Aug 22, 2014


PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

Don't forget the 'rules' of farm policy

Jun 01, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Don't forget the 'rules' of farm policy

June 1, 2012

Somebody should have reminded the writers of the Senate's proposed version of the 2012 farm bill that there are international trade rules that must be followed in farm policy. Those rules were agreed to, written by and are enforced by the World Trade Organization (WTO). And the rule is really pretty simple: Don't distort trade.

 

That, however, is where "simple" gets complicated. Just what "distorts trade?" Basically, it's anything that might impact the supply or demand of any of the commodities. That's why direct payments (while wildly unpopular with taxpayers and most lawmakers) are perfectly acceptable under the WTO. Those payments are made regardless of price action or what a farmer decides to plant. And direct payment levels don't change... prices could be sharply higher or sharply lower and the direct payments stays the same.

 

The Senate's proposed safety net in the 2012 farm bill, the Ag Risk Coverage (ARC) program, would work like crop revenue coverage. In years with average price and average production, there would be no ARC payment. But, In years with average price and below-average production, ARC would kick out payments. Also... in years with below-average price and average production, ARC payments would likely be made. Simply put, the current year's crop revenue would determine the size of the ARC payment.

 

When a program like this is available, that's when farmers show just how really sharp they are at pushing the pencil. They can figure out which crop will make best use of the ARC program in their operation and they will make planting decisions based on that analysis. Which they should! (When the pie is passed, take a piece!)

 

But because the ARC program could (likely "would") impact farmers' crop mix, it then becomes market distorting and would very likely be the topic of several U.S. trips to the WTO's woodshed in the years ahead.

 

That is not to say it isn't a good safety net. In fact... it's a very good safety net. We're just not sure if it's the right safety net that will keep us out of WTO's court of disputes.


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