Implications of the US Farm Bill of 2002 for agricultural trade and trade negotiations

The US Farm Bill of 2002 is the latest in a 7-decade history of farm subsidy laws that transfer funds to farmers and regulate and subsidize production of selected commodities. Fruit, tree nut, ornamental and vegetable crops, hay and meats remain outside scope of main subsidy programs. The new law continues many innovations of the 1996 Act, such as removal of authority for annual land idling and crop price floors accompanied by government stockholding. Government payments remain the primary focus of commodity programs. The total amount of these payments are likely to remain similar to the amount paid in the period 1999–2001, but with some changes in the form of the programs. For example, allowing owners to update acreage and yield payment bases creates additional incentives for farmers to link current planting decisions to anticipated farm subsidies. Similarly, the new program that ties “counter-cyclical” payments to the price of a specific crop also has production stimulus. A new program, estimated to add about 5–10 per cent to marginal milk revenue for smaller farms, makes ‘deficiency’ payments to dairy farms when milk prices are low. Despite the new programs with added links to stimulating production, new USA programs stimulate production only marginally more than the subsidies of the 1999–2001 period, which were replaced. Furthermore, the USA has flexibility to avoid explicitly violating its WTO commitments. Nonetheless, this US Farm Bill of 2002 has curtailed the previous trends toward lower farm subsidies and smaller production stimuli, and the negative publicity surrounding it has made negotiating reductions of farm trade distortions more difficult.Agricultural and Food Policy, International Relations/Trade,

Domestic support and the WTO negotiations

In their attempt to maximise trade benefits, agricultural trade negotiators must allocate scarce resources and consider trade‐offs across issues such as liberalising foreign border measures or reducing foreign domestic subsidies. Analysis and examples support the notion that more liberalisation will be achieved in the new WTO round by emphasis on lowering border barriers and export subsidies rather than attempting to discipline domestic farm subsidies directly. Analyses of EU grain policy, Korean rice policy and US sugar policy show how reduced export subsidy or more import access have substantial trade benefits, even if farmers are compensated with payments or price supports.International Relations/Trade,

THE COMPETITIVE POSITION OF SOUTHERN COMMODITIES: SOME TRENDS AND UNDERLYING FORCES

International Relations/Trade,

COMMODITY POLICY COMPATIBILITY WITH FREE TRADE AGREEMENTS

Agricultural and Food Policy, International Relations/Trade,

Effects of the WTO and Free Trade Agreements on Japonica Rice Markets

Three trade policy changes underway and on the horizon have the prospect to alter global markets for japonica rice. This paper considers likely global market effects of expansion of access into the market in Japan and Korea, and reduced subsidy for japonica rice (among other crops) in the United States. We consider these policy changes in the context of a proposed Doha Development Agenda WTO agreement and one potential outcome of the proposed Free Trade Agreement between Korea and the United States (KUS-FTA). We use an equilibrium displacement model to ask how market prices, quantities and other aggregates change as a result of policy changes. The global model includes six aggregates in the world market, China, Korea, Japan, the United States, other exporters and other importers. Under the WTO scenario that U.S. subsidies decrease by 25 percent in addition to the full implementation of quota expansion in Korea and Japan, our results indicate that: 1) U.S. production falls by about 16 percent, and U.S. exports fall by about 51 percent, 2) the world price rises by about 1 percent, and 3) China's exports increase about 43 percent. If no WTO agreement occurs, there would be no expansion of Japan's imports and no reduction in U.S. rice subsidy even though Korea must still expand its WTO-multilateral quota. A KUS-FTA is likely to add a country-specific U.S. quota of another 4 percent of domestic consumption. In this case, world prices rise by only 0.3 percent. In general, world price effects are small and this is mainly due to the strong Chinese supply response. However, it is important to note that the associated changes in Chinese japonica rice production are at most about one percent of the Chinese baseline production. This implies the dominant role of China in the world japonica rice market.Japonica rice, WTO, import access, FTA, domestic subsidies, policy simulation, International Development, Q17, Q18, F13,

Modeling Staple Food Consumption: Measuring the Trade Effect on Food Security for Chinese Grain Farmers

This paper derives a simulation model that examines the food security of the grain producing households in China in an open border model regime. We define a food inadequacy index (F.I.) to measure the change of the food security status under alternative scenarios of border liberalization for the households. We conclude that if opening the border of grain market is followed by a more variable grain price distribution, the food security status will deteriorate for the low-income households on average. However, if border liberalization is followed by a decrease in mean of the price distribution, even with a more variable distribution, the food security status improves.International Relations/Trade,

TRADE IMPACT ON FOOD SECURITY: ANALYSIS ON FARM HOUSEHOLDS IN RURAL CHINA

We simulate several alternative scenarios to access the impact of border liberalization on household food security in rural China. We find that most Chinese farmers derive most their income from sources other than grain marketing and buy a significant amount of staple grain. Opening the border to more import of grain resulting in lower the domestic price is likely to improve the general level of food security for rural farm households in China.Food Security and Poverty,

Sanitary and Phytosanitary Trade Barriers and Empirical Trade Modeling

International Relations/Trade,

Traceability, Liability and Incentives for Food Safety and Quality

In this paper we focus specifically on the implications for additional traceability in the context of liability for food safety problems. We model formally the linkage between traceability and food safety and establish the implications of an increase in traceability-liability for food safety and related economic outcomes. The capacity to trace the origin of food increases the possibility of legal remedy and compensation in case of food safety event. Traceability also allows parties to more easily document that they are not responsible for harm. Therefore, traceability systems create incentives for firms to supply safer food.Food Consumption/Nutrition/Food Safety,

POLICY RISK: AN EMPIRICAL ANALYSIS OF A MARKET FOR A GOVERNMENT-CREATED ASSET

This paper investigates the California dairy quota. The quota rate of return has been relatively high. The variability of returns is high relative to government bonds but not relative to the S&P500. Most of the returns are from monthly dividends, but most of the variability is from the capital gains.Livestock Production/Industries,