WASHINGTON, May 20, 2015 – Administration officials could learn in the next few days whether Brazil could challenge the legality of commodity programs created by the 2014 farm bill. According to recent Reuters report, Brazilian officials are preparing to raise their concerns at the semiannual meeting of the World Trade Organization’s agriculture committee June 4-5.
It’s customary for countries to give about 10 days notice of the issues they want to raise at the meeting.
A Brazilian study, cited by Reuters, estimated that U.S. subsidies could reduce world corn and soybean prices by 4 percent and 3 percent, respectively. Brazil’s agriculture minister has claimed that the country’s soybean industry could lose $500 million as a result of the U.S. programs.
USDA economists haven’t seen the Brazilian study, but they express confidence that the United States can successfully defend the new programs, Price Loss Coverage and Agriculture Risk Coverage, against allegations that they’re suppressing world prices. Payments under the new programs will be tied to base, not planted, acreage. Also, ARC payments are based on revenue, which takes into account yields as well as prices.
"The production decisions won’t be affected by those programs," said USDA’s acting chief economist, Robert Johansson. “We still feel confident that they’re not going to be leading to any market distortions.”
The economists say there are notable differences between PLC, ARC and the cotton policies that Brazil successfully challenged at the WTO a decade ago. Those cotton programs included marketing loans, which essentially put a floor under prices paid to producers, and the old “Step 2” payments made to exporters and domestic mills to compensate them for buying higher-priced U.S. cotton.
Another problem in the Brazil case: The loan repayment rates and Step 2 payments were based on the “adjusted world price” of cotton, something that’s not an issue with corn and soybeans, said Sharon Sydow, a USDA economist who specializes in trade issues.
And in any case, the marketing loan rates for corn and soybeans are so low, $1.95 a bushel for corn and $5 for soybeans, that there is little chance producers will receive payments from those programs.
Theoretically, the United States could have a problem if ARC and PLC payments exceed WTO limits, but Johansson says that’s highly unlikely. The WTO’s cap on market-distorting “amber box” payments is $19.1 billion a year. ARC and PLC payments won’t come anywhere close to that amount, according to recent estimates by the Congressional Budget Office and the University of Missouri’s Food and Agricultural Policy Research Institute. Total payments for those programs are expected to peak at $7.3 billion (CBO) or $6.5 billion (FAPRI) in fiscal 2017 and fall back to $6 billion (CBO) or $5.9 billion (FAPRI) in fiscal 2018.
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