WC MI growers meeting 2006

International Issues with Unexpected Impacts: 

International Issues with Unexpected Impacts Suzanne Thornsbury and Lourdes Martinez Agricultural Economics Michigan State University 2006 Spring Horticulture Meeting Hart, MI

Why You Should Care About International Markets?: 

Why You Should Care About International Markets? Competition Millions of consumers outside the U.S. Millions of consumers inside the U.S. (changing demographics) Market access Impacts on U.S. policies

Planting Flexibility Restrictions (U.S. Farm Bill): 

Fruit and vegetable planting restriction 2002 farm bill permits planting flexibility among program crops on base acres F&V restriction limits planting of most non-program crops on base acres About 160 crops covered by F&V planting restriction Planting Flexibility Restrictions (U.S. Farm Bill)

Planting Flexibility Restrictions (U.S. Farm Bill): 

Planting Flexibility Restrictions (U.S. Farm Bill) If you have base acres PLUS a history of F&V production with FSA Plant a restricted F&V Forego base payments on those acres for that cropping season If you have base acres but NO F&V history Plant a restricted F&V Forego base payments for that cropping season plus monetary penalty

The Flexibility Issue: U.S. Farm Policy and the WTO: 

The Flexibility Issue: U.S. Farm Policy and the WTO The Cotton Case Brazil challenge (September 27th, 2002) US subsidies to cotton farmers from 1999-2000 and those authorized in the 2002 Farm Bill, contravene WTO rules on Subsidies and Countervailing Measures and the Agreement on Agriculture US responsible for “driving down world cotton prices”, causing harm to Brazilian farmers while increasing the US share of the global cotton market. Oxfam International published "Cultivating Poverty: The Impact of US Cotton Subsidies on Africa“ (September 30th, 2002) Subsidies given to American cotton farmers encourage over-production and export dumping Artificially low world cotton prices Devastate African cotton farmers Source: International Centre for Trade and Sustainable Development www.ictsd.org Bridges Weekly Trade News Digest Vol. 8, Number 15, 30. (2004)

The Cotton Case (cont): 

The Cotton Case (cont) US response Subsidies do not encourage over production because they were 'decoupled' (independent of the yield of farmers). The US lost on this crucial point. "Cotton Initiative" (June, 2003) Benin and Chad, third parties to the case, had, along with other African countries (Burkina Faso, Côte d'Ivoire, Guinea-Bissau, Mali, Niger, Senegal and Togo), called for the end to cotton subsidies WTO ruled in favor of Brazil on all major claims (September, 2004) The panel found that 'Product Flexibility Contract' (PFC) and 'Direct Payments' (DP) amounted to trade distorting domestic support According to US, no immediate changes would occur in terms of cotton subsidies due to the ruling

The Flexibility Issue: U.S. Farm Policy and the Domestic Issue: 

The Flexibility Issue: U.S. Farm Policy and the Domestic Issue Farmers in the Midwest who traditionally have rotated soybeans with vegetable crops grown under contract for processing Many producers found that program rules severely restricted the amount of acreage on which they could continue that rotation. Owners of rental farmland much less willing to rent to farmers wanting to grow vegetables Fear of losing base acreage on which their payments are based. Source: Rawson, Jean M. “Specialty Crop Issues in the 109th Congress” Congressional Research Service-The Library of Congress. August 19, 2005

The Flexibility Issue: U.S. Farm Policy and the Domestic Issue: 

The Flexibility Issue: U.S. Farm Policy and the Domestic Issue F&V markets with tight margins, limited demands (differentiated products) High investments

What Does the Debate Look Like?: 

What Does the Debate Look Like? What is likely F&V supply response from program crop producers if given greater flexibility? What is the likely impact of that supply response on F&V prices? What is equitable compensation for F&V producers whose income is affected by that price change?

Potential for Market Impacts: 

Potential for Market Impacts Why Michigan? One of the most diverse states in agricultural production over 200 commodities produced on a commercial basis (MDA) Cash receipts for agricultural products average $3.7 billion annually Program crops (corn, soybeans, and wheat) $860 million per year (23%) Major non-program crops (dry beans, fruits and vegetables) $581 million per year (16%). Harvested cropland by North American Industry Classification, 2002

Potential for Market Impacts: MI: 

Potential for Market Impacts: MI Dry Pickling Fresh Bean Cuke Tomato Equipment L H M Irrigation L H H Contracting/ relationships L H H Labor L L H Payments/revenue M L L Potential supply response M/H L L Major market change unlikely if supply response low

Potential for Market Impacts: TX: 

Potential for Market Impacts: TX Texas A&M study (Fumasi et al., 2006) compared rankings of net revenue per acre for 10 crops (3 program crops) before and after removal of F&V planting restriction Rankings unchanged for most crops Ranking of cabbage rose on corn, grain sorghum base acreage Ranking of watermelons rose on cotton base acreage “Study assumes that no other constraints exist that keep producers from growing a particular crop.” If other constraints exist, supply response lower

The Real Issue that Remains: 

The Real Issue that Remains Compensation Understanding the policy options and consequences Inclusion of payments to fruit and vegetable producers in program payments All crops shift to revenue insurance/ revenue assurance programs All crops shift to “working lands” programs Other program compensation – research, export market assistance, invasive pest assistance, etc.

Options and Consequences: 

Options and Consequences Program crop acreage in 2002 (million) Feed grains 112 Wheat 78 Soybeans 55 Cotton 14 Rice 4 TOTAL 263 Non-program crop acreage in 2002 (million) Fruits/nuts 4 Vegetables 6 TOTAL 10 To include fruit and vegetable producers: Decrease program crop payments 3.6% Increase total program budget 3.8% Source: D. Schweikhardt, Ag Econ, MSU

Options and Consequences: 

Options and Consequences Understanding the range of compensation options Supply response highly variable across all F&V crops, including some very near zero. Precise estimates of supply response very difficult to measure across full range of F&V crops. There are no “F&V producers.” Inclusion of F&V in “all crops” policies (working lands or revenue insurance options) may negate other compensation

Conclusions: 

Conclusions Planting restrictions almost certain to be lifted under the next farm bill Impacts on F&V markets variable depending on other “non-market” factors Compensation yet to be determined Global markets impact your operation in unexpected ways (i.e, they cannot be ignored)