Farm Subsidies

I was encouraged to see US trade chief offers to cut farm subsidies at the Doha round of trade talks currently underway in Zurich. Let's take a look:

Rob Portman, the US trade representative, offered to eliminate farm export subsidies by 2010, the date demanded by the Group of 20 developing countries and some European leaders, including Tony Blair, the British prime minister.

Mr Portman also agreed to cut those domestic farm subsidies believed to distort world trade by 60 per cent, higher than the 55 per cent reduction the EU was demanding from the US. Bob Stallman, president of the American Farm Bureau, recently said the US should not go beyond 50 per cent.

The US also suggested halving a ceiling agreed last year on those farm subsidies regarded as less distorting of trade. The cut, though it meets a demand from development campaigners such as Oxfam, would still allow the US to retain its controversial “counter-cyclical payments”, which compensate farmers for low prices.

“The US offer is conditional on other countries reciprocating with meaningful market access commitments and subsidy cuts of their own,” Mr Portman says. The US proposals are designed to put the ball back into the EU's court by offering cuts in domestic farm support and ending export subsidies a key demand of Peter Mandelson, Mr Portman's European counterpart.

I thought that was at least "a start" for some kind of progress but I received this reply from Harmy on the Motley Fool:

The US has made the same offer in the past and I'm a complete cynic when it comes to making grandiose gestures which this is. The US and the EU will only break down their protectionist regimes brick by brick and stone by stone over decades of haggling. The one and only way real progess will be achieved is by the rest of the world by-passing both the US and the EU trading blocs and setting up their own trading regions which is already starting to happen. Only then will it may dawn on these two dinosaurs that their protectionist policies are an anachronism in today's global economy.
Regards
Harmy

My friend Steve offered these comments:
Here's the key phrase: "....would still allow the US to retain its controversial 'counter-cyclical payments' which compensate farmers for low prices".
Best of both worlds. The red state farmers get the same prices as if their export sales were still artifically increased by government subsidy, while the food processing industry reaps the benefits of the reality of crashing prices due to collapse of food exports. The government will just borrow a few hundred billion more from the Chinese to pay for it all.
Steve

I guess I should have known better. Once again it seems the odds are long that this is just all talk and no action. When is the last time progress was made in any trade talks that included Japan, the EU, and the US?

The French were sure quick to bash the idea:

Dominique Bussereau, the French agriculture minister, has gained the signatures of 13 of the EU's 25 member states, including Italy, Ireland and Spain, on a memorandum insisting that Brussels trade negotiators consult with them before offering any farming concessions in the Doha talks. His memorandum, seen by the FT, says: “The task is not to negotiate a date for the elimination of our export subsidies, but a period of implementation for what is a conditional concession.”

Can someone tell me what the hell "a period of implementation for what is a conditional concession" exactly means? On that note, Mish just received a telepathic answer from Harmy. Here is the real time telepathic translation of what the French agriculture minister is actually saying: "Postpone Forever".

Mish, what does Japan think about all of this? Once again enquiring Mish readers deserve answers. No translations from Harmy are required for this one. Let's take a look:

Japan: US trade proposals no basis for talks.

Japanese Agriculture Minister Mineichi Iwanaga on Monday said U.S. proposals to kick start the stalled Doha Round of global trade talks were not acceptable and that Japan and other countries would offer an alternative plan.

Iwanaga said that the U.S. plan revealed earlier on Monday would have required that Japan and the European Union make deeper cuts to their domestic farm aid programs than the U.S. itself would be forced to make under the plan.

"Japan is not able to accept the U.S. proposal of domestic support as a basis for further discussions," Iwanaga said through an official translator.

"The reductions which are being asked of Japan and Europe are out of balance with the reductions that the U.S. is ready to make," he said, speaking on the sidelines of a ministerial meeting in the Swiss business capital of Zurich.

Well that's pretty clear at least. I am grateful because my telepathic connection with Harmy went offline right after that last brief message.

Following is a chart of crop supports and income for corn, cotton, rice, soybeans, and wheat:



Can someone tell me why we are even attempting to grow rice here?
Should we really be encouraging such foolishness?

Following is a chart showing how much money the government is wasting on price supports.



Both of the above charts are from Monitoring Agri-trade Policy.

Following are a few snips from that article.
Mish note: The article seems rather biased in favor of the EU vs. the US.
That said, its summation of the problems in the US seems accurate enough.

Current U.S. farm policy is built on a bewildering array of complex mechanisms, described using a series of acronyms that are every bit as cryptic as the oft-criticised vocabulary that the EU and others use to describe their farm policies. ‘Counter cyclical payments’ and ‘loan deficiency programmes’ give as little away outside the States as ‘modulation’ and ‘cross-compliance’ do outside Europe.

Loan deficiency payments: Introduced under the 2002 Farm Bill, these are a farm income safety net mechanism that makes up the difference between the loan rate and the actual market price, thus allowing producers to sell at a price that could be well below the per unit revenue they receive.
Expenditure on LDPs rose from negligible levels in 1997 to over $8 billion in just three years, and far from balancing supply and demand, one of their key features is that they actively provide the incentive to continue planting, even when prices fall, because of the generous levels of compensation they provide. This contributes to over-production, suppressed prices and a complete dependence on the LDP system.
As one American commentator put it, “the irony of the entire loan deficiency payment rests in itself. Low prices exist because of loan deficiency payments. It is all a sort of ‘catch 22’ that is fostered by our current farm programme. Farmers are caught in a system that is chasing its tail.”

Perhaps also guilty of creating a ‘catch 22’ situation are counter-cyclical payments (CCPs), introduced into U.S. farm policy under the 2002 Farm Bill to replace the former ad hoc Market Loss Assistance (MLA) payments. Like loan payments, they too were introduced as a safety net (or additional safety net) income stabilisation mechanism that makes up the difference between low commodity prices and target prices (which the loan programme does not cover).

Is the US content to propose reforms that it knows will not be accepted elsewhere?
Is that all that is really going on with these trade talks?

For whatever reason, progress is sure slow in coming on agricultural trade issues.
With the criticism coming from Japan and the EU over the latest proposals it looks like another year may fly by with no progress being made. In the meantime the US is wasting billions of dollars on crop subsidies. When does it all end?

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/