Could the forthcoming farm bill give the US an unfair advantage?
An ICTSD study says farm bill could hurt US trading partners under the right circumstances
According to a press release issued by the International Centre for Trade and Sustainable Development (ICTSD) in Geneva, Switzerland, the forthcoming US farm bill could provide US farmers with an unfair advantage if prices of key commodities fall.
The study was published by ICTSD and authored by Bruce Babcock, a professor of economics at Iowa State University and Nick Paulson, an assistant professor in the Department of Agricultural and Consumer Economics at the University of Illinois.
While Babcock and Paulson examined outcomes of the proposed farm bill if commodities prices remain at the Congressional Budget Office (CBO) projections, they also examined what would happen if commodities prices fall below those projections. In that situation, the authors found that the proposed farm bill could advantage US farmers to the detriment of some commodity trading partners, such as China, India and Pakistan. The two commodities of the largest concern are wheat and cotton, which under the proposed changes in the farm bill could see an acreage growth of nearly 6 and 13 percent, respectively, under the low-price scenario examined by the authors.
“If US farmers begin to base their planting decisions on government support rather than on the basis of market signals, then it is possible that farmers in developing countries will receive lower prices than they otherwise would because of the supply-enhancing aspects of the new US farm bill,” Babcock and Paulson told ICTSD.
The authors say, however, that the low-price scenario examined isn’t likely to happen for at least a few years, due to the recent drought in the Midwest, which sent corn, soybean, and wheat prices soaring. “This suggests that while it is possible that prices will decline to levels that would cause the proposed farm bill programs to negatively impact developing country farmers, it is not likely to do so until potentially the last three years of the five years to be covered by this farm bill,” the authors conclude.
The full study can be read at http://ictsd.org/i/publications/149058/
(Released December 2012)