The 2002 U.S. farm bill has been widely criticized for increasing subsidies with detrimental effects on competing agricultural producers abroad and for undermining U.S. leadership in achieving liberalized world agricultural trade. This paper provides an assessment that shows the 2002 bill has effects that are nuanced in at least four respects. It raises expenditures compared to 1996 legislation, but not compared to actual 1998-2001 outlays. It maintains planting flexibility, but extends support to new crops and undermines some of the decoupling of subsidy payments from production and market prices that had occurred. It violates the spirit of U.S. trade liberalization rhetoric, but probably not the letter of U.S. WTO commitments. And it continues the policies of wealthy countries that collectively distort agricultural production and world prices, but only marginally worsen the net effects of these policies. The paper is divided into four main sections. The first section provides historical context on U.S. agriculture and agricultural policy, including discussion of the transformation of agriculture and shift in farm policy instruments toward direct support payments, the interface of domestic farm policy changes and international negotiations during the period of the GATT Uruguay Round negotiations, and the unilateral reforms undertaken by the United States in the 1996 farm bill, just after the WTO Agreement on Agriculture came into effect. Re-institutionalization of higher support for agriculture in the United States since 1998 is addressed in the second section of the paper, including a description and analysis of rising support expenditures as farm commodity prices fell during 1998-2001, a review of empirical estimates of the effects of farm subsidies on production, prices, trade, and the value of land, and a political-economy chronology of the development of the 2002 farm bill. The third section of the paper turns to support provisions of the 2002 farm bill in four areas: the price and income support programs for grains and oilseeds, the special programs for sugar, dairy and peanuts, the conservation provisions, and those affecting trade access or export promotion. Recent estimates of the effects of the new farm bill on U.S. farm production are reviewed. The final section of the paper summarizes the current U.S. position in the WTO Doha Round that was launched in November 2001. The July 2002 U.S. WTO proposal on agriculture calls for significant multilateral restraint on subsidies and protection, none of which was undertaken on a unilateral basis in the new farm bill. This divergence has frustrated proponents of further agricultural trade liberalization who would have preferred sharp unilateral reform action by the United States in 2002 as a clarion call for similar reforms abroad. Still, the current divergence between U.S. domestic policy and its international negotiating position does not preclude progress on agriculture as the multilateral negotiations proceed. Limited progress was eventually made after the Uruguay Round started under similar circumstances. By the conclusion of those negotiations, the 1985 U.S. farm bill that had been out of step with the initial U.S. GATT proposal hardly could be considered a key obstacle to the Agreement on Agriculture that was reached. It can still be hoped that substantial additional progress is made on agriculture in the Doha Round. The expensive 2002 U.S. farm bill that precedes the international negotiations, while unfortunate, is not going to be the limiting determinant of reforms achieved in a new multilateral agreement for agriculture.

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TMD Discussion Paper

 Record created 2017-04-01, last modified 2017-08-24

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