Ag Policy Blog

Target Price Programs Could Spark a New WTO Case

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
Connect with Chris:

As the farm bill regains some focus this week, so does the battle over coupled versus de-coupled farm payments.

Some key business lobbying groups have entered the fray, arguing that a key component of the House and Senate commodity programs could face a legal challenge in the World Trade Organization. The challenge did not come from farm or commodity groups, but from the U.S. Chamber of Commerce, National Association of Manufacturers and the National Foreign Trade Council.

The three groups sent a letter late last week to the four principals on the House and Senate Agriculture Committee to share some analysis about their respective target-price proposals and the potential trade ramifications. The groups state that the new farm bill "may have unintended consequences exposing the United States to the risk of a World Trade Organization (WTO) finding of noncompliance and sanctioned retaliation that could harm American farmers, ranchers, workers and companies."

In general, lawmakers have increasingly thumbed their noses at possible WTO cases, which has led in recent years to $147 million in annual payments to Brazil because of the upland cotton case. The legal battles over country-of-origin labeling rules also are directly linked to a WTO decision.

The business groups asked House and Senate ag leaders to examine both the Senate's Adverse Market Payments program and the House Price Loss Coverage target-price program. Those programs "run substantial risk of violating obligations the United States has undertaken" as part of the WTO for the same reasons a WTO panel found the U.S. noncompliant in the upland cotton case.

The Chamber, manufacturers group and trade council all argue that the new target-price programs may go too far in tying commodity payments to crop production. The House target-price plan, in particular, "would mark a significant step backwards" in decoupling farm-program payments from production.

"We are particularly concerned that the proposal in one version of the farm bill to recouple program payments with actual acreage in production of the program crop will quickly invite other nations to initiate dispute settlement against the United States -- and do so with a good chance of success."

The Price Loss Coverage program in the House and the Adverse Market Payments program in the Senate are the respective committees' responses to keeping a target-price program somewhat comparable to the current counter-cyclical payment program.

Under the House bill, the Price Loss Coverage program, or PLC, would set new floor prices for major commodities:

Barley, $4.95 per bushel

Corn, $3.70 per bushel

Grain sorghum, $3.95 per bushel

Peanuts, $535 per ton

Rice, $14 cwt

Soybeans, $8.40 per bushel

Wheat, $5.50 per bushel

The big sticking point for the Chamber is that the PLC also would get rid of historic base acres. Instead, the PLC would couple its payments to 85% of planted acres.

As the Chamber report states, "Economists widely view coupled payments, such as those under the proposed PLC program, to be highly trade distorting because farmers are incented to plant additional acres of a crop simply to receive the subsidy, rather than in response to market demand for the crop. As a result, crop sizes are artificially inflated, which reduces market prices and injures non-subsidized producers."

The Senate's Adverse Market Payments program creates a five-year rolling average for target prices that would exclude the high and low years, which is typically called the "Olympic average." That Olympic average for commodities would then be multiplied by 55%. Thus, the floor price would adjust each year based on the rolling average. That also means that in the early years of the farm bill, 2014 and 2015, the target price for most major crops would be higher than the current counter-cyclical program.

AMP would set specific target prices for rice producers at $13.30 per cwt price, and peanuts would have a price of $523.77 per ton.

The Senate bill keeps historic base acres, but does allow producers to update that acreage for certain instances.

"Because payments under the AMP program of the Senate bill would not be coupled to production acres, there is a smaller risk both that other WTO members would challenge it and that a panel would conclude the program is inconsistent with U.S. obligations under the SCD (Subsidies and Countervailing Duties) agreement."

Yet, some lawmakers argue that it is difficult to explain why historic base acres are used to calculate farm payments. Some people get payments who aren't actually farming or get payments based on crops they no longer grow.

The Chamber report also notes there is less concern about WTO challenges regarding the shallow-loss programs in the two versions of the farm bill -- Revenue Loss Coverage (RLC) in the House or Agricultural Risk Coverage (ARC) in the Senate.

The Capitol Hill paper Politico highlighted some of the controversy over base acres versus planted acres in an article over the weekend.…

The full report drafted for the Chamber of Commerce can be viewed at…

Follow me on Twitter @ChrisClaytonDTN


To comment, please Log In or Join our Community .

9/17/2013 | 6:54 AM CDT
Yeah, well, forking out $170 million a year in backdoor subsidies for a few thousand cotton farmers is no laughing matter. The ACRE program has not been attacked in WTO action, and that could be maintained instead of passing anything new. It only needs to be regionalized to make it a good program.
melvin meister
9/16/2013 | 11:54 PM CDT
Do not listen to the chamber on any farm policy .Thet are against any thing that raises farm prices mainly the RFS.
Cypt Frms
9/16/2013 | 4:44 PM CDT
The WTO is a joke. They are against the United States and for whoever else there is. We should take care of American farmers not every other tom, dick and harry.