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A Good Way to Support the US Rural Sector

Posted by Charlotte Hebebrand on May 18th, 2007

Given this year’s budget limitations, there is a great deal more wrangling over how funds should be distributed among the 2007 farm bill’s different titles. The biggest showdown is likely to be among those supporting a status quo for Title I commodity funding and those who would like to spend more money on programs such as conservation and second generation biofuels research programs. Direct payments have lately also been brought into the discussion, among others by Sen. Harkin, who has been reported in the media to suggest that the 2007 farm bill may want to scale back on direct payments because they are hard to justify in times of high prices and because they may not be WTO compatible given their planting restrictions. Reducing direct payments may also be attractive to those who would like to see minimal changes to Title I.

Direct payments fall into the category of "decoupled payments," which are provided to farmers regardless of what specific crops they choose to produce. In Europe, the so-called Single Farm Payment has become the major instrument for supporting agricultural producers, and it has been an effective tool in weaning farmers off trade distorting, "coupled" payments. Although the reforms of the Common Agricultural Policy are complex, this switch towards direct payments is the most important element of the reforms. In the US, direct payments were introduced in the 1996 Freedom to Farm Act, for the same rationale. To be eligible, EU farmers must satisfy "cross compliance" requirements, which can be summed as good, sustainable agricultural practices. Although the system is still relatively new, it appears to be well accepted both by European producers and the European public as a whole. It remains to be seen how US producers and the US public will ultimately come to view this concept. Although direct payments fit - in WTO terms - in the category of domestic support that is non- or minimally trade distorting, it may be that in the US political context they will not be an acceptable means of supporting agricultural producers.

But what is most important both in terms of the farm bill and the Doha Negotiations, is to keep in mind that Green Box entails more than direct payments, as conservation and research programs are also "decoupled" payments, on which no spending ceilings exist. So, whereever the US debate on direct payments may end up, what matters most is that the US move towards greater use of decoupled support to farmers - this can include direct payments AND a range of other measures. In other words, it would be regrettable if direct payments were reduced so as to shift money to conservation and research programs, if this would mean Title I programs remain untouched. What this would do in essence is keep the same pot of money for decoupled support and do nothing to move the US away from trade-distorting forms of domestic support. What is needed is to decrease coupled support; this would not only help bring about a Doha Round conclusion, but make US domestic support more equitable and productive for the agricultural and rural sector as a whole.

There are issues that merit serious consideration as far as Green Box payments are concerned, which IPC outlined in its recent Paper, "Should the Green Box be Modified?" and discussed at a recent expert’s roundtable. The planting restrictions which exist for both US direct payments and the EU Single Farm Payment may well be problematic, in particular in light of the cotton panel finding. Moreover, legitimate concerns have been raised by some WTO members who question whether certain types of programs are truly non- or minimally trade distorting. Environmental groups have expressed concern that present Green Box criteria may limit the type of conservation support governments can provide. Some developing countries are concerned that existing criteria might limit development-friendly support to their agricultural producers and rural sectors.

But there is no question that decoupled support is less trade distorting than coupled support, and the purpose of clarifying the criteria is in fact to encourage support that is truly non- or minimally trade distorting.

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