EU Posts Detailed Critique of US Farm Bill

On May 15, 2002, the EU posted a detailed critique of the US farm Bill on its web site. This memo pointed out that: it will result in a 70-80% increase in US agricultural expenditures over the next six years; it will allow US farmers to be subsidised to the full extent of WTO limits; it will guarantee farmers a given level of income and reduce responsiveness to market signals; it could mean farmers gain more when prices are low, providing no disincentive to over production; it will increase production on marginal land; it will provide greater subsidies when prices are low and over stimulate production; it will drive down prices on world markets. The memo gives a detailed breakdown of the subsidies contained in the Farm Bill, which also includes rather vague environmental programmes. The EU's major criticism is that payments to farmers are directly production related. The EU memo outlines the various ways in which the US is seeking to 'stretch' WTO rules to accommodate the new Farm Bill. Nevertheless, the price depressing effects of the Bill will probably mean that US expenditure ultimately exceeds WTO ceilings. The memo outlines the likely external effects of the new Bill, including: greater volumes of cheap subsidised US products on world markets; a less attractive US market for third country exports as domestic prices are dragged down; more competitive US food processing industries through the availability of cheaper raw materials. The memo also strongly criticises the food aid components of the Bill and the predatory use of export credits and export promotion programmes. The memo seeks to compare EU and US farm aid programmes and raises the following points: The value of EU and US agricultural production was almost identical at about US $ 190 billion. In 2000, the producer subsidy equivalent in the US was US $ 49 billion compared to US $ 90 billion in the EU. Support per full time farmer was US $ 20 000 in the US and US $ 14 000 in the EU. The per capita cost in the US was US $ 338 per annum compared to US $ 276 in the EU. The EU receives 75% of agricultural exports from developing countries. The EU exports far less to the developing world than the US, whose market share in $ terms is increasing, while the EU's is falling. The EU's system of export subsidies is transparent and disciplined by WTO reduction commitments. Export subsidies are declining in importance and no longer a major source of trade distortions. On the other hand, the US system of export credits is considered a major source of trade distortion. In addition to the EU, the Cairns Group has roundly condemned the new US Farm Bill, maintaining it 'will hurt farmers around the world' and 'undermine efforts to achieve global reform of this heavily subsidised and distorted sector'. Since reducing agricultural subsidies was seen as a key element in any 'Development Round', the US Farm Bill does not bode well for post-Doha agricultural negotiations. Particular concerns have also been expressed in Africa, where it is feared the Bill will drive down the prices of commodities on which Africa economies depend. Caribbean governments also feel let down by the new US Farm Bill particularly since their rural economies are already being undermined by cheap subsidised imports. According to Roger Clark, the Jamaican Agricultural Minister, the Bill will require Caribbean governments to 're-think our strategy'. Comment: A number of interesting points emerge from the EU memo on the new US Farm Bill. Firstly, even after the increase in US expenditures, the EU will still be spending more on agricultural support than the US in terms of total production value. Secondly, while EU exports to developing countries declined between 1998 and 2000 from US $ 16.8 billion to US $ 16.5 billion, this is largely due to the Euro's depreciation against the US Dollar, which also accounts for the declining US $ denominated value of EU imports from developing countries over the same period. Thirdly, although well founded, the criticisms of the US Farm Bill regarding the effects of the new Farm Bill simply mirror the effects of CAP reform. Beef prices for ACP suppliers have dropped 28-30% since the Agenda 2000 reforms in the beef sector. Likewise EU cereal prices have dropped 50% since 1992, improving the competitiveness of EU cereal-based food processing industries and the domestic and export competitiveness of the EU feed-based livestock industry: poultry exports have increased 150% over the period. There has also been a greatly reduced need for export refunds. It is very clear that when the elephants fight, the grass suffers. Hence African and Caribbean governments are deeply concerned by the effects of the US Farm Bill. The situation emerging seems to be that if subsidised EU producers do not get your market, subsidised US producers will.On May 15, 2002, the EU posted a detailed critique of the US farm Bill on its..