requiring growing use of ethanol by gasoline refiners have boosted the fortunes of countless ethanol producers. Ethanol production in January averaged 375,000 barrels a day, up 30 percent from the year before. Legislation approved by the Senate would require that use to rise to 2.3 million barrels a day over the next 15 years, half of it corn-based and half using other plants, such as wood chips or switchgrass, as feedstocks.”
Mike Meyers, writing in Saturday’s Minneapolis Star-Tribune, reported that, “When the state cuts funds for schools, libraries, parks and other programs, the money often is gone forever.
“But in the case of ethanol subsidies, money taken away years ago now is being restored with big checks that will get a lot bigger.
“The state of Minnesota this month will send $1.8 million in subsidies to 13 ethanol plants for millions of gallons of fuel made as long as four years ago. Another $53 million is slated to be sent to those producers over the next six years.”
The article stated that, “A top state agriculture official said the payments are a matter of government ethics, sticking to a promise to pay 20 cents a gallon in ethanol subsidies for 10 years. In 2003, facing a big budget shortfall, the governor and Legislature reduced subsidy payments to 15 cents a gallon in fiscal year 2003 and 13 cents for the next four fiscal years.
“In a compromise, the state promised to restore in the future money lost in the cuts.
“‘The Legislature and this administration felt that it was important to keep that commitment,’ said Jim Boerboom, deputy commissioner of agriculture.
“But, acknowledging that ethanol plants have made handsome profits in recent years, he added: ‘Knowing today some of the economic conditions, I’m sure we’d all look for a different model.’”
***
Pan Kwan Yuk reported yesterday at The Financial Times Online that, “The surge in global wheat prices is finally catching up with France. After English breadmakers and Italian pasta makers, it is now the turn of French boulangers to put up prices of the country’s staple – the baguette.
“With international wheat prices at a 10-year high, bakeries across France are expected to raise the price of the baguette by about 5 cents in the coming weeks.
“The move comes after Italy’s Association of Pasta Manufacturers announced last month that it would increase domestic pasta prices by 20 per cent, while Premier Foods, the UK maker of Hovis bread, said it was likely to pass on further rises in wheat prices.”
III. China
Dow Jones writer Bill Tomson reported on Friday that, “The U.S. is sending a delegation of government representatives to China to meet with their counterparts there next week over unresolved agricultural trade issues, U.S. Department of Agriculture Undersecretary for Farm and Foreign Agriculture Services Mark Keenum said Friday.
“Keenum told Dow Jones Newswires he will depart for the talks on Saturday and return Thursday. He said Assistant U.S. Trade Representative for Agricultural Affairs James Murphy will also attend the meetings.
“The talks will be a precursor to a December ministerial-level meeting of the U.S.-China Joint Commission on Commerce and Trade, or JCCT, which USDA Secretary Mike Johanns is scheduled to attend. That meeting will also be held in China.
“Issues to be discussed next week include China’s recent banning of several U.S. pork plants because the chemical ractopamine was detected in shipments, Keenum said.”
The article also stated that, “China’s General Administration of Quality Supervision, Inspection and Quarantine, according to a recent news report out of Beijing, expressed concerns over the quality of the U.S. soybeans it’s importing, but Keenum said USDA has received no official complaints from China.”
Keith Good
