The impact of a yearlong discussion in Washington about the 2012 Farm Bill is now up in the air following the November elections, according to Purdue University Agricultural Economist Roman Keeney.
In 2009 the World Trade Organization allowed Brazil to impose sanctions against the U.S. after ruling that U.S. cotton subsidies were illegal under the WTO framework. In April the U.S. struck a last minute deal to send $147.3 million dollars in annual support to Brazilian cotton production.
"That deal is a temporary resolution to the WTO case that Brazil won against U.S. cotton subsidy programs several years ago," Keeney says. "The major issue in resolving the WTO case is for the U.S. to bring its policy into compliance in the 2012 Farm Bill."
Sending the support dollars to Brazil is not a huge economic stress to the United States, Keeney says, but it brings attention to agricultural spending at a time when the budget deficit is a major public concern.
The federal budget deficit emerged as a significant political factor in the November elections.
"When you consider both the moderate impact of the recession on U.S. agriculture and the negative views of crop subsidies by those struggling to weather the economic downturn in the non-farm population and in other countries the U.S. trades with, it may be difficult for Congress to justify writing new farm legislation without reduced spending," Keeney says.
In practice, price levels have been high enough that agricultural subsidy spending has been at a minimum the past three years. Annual direct payments that do not adjust with market conditions are the majority of subsidy spending and that is where legislators will need to make cuts to generate budget savings in the farm bill.
"After 15 years of giving out these payments, political champions to keep payments in their current form seem in short supply," Keeney said. "The irony of this is that the fixed direct payments made to producers are, by far, the most compatible with WTO parameters on allowable spending. So, we may have the WTO case with Brazil encouraging less spending on farm subsidies and the response being that we cut those favored by the WTO rules."
Legislative work in 2010 on the farm bill was aimed at locking in a baseline. Legislators thought farm bill spending had reached a minimum level and if the congressional committees moved ahead to write new legislation they could do so without participating in any larger budget reform process. That prospect seems less likely given the November elections, which turned over leadership in the House of Representatives and seems to indicate a more hawkish approach to budget cutting.
"Agriculture has successfully avoided budget cuts in the past and was trying to do so this time by adopting the minimal baseline and moving quickly to get a new bill," Keeney says. "The changeover in the House means that work was probably for naught and, given the legislative priorities of the new Congress, we are not likely to see new farm policy until after the 2012 election year."
Whenever work resumes on the successor to the 2008 Farm Bill, it is likely that the three Bs of budget, baseline and Brazil (i.e. agricultural trade) will be among the major influences that push for lower total spending on farm programs, Keeney says.