President George W. Bush calls for a law that would, “Keep the safety net under our food producers without misleading our farmers into overproducing crops that are already in over-supply by increasing loan rates.”
He calls for a bill that helps farmers establish IRA-style farm savings accounts to sustain them during hard times. Most of all, he wants exports to pull America’s farmers out of their current financial problems. That means avoiding anything that might run afoul of World Trade Organization agreements.
“A good farm bill should honor our trade obligations, as we expect our competitors to honor their obligations,” Bush says.
Fresh from the WTO negotiations in Doha, Qatar, USDA Secretary Ann M. Veneman makes it clear that the administration believes both the already-passed House bill and pending Senate legislation would push the U.S. beyond agreed-upon WTO subsidy limits.
“Farm policy should ensure compatibility between domestic and trade objectives, support open markets, provide for a market-oriented farm safety net, and not create undue uncertainty for farmers and ranchers who already operate in a very uncertain world,” Veneman says.
“Policies should not distort market signals or encourage long-term dependence on government programs.”
The friction between the President and Congress could considerably delay the farm bill, just as a coalition of farm groups called for quick passage of a new law.
“The President seemed to open the door to the process moving forward, provided the bill meets certain priorities that the Administration has established. We agree that a strong safety net that the current law does not have is needed and can be provided under the budget guidelines agreed to be Congress,” says James Echols, National Cotton Council chairman.
“The House has passed a bill that complies with the budget constraints Congress has established, and we continue to support quick action by the Senate so that a bill can be brought to conference and passed before adjournment. Growers and their lenders need the certainty a new bill would provide as they plan for the 2002 crop year,” Echols says.
Unless the administration and Congress quickly iron out their differences, however, that looks doubtful.
Veneman cites as ‘trade distorting’ several sections of the bill introduced by the Senate Agriculture Committee. The plan to authorize counter-cyclical payments to dairy farmers and establish a national dairy compact, she says, would add billions in new spending and threaten U.S. WTO obligations.
“These proposals would also lead to a disjointed set of regional dairy programs that would raise the price consumers pay for fluid milk and create regional pricing distortions that would cause economic hard to many producers,” she says.
In addition, Veneman believes the Senate bill sets artificially high loan rates for grains and cotton. These, she said, “insulate producers and market signals and slow production adjustments. Excess commodity production beyond market demand pushes prices down still further. This creates pressure for more government payments, thereby creating a self-defeating and ultimately unsustainable cycle.”
The loan rates called for in the Senate bill could add billions per year in payments, also pushing the U.S. beyond its $19.1 billion WTO ceiling.
“If that limit were to be exceeded, the Secretary is directed to reduce payments to producers to meet the limit. This ad hoc approach creates a new uncertainty for producers—would they get the payments or would the payments have to be pared back?” she says.
Both the House and Senate misstepped by reintroducing the target price concept, which would provide counter-cyclical payments, Veneman says.
“These new target price payments could push us over our WTO limit, again raising the specter of uncertainty for farmers,” she says.
“The objective for commodity programs under a new farm bill should be to structure a farm safety net that is market-oriented, yet adequate to meet the unexpected declines in prices or incomes beyond farmers’ control. Such a safety net should help those that truly need assistance and be compatible both with today’s dynamic marketplace and our nation’s trade obligations. A farm safety net should not only encompass traditional notions of farm support but also broader tools that address risk management,” Veneman says.
Another bill introduced by Senator Lugar and a Cochran/Roberts proposal defeated in Committee come closer to meeting administration expectations. Veneman likes Lugar’s farm savings account concept, which would replace the target price program. Cochran/Roberts advocated a market-oriented loan rate maintained at current levels.
She likes what she calls innovative approaches in both the House and Senate bills regarding trade, conservation, energy, rural development, nutrition and research.
“Many of these new concepts and approaches would greatly benefit farm and rural areas. They reflect our view that it no longer makes sense to speak of the ‘farm economy’ as if it exists in a vacuum. Today, we must look at the entire food chain and the rural economy in which farms operate,” Veneman says.