Implications of the US Farm Bill of 2002 for agricultural trade and trade negotiations

Abstract

The US Farm Bill of 2002 is the latest in a 7‐decade history of farm subsidy laws that transfer funds to farmers and regulate and subsidize production of selected commodities. Fruit, tree nut, ornamental and vegetable crops, hay and meats remain outside scope of main subsidy programs. The new law continues many innovations of the 1996 Act, such as removal of authority for annual land idling and crop price floors accompanied by government stockholding. Government payments remain the primary focus of commodity programs. The total amount of these payments are likely to remain similar to the amount paid in the period 1999–2001, but with some changes in the form of the programs. For example, allowing owners to update acreage and yield payment bases creates additional incentives for farmers to link current planting decisions to anticipated farm subsidies. Similarly, the new program that ties “counter‐cyclical” payments to the price of a specific crop also has production stimulus. A new program, estimated to add about 5–10 per cent to marginal milk revenue for smaller farms, makes ‘deficiency’ payments to dairy farms when milk prices are low. Despite the new programs with added links to stimulating production, new USA programs stimulate production only marginally more than the subsidies of the 1999–2001 period, which were replaced. Furthermore, the USA has flexibility to avoid explicitly violating its WTO commitments. Nonetheless, this US Farm Bill of 2002 has curtailed the previous trends toward lower farm subsidies and smaller production stimuli, and the negative publicity surrounding it has made negotiating reductions of farm trade distortions more difficult.