Farm groups disappointed with Hong Kong, wary of new Farm Bill

U.S. farm groups disappointed with the result of the Hong Kong ministerial say they will oppose a future Doha round deal and reduced subsidies in a new farm bill unless a multilateral deal produces real market access gains, particularly in developing countries. This will require the European Union to make deeper tariff cuts, which is the only way to secure deeper tariff cuts in developing countries, sources said.

The G20 developing country group led by Brazil has argued that developing countries should reduce their tariffs by two-thirds of what developed countries offer. Commodity group sources expect this ratio to remain unchanged in a final Doha round deal.

The Hong Kong ministerial set April 30 as the deadline for agreeing to a formula for cutting agriculture and industrial tariffs. As a result, one agriculture lobbyist said, it is critical to find ways to allow the EU to offer deeper tariff cuts than it has so far while ensuring that its market is not overrun with a flood of low-priced goods.

European Commission officials have argued that they have little margin of maneuver on tariff cuts since they need to manage their internal market without export subsidies, which means a stable supply and demand situation. In terms of supply, this means no massive EU surplus production since it can no longer be sold with export subsidies on the world market, one official said. Ministers in Hong Kong agreed to eliminate all export subsidies by 2013.

But it also means that there cannot be such a flood of imports that it would drive down the price of EU products, which is backed by a commitment of the European Commission to buy commodities if the market price falls below the so-called intervention price.

One way to protect the EU market would be a safeguard mechanism, which the EU demanded for several agriculture products, including fruits and vegetables, in its October agriculture proposal. However, this would have to be handled carefully since any safeguard that the EU would negotiate would have to be matched or possibly exceeded for developing countries, sources said.

The Hong Kong ministerial text, to the dismay of U.S. commodity groups, already endorses the concept of a special agricultural safeguard for developing countries, as well the ability to designate ?special products? for which tariffs could be cut less than required by a formula. These two provisions could make it difficult to secure sufficient market access gains in developing countries no matter what figures are inserted into a tariff-reduction formula, sources said.

Commodity groups offered little support for the results of Hong Kong in post-ministerial statements both publicly and privately. For example, commodity group representatives at a final briefing on the results of the ministerial thanked U.S. officials for their efforts during the negotiations, not for the results they produced, sources said.

Publicly, a number of groups including the American Soybean Association, expressed their frustration. ?Unless specific progress is made in negotiating greater access for farm products to developing country markets, U.S. soybean farmers simply will not support the reductions proposed by the United States in trade-distorting domestic agricultural support programs,? said Ron Heck, a former ASA chairman, in the Dec. 19 release. In a Dec. 19 release, the American Farm Bureau Federation expressed disappointment with the Hong Kong result, for which it blamed the EU. The release thanked U.S. negotiators for their ?steadfast efforts.?

In terms of a new farm bill, commodity groups could clash with the Bush Administration?s objective of cutting farm spending and shifting to less trade-distorting programs, sources said.

While agriculture committees in the Senate and House are not likely to formally write a farm bill in 2006, they are expected to hold hearings, possibly this spring, on the issue. A spokesman for the Senate Agriculture Committee said Chairman Saxby Chambliss (R-GA) has not scheduled any hearings on the farm bill, but that he has publicly suggested they could take place early in 2006.

Chambliss has also said he is looking forward to a hearing on the Doha round where Agriculture Secretary Mike Johanns and U.S. Trade Representative Rob Portman would testify.

One agriculture lobbyist predicted the message from commodity groups at those hearings would be that farmers support the current farm bill and a new farm bill should rely on the same concepts.

A policy statement to be formally approved at the annual meeting of the American Farm Bureau Federation next week is likely to endorse the concepts of the 2002 farm bill, according to one lobbyist. It will also indicate, the source said, that if it is not possible to preserve the concepts of the 2002 farm bill, Congress should consider relying more on farm payments that are considered non- or minimally trade-distorting under WTO rules.

This support for the existing farm bill stands in contrast to statements by Agriculture Secretary Mike Johanns that his listening sessions around the country have included criticisms of the existing farm bill, which he cites as evidence of support for a new farm policy. He has signaled those changes should make the U.S. more secure from potential challenges in the World Trade Organization similar to Brazil?s challenge of U.S. cotton subsidies, which led the U.S. to repeal a major cotton payment program last month. Johanns has also suggested that a new farm bill should include more programs that pay farmers for conservation.

In the context of the upcoming congressional hearings on the farm bill, the Farm Bureau will likely repeat their message that farm payments can only be cut in a new farm bill if there are sufficient market access gains in the Doha round, one lobbyist said.

The Farm Bureau and other groups have estimated through the use of models the average tariff reductions necessary in the EU and in key developing country markets such as India and China to produce sufficient export gains that would offset any subsidy cuts, two agriculture lobbyists said. Failure to reach those goals would lead agriculture groups to withhold support for a final Doha deal, which could endanger its passage, they said.

However, a third agriculture lobbyist questioned whether the Bush Administration still needs the support of farm groups to secure passage of a Doha agreement if that agreement is supported by business groups. That source predicted the administration might push for approval of an agreement even if the deal falls short of agriculture?s demands. ?I think someone has decided there are no longer any votes in agriculture,? this source said. The source also predicted that there would be increasing challenges to U.S. farm programs in the WTO if there is no Doha agreement and the threat of these cases could be used to push through an agreement that does not meet today?s demands of commodity groups.