Johanns Believes U.S. Farmers Need A Global Perspective

As United States policy makers consider a new Farm Bill next year, the challenge of meeting domestic needs while balancing global concerns will be at the forefront of discussions. Financial sustainability of U.S. cotton growers needs to be addressed, along with the international demand for greater market access and growth of developing cotton-producing countries. According to U.S Agriculture Secretary Mike Johanns, those goals are not mutually exclusive; in fact, they may require looking at the future of cotton markets from the same perspective.

“Without open markets, the future is clouded for an industry that is so dependent on trade,” Johanns said at the Cato Institute’s Center for Trade Policy Studies in Washington, D.C.

Outlining a proposal on U.S. agriculture policy, Johanns said markets would benefit from reducing so-called trade-distorting support and tariffs by opening trade and increasing economic activity. He said the proposed plan in the Doha Round calls for a 53% reduction in all trade-distorting domestic support, which would mean significant changes to the 2002 Farm Bill. That would decrease the current allowed base spending level from $47.9 billion to $22 billion, but Johanns said he didn’t want domestic growers to get the wrong idea. Even with those changes, he emphasized that he supports the U.S. government’s investment in agriculture, but believes that assistance can be re-structured to better serve the global community.

“Our current Farm Bill programs cannot achieve their objectives with these substantial reductions, so these programs would have to be reformed if we reach an agreement that reduces trade-distorting support by 53%. This would cause us to rethink how we support agriculture,” Johanns said. “Viewed another way, we would have the opportunity to shift our resources to green box for example, such as conservation. There is no current ceiling on the green box today.”

A Difference of Opinion

Johanns has traveled the country, talking to farmers at Farm Bill listening sessions to learn what they like and dislike about the current policy. The comments vary across the spectrum from farmers who want substantial changes to those who would like to see the 2002 bill rubber-stamped for another five years. From cotton growers in Lubbock, TX, the answer was almost unanimous. “They want the Farm Bill reauthorized,” Johanns said. Other farmers have concerns about “trade-proofing the program” or “equitable distribution of federal funds to the areas that do not grow program crops.”

Some policies, such as conservation and Rural Development programs, receive few criticisms, while the subsidy programs are a point of contention. To understand the different perspectives, Johanns said it was important to analyze the current bill and examine its effects on U.S. agriculture and trade. Breaking the 2002 Farm Bill down to what he called “just the facts,” Johanns explained why some growers seek what they call a more equitable distribution of government subsidies.

“In the U.S., five crops account for 21% of our cash receipts in agriculture. Those five crops receive 93% of our subsidy payments,” he said. “Meanwhile our specialty crop farms which are now equal in value to the program crops – let me repeat that our specialty crops are equal in value to our program crops – receive virtually nothing from the subsidy program … So we have one group that gets the lion’s share of subsidies and another group equal in production value that receives virtually nothing.”

In addition to the disparities between program and specialty crops, Johanns also explained that subsidies were not allocated equally to the five program crops. He said on average, using numbers from 2002-2005, program crop subsidies were distributed as follows: soybeans received about 6%; rice, 8%; wheat, 10%; cotton, 23%, and corn, 46%. He also pointed out that commercial farms, which make up about 17% of the farms that get assistance, received more than half of the total payments.

If the Doha Round proposal to reduce trade-distorting support and tariffs by 53% was adopted, the distribution of funds and subsidies would be shaken up to say the least, but Johanns believes that positive results for domestic growers and international markets could outweigh the loss in funds.

Impact on Global Markets

Developing countries across the globe watch as the U.S considers re-evaluating its agriculture-assistance programs, hoping to receive a substantial economic windfall from fewer trade restrictions. Under the current Doha negotiations, Johanns said there was consensus on several trade measures that would impact both the U.S. and global markets; however, without a final agreement, they would never come to fruition.

“Before the talks broke up, for example, it was agreed upon that all export subsidies would be eliminated by 2013. This was a significant step, but one that won’t be taking place without a final agreement,” Johanns said. “It was agreed that 39 least-developed countries would be provided significant duty-free, quota-free access to markets around the world. It was also agreed that substantial improvements in market access, tariff reductions in particular, would boost economic activity around the world. Better trade opportunities foster prosperity.”

According to Johanns, those least-developed countries could receive an economic boost on such a grandiose scale that the impact would be staggering. Two-thirds of the WTO members are considered developing countries, and 32 members are designated the least-developed. In those countries, more than 70% of the indigent live in rural areas with agriculture as the primary employer. Fewer trade restrictions in those countries could mean great stimulus in their economies.

“Developing countries are potentially large beneficiaries of an ambitious outcome from Doha. According to a World Bank study, roughly half of the global economic benefits from free trade would be enjoyed by those developing countries,” Johanns said. “Globally, 93% of the gains from agricultural policies would come from reducing trade-distorting import tariffs. A study by the International Institute of Economics estimates that global free trade could lift as many as 500 million people out of poverty and inject $200 billion annually into the economies of developing countries.”

Facing WTO challenges

While significant changes to the Farm Bill could open up international markets by stimulating trade and increasing prosperity domestically and abroad, Johanns said U.S. growers have another reason to support fewer trade-distorting subsidies and tariffs – the U.S. would face less vulnerability to WTO challenges. Brazil’s pledge to challenge the U.S. marketing loan program and counter-cyclical payment programs jeopardizes essential components of the U.S. farm program. But other countries are joining the fray, challenging subsidies and tariffs that they believe cause “serious prejudice” – or economic harm – to their trade efforts.

“We lost the Step 2 Cotton Case in the WTO, despite aggressively defending it. Uruguay has expressed concern about our rice program, and the C4 countries in Africa continue to raise concerns about the cotton program,” Johanns said.

Johanns said the U.S. had two options in addressing that concern. First, the U.S. could continue to institute programs that are dismantled piecemeal by WTO challenges. The second option, Johanns said, is to “grab hold of these issues and craft farm policy in such a way that it leads us to the future with vision and foresight. It comes down to a choice between being the authors of future farm policy, or being in the audience as WTO challenges pull the safety net out from underneath our producers.”

Federal Agriculture Investment is a Good Thing

For Johanns, the answer is clear-cut that U.S. farm policy needs to “be equitable, it needs to be predictable, and it needs to be beyond challenge … But how we do it is enormously important. It should be done in a way that is pro-trade, pro-growth, and fiscally responsible.”

Even as Johanns argues for a Farm Bill that eliminates much of the trade-distorting support, he defends the position that federal support of U.S. agriculture is a positive program. For him, the deal-maker is how that program is administered.

“I have always argued, I will do so forever, that federal investment in agriculture is wise, it’s worthwhile policy. But how we do it is enormously important,” he said. “I believe we owe it to our farmers and ranchers to do more than just rubber-stamp policies of the past. We owe it to them to thoughtfully consider how U.S. farm policy can help to set the future course of America’s first industry.”

Leave a Reply

Market Analysis Stories
don shurley
Market Analysis

Shurley on Cotton: Closing Out 2016, First Look at 2017

November 21, 2016

The 2016 U.S. crop may still be somewhat of a question mark, but USDA’s November numbers provided clarity on a few things – the crop got smaller in some areas as expected, but still got bigger overall.

Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Market Analysis

Cleveland: What Goes Up, Must Readjust

September 30, 2016

Last week’s higher prices limited export sales, and prices had to move lower this week, back down to mill offers.

Around The Gin
Product News

Valent Introduces Valor EZ Herbicide for 2017

December 1, 2016

Valent has introduced Valor EZ Herbicide as a residual herbicide partner for the new next generation seed systems in cotton and soybeans.

Product News

Wearable Cotton Sensors Developed

November 29, 2016

Conductive cotton fabrics have been developed into flexible wearable sensors, creating new options for cotton textiles.

Product News

Dow AgroSciences, U.S. Farmers Disagree with Proposal to Revoke Chlorpyrifos Tolerances

November 10, 2016

Dow AgroSciences is standing by the safety of proper use of chlorpyrifos, in the face of EPA’s release of a pre-publication copy of the Notice of Data Availability related to its assessment of human health risks associated with the insecticide.

Product News

Advanced Germplasm and Traits Help Growers Thrive in Cotton

November 7, 2016

PhytoGen offers options to improve fiber quality and control weeds, helping growers to out-best their best and thrive in cotton.

Product News

EPA Sets Comment Period for Enlist Duo Label Expansion

November 2, 2016

The U.S. EPA has set a public comment period until December 1 for proposed label amendments for Enlist Duo, which would allow use on Enlist cotton and extend product use on all Enlist crops to 19 other states.

Product News

Helping Cotton Growers Be Good Neighbors

November 1, 2016

Good fences make good neighbors. But these days, on-target herbicide applications also can help make growers good neighbors.

Product News

Americot Offers New XtendFlex Cotton Varieties for 2017

October 28, 2016

In 2017, Americot will offer three new Bollgard II XtendFlex varieties and one new XtendFlex only variety to cotton growers.

Product News

Bayer Delivers Right Combinations for Performance and Profit

October 27, 2016

The extensive economic data documenting earnings from FiberMax and Stoneville varieties helps make the Bayer lineup the first stop for variety decisions.

Latest News
Market Analysis

Market Set for Shift to March Contract

November 21, 2016

The market is expected to rally higher early in the week as shorts buy their way out. Grower prices will then be based on the March contract, as December will be its expiry period.

Market Analysis

Shurley on Cotton: Closing Out 2016, First Look at 2017

November 21, 2016

The 2016 U.S. crop may still be somewhat of a question mark, but USDA’s November numbers provided clarity on a few things – the crop got smaller in some areas as expected, but still got bigger overall.

Market Analysis

Cleveland: Volatility Reinforces Market Fireworks

November 11, 2016

The cotton market continues to show extreme volatility, as mills and speculative funds attempt to fix prices before the expiry of the December contract. The same fireworks are predicted for the next two weeks.

Market Analysis

Watch for Volatility as December Contract Period Ends

November 4, 2016

There are only a few trading days left before March becomes the lead spot month. The best remaining pricing opportunity for growers should be within this time frame, which could be active and volatile.

Market Analysis

Potential Supply Squeeze Could Push Market Higher

October 31, 2016

With December first notice day only three weeks away, mill buying and other potential squeeze factors could push the December contract to 75 cents and beyond.

Market Analysis

Cleveland: Prices Healthier; China’s Buying

October 21, 2016

After jumping higher on the heels of a bullish world supply demand report, the surge in cotton prices was halted at the 72 cent resistance level. But China is back in buying mode, snapping up nearly 200,000 bales.

Market Analysis

Shurley on Cotton: Prices Showing Stability and Potential

October 17, 2016

Many growers want to know when and if the market will get back above 70 cents and provide options to enhance marketing positions. Several factors now in play could give them that opportunity.

Market Analysis

Cleveland: Market Weakens as Prices Begin to Slide

October 9, 2016

The market is showing signs of vulnerability, as cotton appears headed back to the mid-60s.

Market Analysis

Cleveland: What Goes Up, Must Readjust

September 30, 2016

Last week’s higher prices limited export sales, and prices had to move lower this week, back down to mill offers.

Market Analysis

Cleveland: Bulls Ride Prices into the Mid-70s

September 23, 2016

Two weeks ago, we suggested that the USDA supply demand report would be neutral and the market would drop, yet only to reverse to and jump higher. It jumped this week. Wildly higher.

Market Analysis

Cleveland: The Bear/Bull Balance Continues

September 19, 2016

Cotton prices ended the week lower, but made gains after triple digit losses in trading that followed USDA’s September supply demand report.

Market Analysis

Shurley on Cotton: Market Unhappy with September Estimates

September 15, 2016

Whatever the market was expecting from the September WASDE report, it didn’t get. So prices reacted accordingly – down.

Market Analysis

Bulls Feed on Cotton Trade Opportunities

September 12, 2016

Although U.S. and world crops are slightly larger than originally estimated, production difficulties in Pakistan and other countries will continue to boost world cotton trade and add support to the market.

Market Analysis

Cleveland: The Bulls Battle Back

September 6, 2016

The December contract again became the darling of the bulls, who won the week after having their backs slammed against the wall.

Market Analysis

The Dog Days of August – and Cotton – Are Upon Us

August 29, 2016

The Dog Days of August have arrived. That gives Dr. O.A. Cleveland time to reflect on the market, Egyptian cotton, and the offer of a polyester shirt.