The Potential Impact of the Doha Round on Grains Won W. Koo Chamber of Commerce Distinguished Professor and Director Center for Agricultural Policy and Trade Studies North Dakota State University

The 2002 Farm Bill (Farm Security and Rural Investment Act) Main objective is to stabilize and enhance net farm income Elements of the farm bill Direct payments CCP payments Loan payments

Farm Bill Program Payments for an Average Farm in ND (2005) Percentage share NFI 66.4 CCP 9.6 17 Market loan 31.3 55 Direct payment 15.8 28

Distribution of Net Farm Income With the Current Farm Bill and Without the Farm Bill Provisions

Current WTO Policies—WTO Boxes Green box Policies that have, at most, a small impact on production and trade No restrictions on green box subsidies Examples: CRP, EQIP, and other conservation programs Food stamps and other nutrition programs Agricultural research

Amber box Policies that affect production and trade WTO sets limits based on the 1986-88 support level Examples: Marketing loan, milk and sugar price supports, CCP(?) and Crop Insurance (?) Under current WTO rules, U.S. limit is $19.1 billion

Blue box Subsidies that are somewhere between green and amber boxes No limits on the blue box No current U.S. policies are in the blue box EU shifted subsidies from amber and blue boxes to green box

De minimis subsidies Certain subsidies that do not count toward limits if their value is small enough Examples: Marketing loss assistance payments from 1998-2001 Crop insurance

Progress in the Doha Round Market access U.S. proposal calls for sharp cuts with few exceptions and tariff cap of 75% EU tabled a much milder offer, with exception of sensitive products G-20 proposed a compromise G-10 proposed deep cuts and tariff cap

Export subsidies EU agreed to end export subsidies if other export assistance programs are restricted U.S. agreed to modify export credit programs and is willing to modify food aid program Canada has to agree to change CWB operation

Domestic support U.S. proposed a 60% cut if EU and Japan cut more (75%) EU laid out plans for significant cuts in subsidies G-20 demanded deeper cuts CCP in the blue box

U.S. Proposal to the WTO 60% cut in the amber box limit, from $19.1 billion to $7.6 billion Limitation of the blue box payments to 2.5 percent of the value of agricultural production (about $5 billion) Elimination of export credit program for payment period longer than 180 days CCP in the blue box (actual CCP between 2002 and 2005 were below the proposed limit of $5.0 billion)

Impact of U.S. Proposal on Farm Income North Dakota Representative Farm Model: stochastic simulation Farms are divided into small, medium, and large-size farms Average crop land for each farm: Large-size farm = 3,300 Medium-size farm = 1,500 Small-size farm = 500

Simulation Results

Net Farm Income Distribution for the Average of All Farms under the Base and 60% Reduction Scenarios

Summary Uncertainty in WTO negotiations If the U.S proposal were adopted, it would result in major reduction in net farm income with increased uncertainty 2007 farm bill alternatives under the WTO US may keep current basic structure of program with: Reduced loan rate and target prices Reduced milk and sugar support levels Increase in direct payments to compensate farm income

More fundamental shift in policy Revenue or income insurance Farm program buyouts

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