1. 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

2. 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

3. 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

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

5. 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

6. Amber box Policies that affect production and trade
WTO sets limits based on the 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

7. 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

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

9. 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

10. 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

11. 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

12. 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)

13. 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

14. Simulation Results

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

16. 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

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

18. Thank you!