U.S. Farm Policy Reforms: Domestic and International Implications
Case Study #10-3 of the Program: ''Food Policy For Developing Countries: The Role Of Government In The Global Food System''
With the Doha Round of World Trade Organization (WTO) negotiations at a standstill, substantial liberalization of agricultural trade remains elusive. One obstacle to progress is that “dirty decoupling” of farm subsidies from production decisions in developed countries has discredited the constructive reform strategy of reducing the productionand trade-distorting effects of farm support programs. Border measures in the developed world, often put in place to accommodate domestic policies, are also problematic. The United States has a long history of farm policy interventions. The omnibus multiyear farm bills provide extensive income and price support to farmers of major crops. Protective trade measures such as tariff rate quotas (TRQs) are widely used to supplement commodity support programs. U.S. agricultural policy affects a diverse group of stakeholders both within the United States and internationally. These stakeholders usually have very different and sometimes conflicting interests. U.S. agricultural and trade policies have evolved in the past century in response both to the changes occurring in agriculture and the economy and to budgetary and trade pressures. Yet they have also retained many features dating back to the early 1930s. Critics have long argued that these policies are outdated and in many ways detrimental to U.S. domestic agriculture and to the world economy. There is substantial pressure for additional reforms to U.S. agricultural policy, even though the 2002 Farm Bill is not scheduled to expire until the end of 2007. There are no clear rules for undertaking reform, however, and it remains uncertain exactly what the next farm bill would look like. This analysis provides some generic options for achieving further agricultural policy reform in the United States. Possible policy options are offered in three broad areas: domestic support, market access, and export subsidies. Although these trade and domestic policies are discussed separately, they should be treated as linked and requiring coordinated reform efforts. There is also the issue of politically feasibility if any reform is to occur. To the extent that current domestic and trade policies prop up domestic prices and generate higher farm incomes, U.S. farmers and farm groups are loath to support a change. Nonetheless, several steps can be envisioned that would improve the prospects for adoption of reform in the United States. Effective mechanisms might include an elimination of the permanent legislation (to which the periodic farm bills are technically amendments) for farm support programs in the United States and a new WTO agreement on agriculture built on tighter limits on U.S. amber box measures as well as commitments to greater reductions in tariffs and export subsidies. Past experience suggests that a policy change will require substantial support from producers. For producers who are net losers, compensation will be necessary and should be made lucrative enough to bring about the necessary support. Your assignment is to design a policy reform package (in terms of domestic support, market access, and export subsidies) that is both politically feasible in the United States and beneficial for developing countries.
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Previously Published As
Fuzhi Cheng (2007). Case Study #10-3, ''U.S. Farm Policy Reforms: Domestic and International Implications''. In: Per Pinstrup-Andersen and Fuzhi Cheng (editors), ''Food Policy for Developing Countries: Case Studies.''12 pp.