Ag Industry Leaders Express Mixed Feelings
Toward Budget Reconciliation Agreement

Friday, December 30, 2005                       By Shawn Wade

      You would think that U.S. Agindustry groups, and most particularly the cotton industry, would be feeling alittle more upbeat as 2005 comes to a close.

      After all, there seems to bea lot to be happy about following Congress's passage of a final budgetreconciliation package that includes no real reductions in commodity programpayments and the conclusion of the WTO Hong Kong Ministerial Meeting that didnot involve the U.S. trade team dealing away U.S. support programs for ahandful of promises.

      Digging a little deeperhowever shows that these outcomes, while positive for the short-term really didlittle to make producers and the groups that represent them very confidentabout what may happen down the road.

      The Senate's approval of the "DeficitReduction Omnibus Reconciliation Act" on December 21 almost completed Congress'swork on budget reconciliation. In order to get the bill to President Bush'sdesk the House of Representatives will have to vote to accept an amendmentinvolving Medicaid when they return from the holiday break.

      If approved, the package willsurprisingly let farm program payments "off the hook." Most importantly thebill makes NO reduction in the amount of Direct and Counter-Cyclical programpayments producers will receive, but does, as expected, eliminate cotton's Step2 program effective August 1, 2006.

      The one change that mostproducers will encounter involves the Direct Payment program's advance paymentoption. The bill reduces advance Direct payments to 40 percent for the 2006crop (unless a producer has already requested and received a 2006 advancepayment at the 50 percent level) and reduces the advance payment to 22 percentfor the 2007 program year.

      Unlike commodity programpayments, current Conservation, Rural Development and Research Programs werenot treated as well. At least that's your impression at first glance.

      In an ironic twist it mayultimately turn out that some of the programs that have to endure cuts or dealwith new spending caps as part of budget reconciliation could become long-termwinners when Congress gets around to working up the 2007 Farm Bill.

      To compensate for trimmingfunds available for the Environmental Quality Incentives Program and theConservation Security Program Congress included language to extend the twoprograms beyond the life of the current Farm Bill. By virtue of the extensionthe funding baselines for EQIP and CSP can't be reduced during the Farm Billdebate.

      In a political arena wherethe available funding baseline ultimately controls the fate of a program up forrenewal, protection of the funding baseline for these two programs meansconservation interests have a sturdy foundation from which to work during the2007 Farm Bill debate.

      The refusal of theAdministration and the House leadership to confer the same treatment to theCommodity Title and its programs, however, leaves the door open for changes tothe Commodity Title funding baseline down the road.

      Arguments for not includingSenate Ag Committee Chairman Saxby Chambliss' extension of the commodity titlein the conference report center on the point that since commodity programfunding was not reduced there was no need to do anything extra to maintain thebaseline.

      While this is most likelytrue, it is just as true to say that spending authority for the Commodity Titleis still at risk because unless program authority for this section is extended,the Congressional Budget Office can still use any assumptions they want whenestablishing the baseline for the next farm bill.

      Regardless of yourinterpretation, commodity programs are, for now, simply on shakier ground thanare conservation programs heading into the 2007 Farm Bill debate.


WTO Declaration From Hong KongMinisterial
Fails To Ease U.S. Cotton Concerns

Friday, December 30, 2005                       By Shawn Wade

      Going in, U.S. cottonindustry officials knew that the World Trade Organization's Hong KongMinisterial meeting was another high profile snake-pit and that cotton hadlittle opportunity of escaping unscathed.

      After reviewing the final draftof the WTO declaration published at the conclusion of that meeting it appearsthat those feelings have been completely justified.

      To hopefully improve cotton'schances of not losing ground, the National Cotton Council has been workingclosely with the U.S. Trade Representatives office and Ambassador Rob Portmanfor months in preparation for the meeting. In some ways it appears that theeffort may have paid off, at least in light of the fact that cotton issues arestill being negotiated within the context of the overall agreement onagriculture.

      Unfortunately cottoncontinues to be singled out in the final declaration approved in Hong Kong andthe industry was unable to find a way to redirect efforts to single cotton outfor some level of individual treatment. The final text contains languagecalling for a more aggressive implementation timeframe for changes in cottoncompared to other commodities.

      Specifically it calls forelimination of all cotton export subsidy programs in developed countries in2006, providing duty-free, quota-free access to cotton exports from LeastDeveloped Countries and includes the language stating the objective thattrade-distorting domestic subsidies for cotton should be reduced moreambitiously and quickly than for agriculture in general.

      The cotton industry remainsconcerned by the perpetuation of cotton specific language in the ministerialdeclaration because it is not consistent with the concept of a singleundertaking for agriculture.

      According to a statement bythe National Cotton Council the continuation of a program to treat a singlecommodity, cotton, differently from the rest of the products covered by thegeneral agriculture agreement establishes an unwise precedent for WTO tradenegotiations.

      The ministerial declarationsuggests that future negotiations will proceed in a business as usual fashionwith the U.S. and the European Union asked to make significant cuts quicker, togive preferred access to foreign products without gaining access for U.S.products in return and quite possibly to end export subsidies for cotton beforethe implementation period of the new agreement is likely to begin.

      For now U.S. cotton programsare stuck in the same position they were before Hong Kong in terms of the WTOprocess.

      While some may have hopedthat progress could be made to reduce the focus on cotton the reality is thatthe "cotton problem" is still being couched in moral terms and their demandsfor major U.S. concessions are an attempt to guilt the U.S. into dismantlingits support structure for agriculture.

      The U.S. cotton program isnot responsible for poverty in Africa. If the WTO process does away with U.S.cotton programs to assuage the guilty feelings of those willing to ignore theeconomic and political factors involved, it won't be doing African cottonfarmers any favors and will not have done anything to truly help improve theirsituation.