How the 'Give and Take' Trade Process Pans Out for U.S. Producers
Missouri FARPI report outlines winners and losers in trade picture.
Duane Dailey
Published: Dec 16, 2005
Negotiators for U. S. agriculture at the World Trade Organization meeting in Hong Kong must play a finely tuned game of give and take.
"What the United States wants is more market access and less subsidized competition," says Pat Westhoff, international policy analyst with the University of Missouri Food and Agricultural Policy Research Institute. "What other countries ask is that the U.S. sharply reduce domestic price and income supports to our farmers. Those countries argue that our subsidies give U.S. producers an unfair advantage in the world market."
FAPRI, an agricultural policy analysis group, has studied scenarios of what would be lost and what would be gained from changes in world trading rules. The assumptions are based on a U.S. proposal released Oct. 10 by the U.S. Trade Representative. Major elements of the USTR position include a 60% reduction in allowed levels of domestic supports for U.S. farmers, tariff reductions of up to 90%, and elimination of export subsidies.
The U.S. proposal could require significant changes in U.S. farm programs, Westhoff says. "One way to stay within the proposed subsidy limits would be to reduce crop-loan rates and milk-support prices by 11% and target prices by 7%."
According to the FAPRI study, if the U.S. did reduce domestic support as outlined but did not gain the sought-after market access, different commodity producers would be affected at different levels. Under that scenario, corn growers would lose $15.33 in gross returns per acre. However, if other countries also changed their policies in line with the U.S. proposal, the loss would be only $5.65 per acre.
Reducing domestic support causes a smaller change for soybean growers. With reduced domestic support and no increased trade, their gross income would drop $8.37 per acre. Even with increased market access, the loss is $6.45 per acre.
By contrast, returns to U.S. beef producers are virtually unchanged with reduced domestic supports. With increased exports they gain $31 per head on market-weight slaughter steers. Likewise, pork producers see little change from reduced domestic support. However, opening trade adds $5.20 per head on market-weight hogs.
"Livestock producers clearly gain the most under the trade scenarios," says Scott Brown, MU FAPRI livestock analyst. Higher livestock income translates into increased production -- and in the end, increased domestic demand for crops that are fed to livestock.
The FAPRI report indicates U.S. net farm income increases $1.3 billion a year with increased foreign market access.
Rice, cotton get short stick
Not all commodities reap increased benefits. "Rice and cotton represent the extremes, with rice growers having a lot to gain with more open trade," Westhoff says. If domestic support is dropped, rice growers' gross returns drop $23 per acre. With market access, such as reducing tariffs in Japan, gross returns jump $44 per acre.
Cotton producers losing domestic support would see gross returns decline $37 per acre. In contrast to other crops, increased market access would have almost no impact on cotton producer returns.
Further boosts possible
If the current U.S. farm program changes, Westhoff says. "The U.S. proposal limits the use of programs where payments are tied to product prices or how much someone produces.
"Government payments are not prohibited under the WTO; however, support must meet new criteria," he says. "The U.S could choose to increase payments not tied to production or prices, such as payments for conservation practices that benefit the general good."
Under WTO rules, all 149 countries, each with veto power, must concur in any final agreement.
"International trade rules are so complex," Westhoff says. "We are a long way from a final agreement. Ultimately, it is up to each country to implement the new trade agreements, and countries may implement agreements in ways that are hard to anticipate."
FYI
The 35-page FAPRI report, "Potential Impacts on U.S. Agriculture of the U.S. October 2005 WTO Proposal," is available on the MU FAPRI Web site, www.fapri.missouri.edu. Click on report 16-05.
Links to additional reports on international trade implications from FAPRI at Iowa State University and on local farm impact at Texas A&M University are on the FAPRI Web site. Economists at the University of Arkansas contributed analysis on the rice sector.
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