LegiStorm

Summary:

The enacted 2014 farm bill (Agricultural Act of 2014; P.L. 113-79) could result in potential compliance issues for U.S. farm policy with the rules and spending limits for domestic support programs that the United States agreed to as part of the World Trade Organization's (WTO's) Uruguay Round Agreement on Agriculture (AoA). In general, the act's new farm safety net shifts support away from classification under the WTO's green/amber boxes and toward the blue/amber boxes, indicating a potentially more market-distorting U.S. farm policy regime. The 2014 farm bill eliminates many of the support programs of the 2008 farm bill (P.L. 110-246) and replaces them with several new "shallow-loss" programs, addressing relatively small shortfalls in farm revenue—Agricultural Risk Coverage (ARC), Supplemental Coverage Option (SCO), and Stacked Income Protection Plan (STAX)—as well as a revamped counter-cyclical price support program, Price Loss Coverage (PLC), that relies on elevated support prices. Among the safety net programs, only the marketing loan program and the U.S. sugar program were extended unchanged. The sugar program will continue to count for $1.4 billion against the current U.S. limit of $19.1 billion for non-exempt, trade-distorting amber box outlays. The most notable safety net change is the elimination of the $5-billion-per-year direct payment (DP) program, which was decoupled from producer planting decisions and was notified as a minimally trade-distorting green box outlay. DPs are replaced by programs that are partially coupled (PLC and ARC) or fully coupled (SCO and STAX), meaning that they could potentially have a significant impact on producer planting decisions, depending on market conditions. Fully and partially coupled farm programs influence planting decisions, both by increasing the overall profitability of farming (as low-price signals are muted) and by changing the relative returns to planting alternative crops. Increased profitability tends to increase total planted acreage and output, while changes in relative returns influence the share of acreage planted to each crop, with consequences that could spill over into international markets. Many of the new programs authorized by the 2014 farm bill have yet to be fully implemented; thus producer participation is uncertain, while potential distortions have yet to be measured and will likely hinge on future market conditions. For example, under a relatively high market price environment, as existed during the 2010-2013 period, U.S. program outlays would be small and would fall within the $19.1 billion U.S. amber box limit. Most studies suggest that, for U.S. program spending to exceed the $19.1 billion limit, a combination of worst-case events would have to occur—for example, low market prices generating large simultaneous outlays across multiple programs, in addition to the $1.4 billion of implicit costs associated with the sugar program. Such a scenario is unlikely, although not impossible, particularly since outlays under several of the programs (including the new dairy program, SCO, STAX, and crop insurance) are not subject to any per-farm subsidy limit. Perhaps more relevant to U.S. agricultural trade is the concern that, because the United States plays such a prominent role in most international markets for agricultural products, any distortion resulting from U.S. policy would be both visible and vulnerable to challenge under WTO rules. Furthermore, projected outlays under the new 2014 farm bill's shallow-loss and counter-cyclical price support programs may make it difficult for the United States to agree to future reductions in allowable caps on domestic support expenditures and related de minimis exclusions, as envisioned in ongoing WTO multilateral trade negotiations.