Evaluation of Agricultural Policy Reforms in the United States
It looks closely at five US Farm Acts: This study also discusses several emerging issues and challenges for US agricultural policies, and offers key policy recommendations. Please choose whether or not you want other users to be able to see on your profile that this library is a favorite of yours.
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Would you also like to submit a review for this item? You already recently rated this item. Using an index number approach developed by Anderson and Neary ; , the level and composition of support are combined to derive a single money-metric indicator of the impact of support with respect to a specific outcome — here, farm income, quantity produced, and value of exports.
The process works like this: By imposing a policy scenario where all other forms of support are removed, the model finds the amount of MPS that holds the selected outcome constant, yielding the desired measure of equivalency. Payments involving input constraints, such as the Environmental Quality Incentives Program, or policies whose payments are based on non-commodity criteria, such as the Conservation Reserve Program, are not included in the model.
Policies of this type have complex impacts that cannot easily be analysed within PEM, and are of increasing importance in terms of the PSE Figure 2. Nonetheless, the main support polices of the US are included in the present analysis. Beyond tracking the changes in level and composition of the PSE, these measures also take into account how support is distributed across commodities, capturing the often complex cross-effects of policies between markets.
Generally, support that is more evenly distributed across commodities tends to be less distorting and more transfer efficient, but this rule of thumb can be affected by the particulars of market interactions, such as the feed market connecting crop and livestock producers, and the cross-elasticity of demand for commodities, to name only two. The iso-index approach is helpful in resolving this uncertainty by measuring the impact of all forms of support in terms of an equivalent amount of MPS.
The iso-export index measures the effect of US support programmes on export value, demonstrating that the effect is greater than that implied by the NPC, but less than that of the NAC which implicitly treats all support as equal to MPS Figure 2. The iso-income index measures the amount of market price support required to achieve the same increase in farm income as that obtained by the policy set. As market price support is generally less transfer-efficient than other policies, more is required to achieve the same effect. The opposite is true for production and trade impacts of support, as MPS tends to be one of the most distorting forms of support.
Calculating these indices as a percentage of the PSE provides an indication of the relative efficiency of the policy set at delivering increased farm income and its potential to distort markets. For the iso-income index, the upward trend evident after is evidence of increasing transfer efficiency of the policy set. The year stands out in the data, appearing as unusually market-distorting and transfer inefficient, but that year is in fact one of low budgetary payments.
Deficiency payments decline strongly from to , while PFC payments do not begin until When expressed as a percentage of the PSE, the iso-indicators show the impact of changes in the composition of support, but not its level. Looking at the iso-index in level terms, the period of greatest support and market impacts is , when the level of support surged due to higher loan deficiency payments and crop market loss assistance payments Figure 2.
The iso-production index shows that the distortiveness of support in the United States increased into the mids and declined steadily thereafter. The increasing importance of Category E payments which do not require production is driving this movement towards lower overall production distortion. The model treats the riskreducing effects of the loan rate and Counter-cyclical Payments CCP as increasing the incentive price for the producer, which contributes to marginally higher values of the index in years where prices are low and these policies have the maximum impact.
The set of policies in the earlier study period, from to the early s, were nearly as transfer efficient as those in later years, even though, as the iso-production index shows, they were slightly more distorting. The deficiency payments made on the basis of land were very transfer efficient, as they directed payments to farmer-owned inputs land in a way that made land more attractive to producers than purchased inputs. The relative expansion in land use shifted the input mix towards farm-owned inputs which deliver welfare to the producer and away from purchased inputs.
Overall, the difference between the iso-production and isoexport indices has to do with the impact of policies on consumption, as exports are essentially the excess of production over consumption. It is expected that the iso-export index will be lower in absolute value than the iso-production index as MPS has a strong impact on consumer behaviour relative to other policies, and so will have a larger impact on exports than production.
The downward trend in the later part of the period is more pronounced in the iso-export index, although the difference is not dramatic. Overall, the results indicate measured progress in improving the transfer efficiency and reducing the market distortions provoked by agricultural policy, after Over the entire time period the improvement has been modest. Part of the explanation for this is the already-high level of transfer efficiency, which limits the potential for further gains. Relatively more progress has been made on reducing the production-distorting effects of policies, especially with respect to exports.
There remains room for improvement in the area of reducing production distortions; in particular by reducing MPS, which continues to form a large share of the PSE. Risk effects Several US policies are designed to have a counter-cyclical effect related to commodity prices. The iso-income index, including the risk effects of the loan rate and counter-cyclical payment, exceeds the index excluding risk effects by an amount that varies but is typically less than 0.
Commodity prices were low in , and the greatest impact of risk-reduction occurred in that year, which had a 1. PNPC is the ratio between the average price received by producers at the farmgate , including payments per tonne of current output and the border price at the farmgate. Analysis of the impacts of US agricultural support policies on the risks faced by farmers — and therefore on production, income and trade — may vary under alternative assumptions.
Briefly stated, the model presumes a risk-averse utility function of the mean-variance type, where policies may affect the variance of revenue through their negative co-variance with prices. This, in turn, impacts the risk premium demanded by producers to accept uncertain prices. Specifically, reducing the net variability of prices is equivalent to a higher price according to a risk-aversion parameter. Consider a bet determined on the tossing of a coin, where one wins X when the toss is heads, and loses X when the toss is tails.
The risk premium is the amount an individual would pay to avoid having to participate in the coin toss, expressed as a percentage of X. This chapter looks in detail at these support policies and their impact on certain sectors. It focuses, in particular, on support for sugar. As required under the previous legislation, participants who receive commodity payments must continue to respect the requirements of conservation compliance. Direct payments are fixed and do not vary with current crop production or price.
Payment rates vary by crop. The Farm Act set fixed payment rates on a per-unit basis for and producers were given the option of updating their area bases. Under the Farm Act, direct payment rates per eligible crop i. However, for the crop years , payments will be made on only The reduction to Provision of advanced Direct Payments is eliminated in the crop year and thereafter.
When effective market prices exceed the target price, no payment is made. Like DPs, CCPs are based on area and yield bases, but their payment rate varies inversely with current market prices. As with DPs, the farmer is not obligated to produce any of the covered commodities in order to receive the payment. The CCP programme is continued under the Farm Act, but target prices were adjusted and some additional commodities were included Table 3. Support levels for countercyclical payments are adjusted, with many crops receiving increases, and support for cotton being reduced slightly.
Beginning with crop year , CCP payments are available for pulse crops, namely dried peas, lentils, and both small and large chickpeas. The Farm Act maintains target prices at previous levels for and , with the exception of upland cotton, whose target price is reduced 1. Existing target prices are maintained for maize and rice over Crop year periods vary between different commodities. Base acreage and payment yield for direct and counter-cyclical payments remain the same as under the Farm Act. Marketing Assistance Loan Program Under the Marketing Assistance Loan ML Program, producers of specified crops can receive a loan from the government, using crop production as loan collateral.
The primary aim of the programme is to provide interim financing to producers to meet cash flow needs at harvest time, while at the same time allowing them to store production for sale at a later date, when prices may be higher. The farmer taking the loan deficiency payment remains free to sell the crop on the open market. The loans are non-recourse, in that the collateral can be forfeited at the end of the term without penalty, even if the market price of the commodity at repayment is less than the loan rate.
Interest is also forgiven on loan forfeitures. Unlike the CCP, marketing assistance loan benefits are paid on current production of the specific programme commodity. Commodities eligible for marketing assistance loans and loan deficiency payments include all of the commodities eligible for DP and CCP, plus extra-long staple ELS cotton, wool, mohair and honey. The Farm Act continues the non-recourse marketing loan programme under the same framework as the previous Act, but modifies coverage, levels of payment and payment limits Table 3. The loan rate has increased for eight out of twenty commodities wheat, barley, oats, minor oilseeds, graded wool, honey, cane sugar and beet sugar ; decreased for two dried peas and lentils , and has become applicable to one additional commodity large chickpeas.
Repayment rates may be modified in the event of severe disruption to marketing, transportation or related infrastructure. Marketing loans are authorised for ELS cotton for crop years , but the loans must be repaid at the established loan rate plus interest. The Farm Act re-authorised the provision of commodity certificates only for the crop years. Certificates were a loan repayment option. They were issued by the CCC and could be purchased at the posted county price for wheat, feed grains and oilseeds, or at the effective adjusted world price for rice or upland cotton, for the quantity of commodity under loan.
The producers then exchanged them for the collateral, and thus repaid the loans. Certificates were used mainly during the mids in lieu of cash to compensate programme beneficiaries and to reduce the large, costly and price-depressing commodity surpluses held by the CCC. Unlike traditional farm programmes, the ACRE programme provides farmers with protection against revenue loss for each crop, regardless of the cause price decline, yield loss, or some combination of the two.
Enrolled farmers receive payments when revenue from programme crops including peanuts falls below levels determined from moving averages of past yields and market prices. More specifically, in order to qualify for an ACRE payment, two triggers must be met: The second trigger ensures that farms will not receive payments should the state as a whole but not the individual farm sustain a loss in revenue for the crop.
Benchmark yields at the state and farm levels are calculated from averages for the previous five years, with the highest and the lowest excluded, while national average market prices are calculated from the previous two years. If both triggers are met, a producer will receive an ACRE payment calculated as the difference between the state's actual revenue and the ACRE guarantee per acre, multiplied by a percentage If the area planted is greater than the base, the farmer elects which planted acres to enrol in ACRE.
In this respect, the ACRE programme is a closer match with current plantings than both the DP and CCP programmes, which use historical base acres for calculating payments. The programme applies to all DCP crops on the farm, and payments for each crop are calculated separately. A farmer who operates more than one farm administrative unit is permitted to enrol or not enrol each one separately in ACRE. Importantly, once a farm is enrolled, all the crops on the farm come under the programme and must remain so for the duration of the Act.
Enrolment can begin in any of the years from Another key feature of ACRE is that, by using a recent average of farm prices and yields for calculating the programme guarantees, the programme provides a moving income support level, rather than one that is fixed over time, as occurred under traditional programmes. As a result, the guarantee level for a given year depends on the prices and yields in the years immediately preceding it. The payment rate will be reduced to USD 66 per tonne on 1 August Support can be used only for acquisition, construction, installation, modernisation, development, conversion, or expansion of land, plant, buildings, equipment, facilities, or machinery.
Payment limits Two types of payment limits exist for farm commodity programmes: The Farm Act makes several changes to payment limits, some by tightening the limits and others by relaxing them. ACRE payments do not have a separate payment limit: Payment limits on marketing loan benefits and loan deficiency payments are abolished. Under the Farm Act an exception to the AGI limit was made in cases where a certain proportion of income has been earned from farming sources: If a three-year average of non-farm adjusted gross income exceeds USD , then no programme benefits are allowed DP, CCP or marketing loan assistance.
Higher-income producers, with an adjusted gross farm income of more than USD averaged over 3 years , are not allowed DP, but continue to receive CCP and marketing loan assistance benefits. Planting flexibility for fruits and vegetables for processing As described above, under the DP and CCP, farmers may plant crops other than the programme crop and still be entitled to receive direct payments — this is known as planting flexibility. Double cropping of fruit, vegetables and wild rice was permitted without loss of payments if region had a history of such double cropping.
The Farm Act retains the overall provision on planting restrictions for fruits, vegetables and wild rice, excluding mung beans and pulse crops dried peas, lentils and small and large chickpeas on base area. Farmers in these states are allowed to plant base area to cucumbers, green peas, lima beans, pumpkins, snap beans, sweet maize and tomatoes grown for processing.
Their base acres are temporarily reduced for the year concerned resulting in lower direct and counter-cyclical payments , but restored for the following crop year.
Participation is limited to producers with processing contracts, and the amount of acreage eligible for the programme is limited for each state. Insurance and natural disaster payments The federal government provides subsidised insurance coverage against losses caused by natural disasters, price fluctuations and revenue shortfalls for crops. Under the Federal Crop Insurance Program, producers may select between yield or revenue insurance. Insured producers receive a payment when actual yield or revenue falls below an expected level.
In recent years, an increasing proportion of risk protection has been provided by revenue insurance, which protects against shortfalls in both yields and prices. Producers participate in the Federal Crop Insurance Program on a voluntary basis. Crop insurance is delivered to producers through private insurance companies, which are partially reimbursed for their delivery expenses and receive underwriting gains in years of favourable loss experience.
The government costs associated with the Federal Crop Insurance Program include: The agricultural commodities eligible for insurance are predominantly crops as opposed to livestock. According to the USDA, in the Federal Crop Insurance Program provided coverage to over crops, covering more than three-quarters of planted acreage in the country million acres.
Of the USD 4. The Farm Act formalises the ad hoc measures used to provide disaster assistance by establishing an Agricultural Disaster Relief Trust Fund to finance agricultural disaster assistance to be available on an ongoing basis over the FYFY period through five new programmes. The Supplemental Revenue Assurance Program SURE , which is the largest of the five programmes funded by the Trust Fund, is designed to supplement the protection producers can purchase from private crop companies. Unlike previous natural disaster assistance programmes, SURE encompasses the entire farm and all the crops produced on it in determining a target level of revenue.
The target level of revenue is based on the amount of crop insurance coverage selected by the farmer: In addition, SURE participation requires insurance for all crops — with an exception made for , when producers had the opportunity to obtain a waiver through a buy-in provision. The other four additional disaster programmes authorised under the Farm Act aim to provide assistance to livestock, forage, and orchard and nursery tree producers until FY The first three programmes are similar in application and benefit levels to previous ad hoc disaster programmes.
Except for the Livestock Indemnity Program, these programmes require prior insurance from either crop insurance or the non-insured crop disaster assistance programme. Arrangements apply from to , but farmers who had not taken out crop insurance for when the new Farm Act came into force had the option to buy into the programme for by paying an administrative fee. First, DP, CCP and ACRE payments to farms with fewer than four hectares are now prohibited, unless the farm is owned by a socially disadvantaged or limited-resource farmer or rancher.
Prior Farm Acts had eliminated base acreage only for land developed for non-agricultural commercial or industrial use. Sugar support policies Policy background The United States is a large net sugar importer. Support and protection for the US sugar sector is substantial.
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Whereas support to programme crops discussed earlier is primarily financed through budget outlays, support for sugar is provided primarily by maintaining domestic market prices at levels that are well above world market prices. In other words, the high level of support received by the US sugar industry is funded directly by sugar users, who pay domestic market prices far in excess of world market prices.
The origin of the current sugar support programme can be traced back to the legislation in the Agricultural and Food Act of The sugar support programme has since been re-authorised, and some modifications have been made in successive Farm Acts. Key elements of the sugar support programme include: Domestic price support A key objective of the support policy for sugar is to maintain internal US prices above the price at which processors would have the incentive to forfeit sugar under loan to the CCC. Under the Farm Act, price support loans are extended to sugar processors who meet certain requirements concerning the transmission of benefits from the programme to producers of sugar cane and beet.
Through the CCC the government provides loans to processors of domestically grown sugar crops to enable them to hold stocks. Raw cane sugar and refined beet sugar are pledged as collateral. For refined beet sugar, the loan rate remained at its previous level of USD per tonne. From FY to FY, the rate was set at During the course of the marketing year, USDA is required to adjust allotment quantities to avoid the forfeiture of sugar under certain circumstances. Overall allotment quantity allocations are divided between refined beet sugar Beet sugar processors are assigned allotments based on their sugar production in crop years The Farm Act sets out allocation conditions for new entrants and for the sale of factories between processors.
It also states that sugar forfeited to the CCC counts against marketing allotments made in the year in which the loan to the processors was made. Tariff rate quotas At the outset, it should be noted that the trade policies that constitute a major feature of US sugar policy are not included in the Farm Act because tariffs are set under legislation that implements international trade agreements. US commitments under international trade agreements affect the level and allocation of TRQs. Tariff rate quotas permit imports up to the stipulated levels to enter at duty rates that are below the rates that would otherwise apply.
Tariffs on over-quota imports of sugar are high, in order to maintain high internal support prices without the need for excessive government stockholding. The in-quota tariff for sugar is equal to USD The over-quota tariff is USD In addition to the over-quota tariffs, there are safeguard duties based on the value or quantity of the imported sugar. Currently, these duties are based on value.
For refined and specialty sugar, the TRQ was set at 90 metric tonnes 99 short tons raw value. This amount includes the WTO minimum amount of 22 metric tonnes, of which 1 metric tonnes are reserved for specialty sugar, as well as an additional 68 metric tonnes for specialty sugar to accommodate a rapidly expanding organic food sector.
The United States also operates the Refined Sugar and Sugar-Containing Products ReExport Programs to allow US refiners and food manufacturers to be more competitive in the global markets for refined sugar and sugar-containing products.
Evaluation of Agricultural Policy Reforms in the United States
More specifically, USDA is now required to purchase US-produced sugar in quantities roughly equal to the amount of excess imports, in order to avoid forfeitures of sugar under loan to the CCC. The sugar purchased must then be sold to bio-energy producers for processing into ethanol. Purchases of sugar from processors would be made through competitive bids, at prices not lower than support levels under the sugar programme. Sugar processors are eligible to receive non-recourse loans, but are not eligible for marketing loan benefits.
While national-level loan prices are set by the Farm Act, USDA adjusts the national average loan rate to local usually county loan rates to reflect spatial difference in markets and transportation. For example, RMA enables some producers to purchase income insurance protection against losses of pasture, rangeland and forage.
This provision would also result in reducing the cost of the programme. This chapter examines livestock sector support policies, focusing on the dairy industry. Policy background Livestock and the production of livestock products account for about half of total farm cash receipts and for almost one-fifth of total agricultural exports Annex Tables E. The United States is a world leader in the production, consumption and export of meat and poultry products. Consolidation and vertical integration are the key features that characterise the rapid changes that have taken place in the structure and business organisation of the livestock sector over the last three decades see Section 1.
With the exception of milk, wool, mohair and honey, few federal farm policies grant direct support to livestock producers. Nor, in most cases, do they qualify for federal crop insurance, although there is some limited participation by cattle, dairy and pig producers in livestock revenue insurance programmes. They have benefited from ad hoc assistance to recover losses caused by natural disasters such as droughts and hurricanes and, on occasion, from assistance for the destruction of animals for disease control purposes.
A variety of federal farm programmes, regulations and policies affect livestock production indirectly because of their wide-ranging effects in the areas of feed grain prices, bio-fuel development, land use, environmental concerns, risk management, market structure and international trade. For example, incentives that divert maize from feed uses into ethanol production can significantly increase feed prices and, consequently, production costs.
Likewise, compliance with environmental and food safety regulations has an important bearing on the sector. As livestock farming increasingly concentrates into larger, more productionintensive units, concerns arise about the effects on the environment, including degradation of surface water, groundwater, soil and air. Operations that emit large quantities of air pollutants may be subject to regulation under the Clean Air Act.
The livestock-related provisions of the Farm Acts typically pertained to contracting and other business relationships between producers and meat packers; farm animal health and welfare regulation; and the marketing and safety of meat and poultry Johnson and Becker, The Farm Act also includes provisions that: Food safety and marketing issues related to livestock products are discussed in Chapter 10, Food safety, marketing and other policies.
Disaster assistance programmes for livestock producers are discussed in Chapter 3, in the sub-section on Insurance and natural disaster payments. The following section focuses on support policies for the dairy sector. Technological change, economies of scale and increased productivity have led to a large concentration of production: Advances in transportation and storage technologies have greatly reduced the marketing problems associated with milk perishability.
Additionally, consumer demand for dairy products is growing more slowly than milk production capacity, thereby challenging the relevance of one of the original goals of the dairy support programme — to ensure an adequate supply of fluid milk. Dairy policies and programmes have been modified over time, but the underlying general objectives remain unchanged: More specifically, dairy policy in the United States has historically been aimed at addressing three main issues: This policy response has resulted in the development of a complex array of programmes, both at federal and state level.
The main elements of dairy policy comprise a system of geographically-based price discrimination and pooling schemes federal and state milk marketing orders ; a counter-cyclical producer payment programme the Milk Income Loss Contract Program ; a price support programme implemented by government purchase of dairy products the Dairy Produce Price support Program ; a tariff-rate quota for most dairy products to restrict imports import barriers ; and a small export subsidy programme the Dairy Export Incentive Program for a few manufactured dairy products in certain years particularly the mids.
Federal and state governments also have a tradition of credit, food safety, environmental and land-use zoning regulations or incentives that have a bearing on the dairy industry, and government programmes designed to provide domestic and international food aid have an additional effect. The farm price of approximately two-thirds of farm milk is regulated under federal milk marketing orders.
In addition, in lieu of participation in the FMMO system, a few states operate their own independently administered marketing orders e. Although the specificities of FMMOs have been modified since their inception in the late s under the Agricultural Marketing Agreement Act of , their two principal elements — price discrimination and revenue pooling — have remained largely unchanged. Their main roles continue to be to: A system of classified prices currently based on four classes of milk establishes minimum prices for the end products.
The price of milk used for fluid consumption Class I can vary significantly across marketing orders and attracts the highest minimum price. Fluid milk prices Class I are determined by adding to a monthly base price a location differential — this varies from region to region according to local supply and demand conditions and is based on price incentives necessary to draw milk from surplus regions to deficit regions.
This is because the demand for fluid milk Class I is less elastic — i. Moreover, revenue pooling effectively subsidises the production of milk for manufacturing uses, resulting in a lower price for consumers of cheese, butter and milk powder, and lower prices to producers for Class II, III and IV milk.
Thus, the elements of the Farm Act relating to FMMOs focus on processes under the system's regulations — not on major programme changes. The Farm Act called for several changes in milk marketing orders, including consolidation of the then-existing 31 orders by , the number had been reduced to ten. The Farm Act also authorises a dairy forward pricing programme to be administered in a similar manner to a previous temporary pilot programme. The provision allows new contracts to be entered into until FY Any payments made by milk processors under the contract are deemed to satisfy the minimum price requirements of federal milk marketing orders.
The Milk Income Loss Contract Program In contrast to crop farmers, dairy farmers have not traditionally been recipients of direct government payments. However, the dairy sector was one of the main beneficiaries of the ad hoc emergency assistance provided over FY, receiving a total of USD 1 billion.
Under the Farm Act these ad hoc payments were institutionalised with the creation of a new counter-cyclical national dairy market loss payment programme, the Milk Income Loss Contract MILC. Like US crop programmes, the MILC provides direct payments to dairy producers when prices decline below a specified level, but — unlike countercyclical programmes for crops which are paid on a percentage of historical production — MILC payments are based on current production up to a specified limit.
All dairy producers are eligible. MILC payments are made on quantities up to a given amount of milk marketed per farm, for months when the fluid milk price in the Boston marketing order falls below a benchmark level up to a given annual amount of milk. Although the same benchmark price is maintained, both the production payment limit per farm and the rate of payment are increased for the period from 1 October to 31 August Over that period, the production limit per farm is set at 1.
After 31 August , the production limit per farm reverts to 1. In addition, because of the rapidly rising cost of feed, the Farm Act included a provision to adjust the benchmark price upwards, should feed prices rise above specified levels i. Class I milk at Boston has been below the benchmark price and the difference between the benchmark and reference prices. In every year since its inception with the exception of FY , payments made under the scheme have been small, relative to the overall value of milk production.
Following nearly two years of inactivity from March through to January , MILC payments were again made in February and continued through to November Price support for dairy is provided through government offers to purchase butter, non-fat dried milk and Cheddar cheese from dairy processors whenever the prices of these commodities fall below a specified level. The prices offered to processors for government purchase of supported products support the price of milk used in manufacturing and, ultimately, the prices paid to producers for farm milk, although prices offered for supported products are no longer set to maintain farm milk prices at a specific level.
Since , the programme has been amended, usually in the context of multi-year, omnibus Farm Acts. Under the Farm Act, the dairy price support programme was scheduled to end in , but the scope of the programme was extended in subsequent legislation and the programme was renewed under the Farm Act. This was the same level as that applied under the terms of Farm Act. The Farm Act extends the Dairy Price Support Program for five years through to , but modifies the programme by directly supporting the prices of manufactured dairy products i.
In the legislation, the minimum purchase prices were set at: Government must purchase all supported products offered to it for sale at announced minimum prices.
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Each of the mandated product prices listed in the Farm Act are the same as those used under previous legislation by USDA to purchase surplus manufactured dairy products in order to achieve the support price of USD per tonne of milk, as stipulated in the Farm Act. However, the legislation does not require that this price relationship be maintained. During , for example, purchase prices for two of the supported products butter and Cheddar cheese were temporarily increased and not calculated to generate the former all-milk support price, and stock-level triggers could also lead to product purchase prices different from those required to maintain the former milk support price.
Government purchases of surplus dairy products have been relatively small since the mids, as market prices have remained above the support price. As shown in Figure 4. However, in late and early , after several years of relative inactivity, the price support programme resumed purchases, following a decline in milk product prices. It is estimated that 50 tonnes of non-fat dried milk were removed in , and 75 tonnes in , along with small amounts of cheese and butter.
Import measures In general, the Dairy Price Support Program has played a relatively minor role in keeping the domestic US price for dairy products above the world price. The most important features of US dairy policy that keep prices artificially high are import measures which, since the implementation of the URAA, are no longer part of farm legislation.
By insulating the domestic dairy sector from import competition, import barriers make possible the key domestic elements of the dairy programme — milk market order pricing rules and the price support programme.
Evaluation of agricultural policy reforms in the United States
Domestic price supports would be impossible if imports were unrestrained, because maintaining the price floor would be made prohibitively expensive by cheaper imports. US tariffs on dairy products are very high, compared to the average agricultural tariffs in the United States, with an average m. Imports of dairy products are generally limited by a series of tariff rate quotas, which establish a two-tier system of tariffs: Most out-of-quota tariffs are specific tariffs i.
Although quantity of access has expanded with the URAA, the second-tier tariffs applied to over-quota imports, particularly for dried cream, butter oil and some high milk-fat cheeses, remain very high Annex Table E.
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In addition to producer-paid assessments on domestically-produced milk, the Farm Act also contains a provision to implement a Farm Act-mandated assessment on imported dairy products. These assessments support a national programme, first authorised under the Farm Act — for generic dairy product promotion, research and education on nutrition.
The Farm Act implements the mandate, but reduces the import assessment for imported dairy products from USD 3. The programme was active throughout the s, peaking in with USD million in bonuses. In more recent years world dairy prices have increased to such an extent that spending on the DEIP was negligible in , and over the period was zero Table 4. But, because of global market conditions, including declining international dairy prices and the reinstitution of dairy export subsidies by the European Union, the DEIP was re-activated again in May and carried forward to In terms of volumes, the amounts by product were as follows: Expenditure under the Dairy Export Incentive Program Fiscal year USD million Fiscal year USD million 0 0 8 0 77 9 8 39 55 76 32 3 19 20 10 0 Source: Subsidised exports are important for non-fat dried milk, but they are relatively small for butter and cheese.
These limits are 68 metric tonnes of non-fat dried milk, 21 metric tonnes of butterfat, and 3 metric tonnes of various cheeses. While the volume of subsidised exports was below the URAA limits, they were approaching those limits for butter and cheese. Wool, mohair and honey are supported through the Marketing Assistance Loan Program. Some cattle, dairy and pig producers in a limited number of states do participate in livestock revenue insurance programmes. Over the period, for example, consumption of all dairy products increased by 1. Marketing orders are also used for selected fruits and vegetables, although they are organised and operate differently from the FMMO system.
The classes of milk established by federal orders are: It should be noted that the prices actually received by producers may be higher than the minimum price for milk. Total receipts in each marketing order area are calculated by multiplying the class prices by the amount of milk used in each class.
Total receipts are then divided by the amount of milk sold to handlers. The amount of eligible production is roughly equivalent to the total annual production of an average-sized farm in the eastern United States cow operation. The feed price threshold is calculated as follows. To reduce budget exposure, the threshold feed cost will rise to USD per tonne after 31 August Conceptually, the extent to which dairy market price support results in higher prices for dairy farmers depends on the following factors: US agriculture does enjoy a trade surplus, with the value of exports exceeding imports, but the surplus has shrunk over time and, although exports have increased, imports have increased faster.
US agriculture enjoys a trade surplus, with the value of exports exceeding imports Figure 5.
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The level of the surplus has changed over time, and imports of agricultural products have risen. The agricultural trade surplus narrowed between and While agricultural exports continued to rise for all years, except between , imports increased nearly twice as fast. Exports account for almost half of wheat production, more than one-third of soybeans, and a fifth of maize. Export share of livestock products is lower than for crops, as most meat and dairy products are consumed domestically.
Steadily expanding foreign demand — brought about by income gains, reduction in trade protection and changes in global market structures — has helped US agricultural exports to steadily increase over time, from USD 29 billion in , to USD billion in Figure 5. Over the period, agricultural exports increased at an annual average rate of 6. This growth is attributed primarily to rising incomes in emerging markets. Agricultural exports, imports and trade balance, Trade balance Exports Imports USD billion 80 60 40 20 0 Source: All categories of agricultural exports have grown, particularly exports of horticultural products.
Exports of pork and poultry meat also have shown rapid growth. Overall, growth of agricultural exports has tended to fluctuate, while growth of agricultural imports has been comparatively steady. For example, following a very large USD 27 billion agricultural trade surplus in , US export values temporarily declined, while import growth continued unabated.
In , the agricultural trade surplus dropped below USD 5 billion, but rising US exports and signs of a levelling off in import demand now stand in marked contrast to previous trends. In , US agricultural exports reached their fifth consecutive year of record shipments, and US import growth — while still strong — was at its slowest pace since The commodity composition of US agricultural exports and imports varies considerably. Exports are dominated by grains and feeds, soybeans and red meats and their products.
Conversely, the main agricultural imports are vegetables: Historically, because of a cost advantage due to favourable land resources and capitalto-labour ratios, bulk commodities — wheat, rice, coarse grains, oilseeds, cotton and tobacco — were the main US agricultural exports. Growth of US exports to Canada, Mexico, Central and South America and to Asian markets has been an important factor in the increase in exports of high-value products since Value of US agricultural exports of bulk and high-value commodities, Bulk commodities High value commodities USD billion 70 60 50 40 30 20 10 0 Notes: As the commodity composition of US agricultural exports changed, so did the country composition.
Although the top ten destinations for US agricultural exports have varied little since the mids, the EU, which was the largest market in previous decades, has declined in importance as Canada, Mexico, the rest of the Americas and Asia, have risen Annex Table E. In particular, by , Canada had replaced Japan as the leading singlecountry export destination for US agricultural exports. However, unlike the situation in other high-income markets, trade between the United States and Canada has been driven largely by market integration, such as NAFTA, rather than by income- and populationrelated changes.
Nevertheless, Japan remains the main destination for wheat and maize exports, and China is the most important destination for soybeans and cotton Annex Table E. Concerning imports, horticultural products fruits, vegetables, nuts, wine, malt beverages and nursery products constitute, by far, the largest US agricultural import, accounting for nearly half of all such imports since Agricultural imports have grown more steadily than agricultural exports over the past two decades, increasing from about USD 20 billion in to USD 80 billion in While imports from the European Union are slowing, imports from Canada, Mexico and China have been rising steadily.
The world economic crisis has had major impacts on US agriculture Shane et al. US agricultural trade is influenced by a number of factors, especially global income and population growth Gehlar et al. Other important factors are changes in tastes and preferences in foreign markets; US and foreign supply and prices; and foreign import barriers and exchange rates. US domestic farm policies that affect price and supply and trade agreements with other countries, also influence the level of US agricultural exports.
While many of these factors are beyond the scope of congressional action, Farm Acts have typically included programmes that guarantee the private financing of US agricultural exports, subsidise agricultural exports, promote US farm products in overseas markets or respond to foreign trade barriers. Several programmes exist which aim to promote agricultural exports and to provide food aid. These programmes include direct export subsidies, export market development, export credit guarantees and foreign food aid. Of these, only export subsidies are subject to reduction commitments agreed to in the URAA.
Since the s, Farm Acts or other legislation have contained trade provisions that authorise export promotion. These trade provisions have either amended existing programmes or added new programmes promoting commercial exports of US agricultural products. Export support programmes Export subsidy programmes Export subsidies have historically been provided through two programmes, the Dairy Export Incentive Program discussed earlier and the Export Enhancement Program. The EEP, which was created in and virtually unused after , was repealed under the Farm Act.
Under these programmes, exporters are awarded cash payments or commodity certificates redeemable for government-owned commodities, enabling an exporter to sell commodities covered by the programmes to specified countries at prices below those on the US market. The commodities eligible under the EEP were wheat, wheat flour, rice, frozen poultry, barley, barley malt, eggs and vegetable oil. Under the DEIP, the eligible commodities are milk powder, butterfat and various cheeses. The final bound ceiling since on export subsidy outlays for these commodities is USD million annually.
The EEP, which mainly subsidised exports of wheat and wheat flour, was primarily used over the mids to the early s period, while since the mids it has been little used. Both programmes have been controversial. For example, several studies of the use of EEP found that: The types of activities undertaken through MAP are advertising and other consumer promotions, market research, technical assistance, and trade servicing. Non-profit industry organisations and private firms are eligible to participate in MAP promotions on a cost-share basis.
The EMP provides funding for technical assistance activities aimed at promoting exports of US agricultural commodities and products to countries with market-oriented agricultural sectors. Eligible countries must have per capita incomes of less than USD 10 in and a population greater than 1 million. The TASC, created under the Farm Act, aims to assist US speciality crop exports by providing funds for projects that address sanitary, phytosanitary and technical barriers that prohibit or threaten US speciality crop exporters.
The types of activities covered include seminars and workshops, study tours, field surveys, pest and disease research and pre-clearance programmes. Export market development programmes are not considered to be trade-distorting under the URAA and are therefore not subject to internationally agreed spending disciplines. Nevertheless, unless there are market failures that warrant government involvement in helping agricultural producers and agribusinesses to market their products overseas, it is questionable whether public spending for marketing programmes could enhance the international competitiveness of US commodity exports.
These programmes usually fund activities that the private sector could finance itself and, as such, they could crowd out the development of market-oriented private sector initiatives. Their aim is to facilitate exports to buyers in countries where official credit guarantees will help to maintain or increase US export sales. These programmes do not provide finance, but rather guarantee payments due from foreign banks for commercial financing of the sale of US agricultural exports: Four export credit guarantee programmes were re-authorised under the Farm Act.
The GSM programme underwrote commercial financing of US agricultural exports by guaranteeing re-payment of private, short-term credit up to three years , extended to eligible countries that purchase US farm products. The Facilities Financing Guarantee Program FFGP guaranteed financing of goods and services exported from the United States to improve or establish agriculture-related facilities in emerging markets. It guaranteed financing of goods and services exported from the United States to improve or establish agriculture-related facilities in emerging markets that will improve the handling, marketing, storage, or distribution of imported US agricultural commodities and products.
Export credit guarantee programmes have financed an average of USD 3. Between FY the annual average value of exports covered by officially supported export credit guarantees amounted to USD 1. Export credit guarantee programmes became an issue in WTO dispute settlement as part of the dispute raised by Brazil against certain aspects of the US cotton programme.
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In , the WTO dispute panel in the cotton case ruled that three US export credit guarantee programmes GSM, GSM and SCGP were prohibited subsidies because the financial benefits returned to the government by these programmes did not cover their long-run operating costs. This ruling by the dispute settlement panel applied not only to cotton, but also to other commodities WTO, b.
The panel recommended that the United States take steps to remove the adverse effects of these subsidies or to withdraw them entirely. In response to this, the operation of the GSM programme was suspended in The actual level of guarantees depends on market conditions and the demand for financing by eligible countries.
It also provides that the Secretary of Agriculture may waive requirements that US goods be used in the construction of a facility under this programme, if such goods are not available or if their use is not practicable. The new law also permits the Secretary to provide a guarantee for this programme for the term of the depreciation schedule for the facility, not to exceed 20 years.
Import protection measures With the exception of a few commodities, import protection does not play an important role in US farm policy. Exceptions to these low tariffs include products such as dairy, sweeteners and tobacco.
In , the average m. This is slightly more than twice the protection afforded to the non-agricultural sector. Around tariff lines are subject to tariff quotas. Tariffs and TRQs provide price support for commodities by limiting imports of lower-priced products. The simple average out-of-quota m. Some tariff quotas are generally allocated to specific countries. This is the case for most products subject to tariff quotas, including beef, certain dairy products, peanuts and peanut butter, chocolate crumb and tobacco Annex Table E.
Apart from the tariff quotas specified in its WTO schedule of commitments, the United States has allocated additional tariff quotas to its preferential trading partners under free-trade agreements. Access to tariff quotas is on a first-come, first-served basis, except for dairy products and sugar. One or more methods may be used, depending on the particular good. A licensing system is used to administer access.
Any importer, including manufacturers of like products, can apply for a licence. Access to the tariff quota for raw sugar is granted to exporting countries, not importers. It is administered through certificates of quota eligibility. In-quota imports of raw sugar must be accompanied by a certificate of quota eligibility, validated by the certifying authority in the exporting country. Certificates are issued free of charge.
The United States has reserved the right to apply additional tariffs on over-quota imports of products subject to tariff quotas, either if their import prices drop below a trigger price price-based safeguards , or if quantities exceed a given threshold volumebased safeguards , in accordance with the special safeguard provisions of the WTO Agreement on Agriculture.
The United States invokes price-based safeguards automatically on a shipment-by-shipment basis. By stage of processing First stage of processing 3. Averages do not include HS lines and duty rates for in-quota tariffs. However, price-based safeguards were applied during that period on bovine meat, dairy products, peanuts, sugar, and food preparations. Cotton import protection programmes Special import quotas Step 3. The United States maintains a tariff rate quota on imported upland cotton of 86 metric tonnes.
The duty is nominal — below the quota quantity — and ranges from zero to USD Above the quota quantity trigger, the duty increases to a prohibitively high USD per tonne. Far Eastern exceeds the prevailing world market price i. Importers have 90 days to make the purchases and days to bring the cotton into the country. Quota periods can overlap. Total Step 3 imports in any crop year are limited to five weeks of domestic mill use. Annual US imports of cotton are usually much less than the 86 metric tonnes tariff-rate quota. Limited global import quota. Limited global import quotas cannot overlap with one another.
Imports obtained under this quota must be bought within three months and arrive in the country with six months. International food aid International food aid is one of the main tools used by the United States to address food insecurity concerns in developing countries. In contrast to other donors, a feature of US international food aid policies is that all food aid is legally required to be supplied in-kind i.
The United States provides US commodities as international food aid through eight programmes that address specific objectives: Successive Farm Acts have either amended existing programmes or added new commodity food aid programmes as humanitarian or development assistance to mainly low-income foreign countries. The last major overhaul of food aid was in the Farm Bill. The Farm Bill re-authorised P.
It also established a minimum donation level of 2. Issues in the US international food aid debate Issues surrounding the effectiveness of US food aid in addressing food insecurity problems in developing countries comprise the following: Thus, food aid is alleged to act as an implicit export subsidy with the potential to jeopardise international trade agreements. However, while earlier evidence suggested a short-term disincentive effect, the long-term effect has been less clear, and more recent studies have found the long-term effects to be quite small and only temporary FAO, Second, monetisation is a management-intensive and inefficient way to convert food aid backing into cash to fund food security programmes.