FAYETTEVILLE, Ark. -- The source of Harrison Pittman’s frustration isn’t the current focus on President Bush’s proposed cuts to the agriculture budget. His frustration is that focus to the near exclusion of all else. Looming over everything, he said, are implications of trade deals and the WTO — things that, in the current debate, are getting too little attention.
“The main concern is with President Bush’s proposal to cut funding for farm programs,” said the staff attorney at the National Agriculture Law Center (part of the University of Arkansas Law School in Fayetteville). “It remains to be seen whether that will be done and if so, how it will be accomplished. Will it be done through modification of the three-entity rule? Will it be done through lowering target prices of counter-cyclical payments?”
The real reason
The debate over these points is rightfully heated, Pittman said. Bush’s proposal is to lower the overall payout to $250,000. Three years ago, a University of Arkansas study on the impact of a $275,000 payment limit showed it would affect 40 percent of Arkansas rice and cotton farms. The lost income would be in the hundreds of millions of dollars annually.
“Agriculture is a fourth of Arkansas’ economy. Almost half the state’s land is in some form of agricultural production. So I can’t claim payment cuts aren’t important. They are, very.
“I’m saying the payment cuts are actually the smaller part of a large debate. The reason we’re talking about cutting funding has much less to do with the federal deficit than it has to do with the need for the United States to comply with free trade and WTO commitments. That’s the real reason for the debate — it just so happens we have a deficit at the same time.”
As evidence on how Bush’s proposal relates to world trade, Pittman references the president’s budget text: “The administration is working to reduce trade barriers and trade distortions through negotiations at the WTO as well as regional and bilateral agreements… Many of the farm programs may need to be reformed as a result of any new multilateral trade agreements.”
The dropping shoe
The other shoe to drop — the WTO Brazil/U.S. cotton case decision — will likely hit the floor in early March. The irony, Pittman said, is even if the WTO’s original finding against the U.S. is reversed, “we’re still on the march towards reforming, eliminating or reducing farm programs as we know them.”
“I think it isn’t naive to expect that within a few days after that, challenges will be brought against U.S. soybeans, against our dairy, our sugar, basically everything.”
This isn’t an idle concern. At a recent meeting, Bob Stallman, president of the American Farm Bureau Federation, said Brazil already has a complaint drafted to challenge U.S. soybean subsidies.
“Another thing to keep in mind is that when the original Brazil–U.S. cotton case came up, there was a peace clause in force,” said Pittman. “That clause said, ‘We all agree that as long as we abide by the agreements reached as a result of these negotiations, every member country’s domestic farm programs can’t be challenged.’
“Well, in order to bring their cotton complaint and make it stick, Brazil had to argue that the U.S. violated the agreements we’d made. If they hadn’t been able to show that, they wouldn’t have had a case.”
Since then, however, the peace clause expired and even that speed-bump won’t slow challenges to U.S. subsidy payments.
And there’s little motivation for U.S. trade partners not to challenge. “American negotiators are already moving towards them — our negotiators are moving towards the market-oriented economy and away from subsidies. Now, our negotiators will have even more pressure to acquiesce to foreign negotiators’ demands.”
The impact at home
The writing was on the wall long ago, said Pittman. Bush’s proposed cuts certainly didn’t surprise him.
“Even before his budget was released, I spoke to a group of farmers in Marvell, Ark., about how Bush was about to propose cutting the dickens out of farm programs. And he did.”
How do producers react after hearing Pittman speak?
“Many have a fatalistic, defeatist attitude: ‘No matter what happens, I’m going to get the short end of the stick.’ Others are extremely worried about what’s coming down the pipe. Others have told me, ‘Well, this WTO deal is just for cotton — it won’t affect me.’ Others refuse to consider the possibility of farm programs’ demise. They say, ‘These farm programs have been around for 70 years and they aren’t going anywhere.’”
Whatever happens, it’s clear that many want agriculture to move further into a global, market-oriented economy. Any such move will present an incredible challenge since U.S. producers are facing a situation akin to outsourcing.
“Consider a Stuttgart, Ark., farmer who’s paying his labor $10 an hour. In Brazil, his competition is paying labor $1 per hour or less. Just on those terms alone, how are you going to compete? It’s difficult enough now!”
Studies also show that doing away with farm subsidies will depress land values. Land in Brazil costs about $150 per acre and another it costs another $350 per acre to bring it into production. Last year, there was no county in Iowa whose cost was less than $1,000 per acre.
Environmental concerns also rear up.
“When we have many (environmental) standards or permitting — and I’m not knocking those things — they put pressure on U.S. producers. In Brazil, there are no such environmental restrictions. How do U.S. producers compete?
“Brazil produces more soybeans that we do. Last year, China produced more cotton. Brazil intends to bring 50 million acres into production over the next decade. Brazil already has the world’s largest commercial cattle herd. From what I’ve heard, the only thing holding Brazil back is its infrastructure. That’s changing rapidly. They’re paving roads, and major ag companies are installing export facilities.”
“Major ag purchasers don’t care where their suppliers come from; they just want the lowest price possible. If we’re competing with someone who pays $1 per hour and has very low standards with governmental regulations, it will be very difficult to compete.”
Pittman insists he’s not forecasting the end for U.S. agriculture. But instead of pecking at the edges of U.S. agriculture’s many problems, he suggests it’s time to consider the constellation of factors — both foreign trade-related and domestic — and come up with a comprehensive proposal that will benefit producers’ long-term health.
“I assume most farmers and commodity groups want support from the government. There are ways to do this even under the WTO. Unless, green box payments are re-negotiated, there are ways to transfer money to producers from the federal government. For example, we could come up with a new conservation program. The current conservation programs won’t do the trick because they won’t satisfy the big farms.
“I don’t think it’s hopeless, but we need to be planning. We need to think about how to deal with what’s coming. Even when we get through this latest WTO battle, U.S. producers still face a yearly funding battle in Congress. That won’t go away. How best to approach this? We must answer these questions immediately. On this, patience is a killer.”