Brazil Sources Signal Country has Issues with Potential Farm Bill Shifts Re: WTO

February 7, 2012 12:02 AM
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Brazil favors U.S. continuing historic target prices and acreage bases to make payments

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Proposed shifts in U.S. farm policy, such as the Stacked Income Protection (STAX) program for cotton and the Farm Bureau’s proposal formerly identified as the Systemic Risk Reduction Program (SRRP), contain provisions which move the programs to using more current planting and price data, a situation which is generating concerns from Brazil, according to Brazilian sources. And those concerns are being raised relative to the potential WTO implications of the proposed shifts.

In fact, Brazilian sources say that a continuation of the current U.S. programs for cotton would be far better in terms of meeting the U.S. WTO commitments than the proposed shifts under consideration. Recall that Brazil successfully challenged U.S. cotton subsidy programs and the GSM-102 export credit guarantee program relative to cotton via the WTO. The two sides reached an interim agreement which compensates Brazil until the programs can be altered further via the next U.S. farm bill.

One of the key issues with STAX, SRRP and the Aggregate Risk and Revenue Management (ARRM) proposal from a bipartisan group of farm-state U.S. senators, Brazilian sources advise, is the proposals would shift payments away from the current use of historical acreages and target prices established in law and instead base them on current production levels and prices. That, contacts say, would be much more trade distortive than the current mix of U.S. cotton programs.

Focus on marketing loan program. In addition, while ending the direct payments, counter-cyclical payments (CCPs) and Supplemental Revenue Assistance Program (SURE), Brazilian sources say the STAX and other proposals would keep largely intact the current marketing loan program. In the view of Brazil, sources note, the marketing loan program is the most trade-distorting U.S. farm program component.

From budget savings to budget exposure. While the STAX and other proposals are being billed as saving budget dollars, Brazilian sources indicate they doubt the touted savings will be realized and argue that such proposals could actually increase the level of government payouts.

Regarding so-called “shallow-loss” programs that cover farmers for losses that are not currently covered by the U.S. crop insurance program, Brazilian sources say in their view, no such program could be WTO compliant as it all but insulates farmers from market forces.

As for what Brazil would like to see relative to the next U.S. farm program structure, sources say it would focus on farmers paying for the insurance risk coverage they obtain and that any government role in the effort should be limited to the lowest coverage levels and to aiding in administrative costs; it should cover only major downturns in revenue and higher coverage levels should be provided via the market, not government.

While governments should encourage the availability of risk protection for farmers, Brazilian sources say it should come from the private sector and should be paid for by the producer. If that is done, contacts say that would keep crop insurance as a tool for producers to use, not turn it into another subsidy program which is what they see as the actual impact of the current proposals being discussed.

Comments: While U.S. lawmakers have argued that U.S. farm policy shouldn't be written relative to the WTO, it is a factor which will have an impact on the next U.S. farm bill, especially given the concerns outlined above. It would appear that if current proposals become the next version of US farm programs, a challenge at the WTO would be a matter of when, not if, especially given that Brazil has already successfully challenged U.S. farm programs before. Bottom line for Brazil's comments on the ongoing U.S. farm bill debate: Stick with target prices and avoid using current acres and prices for making payments.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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