schmitz

Canadian/U.SAgricultural Policy: 

Canadian/U.S Agricultural Policy Professor Andrew Schmitz Eminent Scholar: Ben Hill Griffin Jr. Endowed Chair Food and Resource Economics, University of Florida Professor, University of Saskatchewan Research Professor, University of California, Berkeley Midwestern Legislative Conference Agriculture and Natural Resources Committee July 31, 2005

Brazil Wins Case Against U.S. Cotton Producers: 

Brazil Wins Case Against U.S. Cotton Producers It is alleged that U.S. cotton policy significantly depresses world cotton prices. How is the U.S. to respond to the WTO ruling? Will the U.S. revamp its Farm Program? Are U.S and E.U. Farm Programs decoupled?

THE 2002/03 U.S. FARM PROGRAM: 

THE 2002/03 U.S. FARM PROGRAM

Key Provisions: 

Key Provisions Income support for wheat, feed grains, upland cotton, rice, and oilseeds provided through direct payments, countercyclical payments, and marketing loans with loan deficiency payments (LDP) Target prices reinstated along with the associated countercyclical payments—a major change from the 1995/96 Farm Bill. Support for peanuts was changed from a price-support program with marketing quotas to marketing loans, countercyclical payments, direct payments, and a quota buyout.

Key Provisions (Continued): 

Key Provisions (Continued) Sugar is to operate as a no-net program. The nonrecourse loan program was reauthorized at 18 cents per pound for raw cane sugar and 22.9 cents per pound for refined beet sugar. For sugar, nonrecourse loans are extended to in-process beets and cane syrups. Both marketing assessments on sugar and forfeiture penalties were terminated. The nonrecourse sugar-loan program was reauthorized. The producer payment in kind (PIK) program continues and the U.S. Secretary of Agriculture can exchange Commodity Credit Corporation (CCC)-owned sugar for reductions in sugar-crop acreage plantings.

Key Provisions (Continued): 

Key Provisions (Continued) Federal milk marketing orders continue. The minimum support price for milk was fixed at U.S. $9.90 per hundredweight (cwt) for milk containing 3.6 percent butterfat. In addition, a national Dairy Market Loss Payment (DMLP) program was established. The Dairy Export Incentive Program (DEIP) was extended to 2007 No changes in the basic crop insurance program

Key Provisions (Continued): 

Key Provisions (Continued) The Agricultural Risk Protection Act of 2000 (ARPA) provided an additional U.S. $8.2 billion for insurance-premium subsidies for fiscal years 2001 through 2005.[1] The ARPA provision, scheduled to go into effect in 2006, allows for selection of continuous levels rather than coverage levels at fixed intervals. Under FSRI, however, the ARPA was eliminated. (Crop insurance costs increased from U.S. $748 million in 1998 to U.S. $4.4 billion in 2002. Thus future possible payouts may require additional emergency funding.)

Key Provisions (Continued): 

Key Provisions (Continued) Country-of-origin labelling (COOL) requirements were introduced. Under FSRI, retailers are required to inform consumers of the country of origin for covered commodities at their final point of sale (muscle cuts of beef, lamb, and pork; ground beef, ground lamb, and ground pork; farm‑raised fish and shellfish; wild fish and shellfish; peanuts; and perishable agricultural commodities, such as fresh fruits and vegetables). Funding for the Environmental Quality Incentives Program (EQIP) was increased. A new conservation security program was introduced. Land-retirement programs were expanded, particularly for wetlands. Funding was expanded for farmland protection, and a new Grassland Reserve was created.

Key Provisions (Continued): 

Key Provisions (Continued) The maximum acreage enrolled in the Conservation Reserve Program (CRP) was increased from 36.4 million acres to 39.2 million acres. Under the Wetlands Reserve Program (WRP), the maximum acreage was increased from 1.08 million acres to 2.8 million acres. New trade programs were authorized, including the McGovern‑Dole International Food for Education and Nutrition Program, the Biotechnology and Agricultural Trade Program, the Technical Assistance for Specialty Crops Program, and the Exporter Assistance Initiative Program.

Key Provisions (Continued): 

Key Provisions (Continued) The Public Law 480 Program (PL480) was reauthorized. The Export Enhancement Program (EEP) extended funding through 2007 at the current funding level of U.S. $478 million per year. Under the FSRI, the definition of unfair trade practices was expanded to include: (1) practices of state-trading enterprises that “are not consistent with sound commercial practices conducted in the ordinary course of trade”; (2) subsidies that decrease market opportunities for U.S. exports or unfairly distort agricultural markets to the detriment of the United States; and (3) unjustified trade restrictions or commercial requirements, such as labelling, that affect new technologies, including biotechnology.

The U.S. Agricultural Assistance Act of 2003 : 

The U.S. Agricultural Assistance Act of 2003 Crop Disaster Assistance: Provides disaster payments for crop losses for either 2001 or 2002, producers choose which year. It covers losses greater than 35 percent of the normal yield (i.e., 65 percent of the normal yield less the harvested yield). Quality losses are covered as well. Livestock Assistance: Expands eligibility for the 2002 Livestock Compensation Program (LCP), which was initiated by the U.S. Administration in the fall of 2002 to provide assistance for selected types of livestock in counties designated as disaster areas. The program re-establishes a more targeted Livestock Assistance Program (LAP) for producers suffering grazing losses in counties designated as disaster counties due to weather-related problems.

The U.S. Agricultural Assistance Act of 2003 (Continued): 

The U.S. Agricultural Assistance Act of 2003 (Continued) Funding assistance for: (1) the government purchase of surplus fruits and vegetables and other commodities used by schools and food banks; (2) direct tobacco payments to producers; (3) losses to the cottonseed industry resulting from hurricanes and other conditions in 2002; and (4) disaster assistance to sugarcane producers for losses resulting from hurricanes in 2002 and for sugar beet losses for either 2001 or 2002. Administration: Ensures that the reduction in CRP annual payments on CRP acres approved for haying and grazing in 2002 because of drought and other weather problems will be waived.

Loan Rates and Target Prices 2002/2003 U.S. Farm Bill: 

Loan Rates and Target Prices 2002/2003 U.S. Farm Bill

CANADIAN AGRICULTURAL PROGRAMS : 

CANADIAN AGRICULTURAL PROGRAMS

Crop Insurance Act (CI) : 

Crop Insurance Act (CI) Passed in 1959, this was a voluntary production-guarantee program. Because the federal government had no constitutional authority to unilaterally establish a crop-insurance program, the CI was jointly managed by the federal and provincial governments. Under this arrangement, producers paid premiums that were matched by the federal government and provincial governments paid the administrative costs. Producers and the federal government shared insurance costs until 1989 when federal-provincial cost-sharing changes were implemented, establishing a tripartite program paid for by producers, the provincial governments, and the federal government. These changes, which reduced federal government premium costs, were accompanied with changes to make the program more actuarially sound.

Western Grain Stabilization Act (WGSA) : 

Western Grain Stabilization Act (WGSA) Introduced in 1975, the WGSA provided a grain safety‑net program that paid producers from the Prairie Region when net cash receipts from the seven major grains fell below 90 percent of the preceding five-year average. WGSA allowed farmers to contribute a percentage of their gross sales to a stabilization fund. The Canadian government contributed to the fund by matching approximately 50 percent of the producer contribution. Payouts to the Prairie region equaled CDN $223 million, CDN $522 million, CDN $859 million, and CDN $1.4 billion for crop years 1983/84 through 1986/87, respectively.

Western Grain Transportation Act (WGTA) : 

Western Grain Transportation Act (WGTA) Enacted in 1983, the WGTA replaced the 1925 statutory “Crows Nest Pass Freight Rate” with a rail subsidy on the movement of grain and grain products from Prairie points to the ports of Vancouver, Thunder Bay, Prince Rupert, and Churchill. Government payments of about CDN $800 million per year were paid directly to railways, which were obliged to charge subsidized freight rates for grain movement. When the WGTA was repealed on August 1, 1995, the freight subsidy was eliminated and producers were partially compensated with two lump-sum compensatory payments in 1996 called the Crow Benefit (Crow).

Special Canadian Grains Program (SCGP) : 

Special Canadian Grains Program (SCGP) Introduced in 1986, this program transferred CDN $1 billion from the federal government to Canadian grain and oilseed producers. The transfer was to offset the loss incurred by producers from the subsidy war between the United States and the European Union. An additional CDN $1.1 billion was paid out in 1987 as part of the same program.

Gross Revenue Insurance Program (GRIP) : 

Gross Revenue Insurance Program (GRIP) In 1991, the federal government entered into separate agreements with each provincial government to established GRIP as one component of the new safety‑net program for farmers. It offered farmers revenue protection. Several billion dollars were paid out under GRIP to grain and oilseed producers. The premiums were shared by farmers, provinces, and the federal government under the tripartite system. The revenue guarantee for each crop was based on a percentage of the 15-year moving average of indexed past prices multiplied by crop yields. For calculating the revenue guarantee for a farmer average yields were used, or farmers could elect to use their own farm-coverage yields if those yields were above the area average. But GRIP had major problems and Saskatchewan withdrew from the program in 1995; Alberta and Manitoba withdrew in 1997.

Net Income Stabilization Account (NISA) : 

Net Income Stabilization Account (NISA) In 1991, the federal government established NISA as a second component of the new safety‑net program for farmers. NISA enabled farmers to set money aside, subject to a annual contribution cap, in a personal income stabilization account from which they could draw funding during difficult times. Farmers were permitted to set aside up to two percent of their gross sales in individual accounts, the sum of which would be matched equally by the federal and provincial governments. The program allowed a withdrawal from the farmer’s NISA account when the farmer’s gross margin fell below the five-year average or when his net income fell below CDN $10,000. Farmers cannot draw on their NISA account until sufficient funds have been accumulated, limiting the effectiveness of NISA as an income stabilization mechanism.

Agricultural Income Disaster Assistance (AIDA) : 

Agricultural Income Disaster Assistance (AIDA) In response to low farm incomes—particularly in the pork sector—the federal government introduced AIDA in 1998. When a producer’s net income (not including depreciation) falls below 70 percent of his three-year moving-average net income, he becomes eligible for an AIDA payout. (Net income levels below zero are not included in the averaging process.) Provinces that had disaster programs in place, like Quebec and Alberta, did not participate directly in AIDA. However, the federal government did transfer to those provinces their share of the total available support. The cost share on this program was 40 percent provincial and 60 percent federal.

Canadian Agricultural Income Stabilization (CAIS): 

Canadian Agricultural Income Stabilization (CAIS) Beginning in 2003 the CAIS program replaced previous safety net programs available to producers. The CAIS program allows producers to protect their farming operations against margin declines, large or small. CAIS is a joint federal/provincial/territorial Business Risk Management program. CAIS protects you against large and small drops in farm income in a given year. Farmers receive a payment from CAIS when current year farm income is less than a farmer’s average farm income from previous years. The amount of support received is based on the level of protection chosen. To secure desired level of protection, farmers are required to open and deposit money into a CAIS account at a participating bank, credit union or other financial institution.

CAIS – Based on Margins: 

CAIS – Based on Margins Production Margin –allowable income minus allowable expenses in a given year. Reference Margin –average production margin for three of the past five years (CAIS drops the year in which your production margin was lowest and the year in which it was highest). Once a farmer’s production margin is determined, adjustments are made for changes in receivables, payables, and inventory in the current year. These changes are made based on supplementary information submitted to the CAIS administration. These adjustments help to estimate potential income/loss for the year. Should a farmer’s production margin fall below the reference margin in a given year, the farmer receives program payments based on his selected level of protection. Payments are made up of funds from the farmer’s CAIS account and a government contribution. The greater the loss, the larger the government contribution. If production margins do not drop, the farmer can leave his money in the CAIS account for future protection.

Supply Management: 

Supply Management Supply-management, which dates back to the late 1960s and early 1970s, covers such commodities as dairy, poultry, and eggs. For example, the Canadian Egg Marketing Agency was created in 1973, the Canadian Turkey Marketing Agency in 1974, and the Canadian Chicken Marketing Agency in 1978 (Schmitz et al., 2002). For supply-managed commodities, tight import quotas exist along with high external tariffs. In addition, producers control production.

ISSUES: 

ISSUES Compensation U.S. Tobacco Program - The federal tobacco program was instituted as part of the Agricultural Adjustment Act of 1938, designed to stabilize the U.S. tobacco market and to ensure fair prices for tobacco farmers.  There were two basic elements of the tobacco program: marketing quotas and price supports.  Under the tobacco program, tobacco farmers were allocated an annual acreage-based quota, limiting the quantity of tobacco quota owners could place on the market.

Tobacco (Continued): 

Tobacco (Continued) Over the last couple of decades, the federal tobacco program became severely pressured.  Much of the pressure stemmed from the tobacco support prices that kept the market price of U.S. tobacco at a high level, especially compared to the world market price.  Over time, as the quantity and quality of foreign-grown tobacco increased, lower priced imported tobacco began to displace significant quantities of domestic tobacco used in manufacturing, with limited ability to adjust domestic prices within the constraints of the program.  Also over time, as tobacco quota assets were handed down over generations or sold off, a significant gap emerged between quota owners and active tobacco growers who were required to lease significant quantities of quota from non-growing quota owners to market their crop.  In recent years, domestic tobacco manufacturers began to bypass traditional auction markets in favor of direct contracts with producers, further pressuring the price support program. Between 1998 and 2004, tobacco quotas generally declined by about 50 percent.

Tobacco (Continued): 

Tobacco (Continued) In 2004, the U.S. Congress included the Fair and Equitable Tobacco Reform Act (commonly called the tobacco buyout) as part of larger corporate tax reform legislation (The American Jobs Creation Act of 2004, PL 108-357), enacted on October 22, 2004.  The tobacco quota buyout terminates the federal tobacco price support and supply control programs (beginning with the 2005 crop), makes compensation payments to tobacco quota owners and active tobacco growers for the elimination of the tobacco quota asset, and provides for the orderly disposal of existing tobacco pool stocks.  Payments to tobacco quota owners and growers are expected to total $9.6 billion, with annual payments spread evenly over 10 years.  Additional funding for handling pool stocks and administration bring the cost of the total buyout package to $10.14 billion. The buyout is funded entirely by assessments on tobacco product manufacturers and importers.  Beginning with the 2005 crop, farmers can produce as much tobacco as they want, anywhere they want and sell it to anyone they want.

Termination of the WGTA: 

Termination of the WGTA

Termination of the WGTA: 

Termination of the WGTA The Crow payment made in 1996 totaled roughly $1.6 billion. Prior to 1966, the yearly government payments to the railways averaged $704.9 from 1985 to 1995). The previous table gives the present value of future payments under pay-the-railway approach, and compares this to the roughly $1.6 billion payout under pay-the-producer approach. These values were computed assuming a 20-year time horizon. Under the latter system, the numbers are quite staggering (assuming that producers would have received full compensation). At a discount rate of 5 percent, producers would have received $8.8 billion instead of the roughly $1.6 billion they actually received. Under a discount rate of 10 percent, the payment would have been $6.0 billion.

Other Differences: 

Other Differences Supply Management in Canada is quite different than any of the supply management industries in the U.S. Also, it generally provides income support for supply management producers above other sectors, including grains and oilseeds. U.S. Agricultural policy is a Federal responsibility while in Canada it is shared between the Federal Government and the individual Provinces. Income support levels for U.S. oilseed and grain producers is generally higher than their Canadian counterparts