The year 2006 will prove to be a watershed for the U.S. agriculture sector. Last month’s WTO ministerial in Hong Kong did not produce the long sought breakthrough on agriculture that so many had hoped for. Instead, 2006 will mark the beginning of the mad scramble to forge a Doha deal by early 2007, to meet the terms of President Bush’s “fast-track” trade promotion authority.

This year will also see Congress commence drafting the 2007 Farm Bill. The convergence of the 2007 Farm Bill and the Doha Round could lead to an unprecedented overhaul of domestic policy. Regardless of how the Doha Round is resolved, U.S. agriculture clearly faces a new world—one defined by greater global market access and significantly reduced domestic and export supports. This presents U.S. agriculture with either an unparalleled opportunity—or threat depending on one’s view—to experience market reform far beyond what past farm bills could offer. In addition, the opportunity extends to potentially much greater global market access if Doha succeeds.

Is U.S. agriculture ready? Successive Republican and Democratic Administrations have declared that U.S. agriculture can compete anywhere in the world. Is this pronouncement still true? For which commodities? Who will succeed and who won’t? U.S. and foreign leaders, as well as experts in the field, discussed these issues in the 2006 Policy Forum at the Carnegie Endowment for International Peace.

Keynote: The Honorable Saxby Chambliss, Senator from Georgia
Senator Saxby Chambliss lauded the efficiency of American agriculture, emphasizing the importance of research and development for improved agricultural technology. Transportation and refrigeration mechanisms, for example, could make exporting perishable agricultural products such as greens to more distant markets. He discussed the importance of alternative fuels as a market for U.S. corn and sugar, as well as a source of industrial development even in states which do not produce these crops, such as his home state of Georgia, where new ethanol facilities are being developed. Senator Chambliss discussed the importance of opening markets for U.S. agricultural products through free trade agreements and through the WTO; while agriculture has traditionally been de-emphasized in trade negotiations, he said the leadership of USTR Rob Portman have brought it to a more appropriately prominent position in the priorities of US negotiators.

Senator Chambliss explained his support of US involvement in the Doha Round and in the WTO on this basis, saying that it would open opportunities for US agriculture because of the emphasis that these leaders have given US agriculture interests. He also pointed out the importance of the WTO dispute settlement mechanisms in ensuring that markets were open for U.S. agriculture, citing the recent decision against the EU policies banning imports of genetically modified crops, and referring to the ongoing dispute between the U.S. and Japan over the safety of beef as another challenge to the goal of ensuring that nontariff barriers are not used to block U.S. agricultural exports. Senator Chambliss discussed the challenges he has faced since assuming the chairmanship of the Agriculture Committee, and affirmed that the upcoming challenge of the 2007 farm bill would address the U.S.’ likely Doha commitments, even though the agreement is not likely to be concluded by that point.

Sherman Katz of the Carnegie Endowment asked Senator Chambliss about the outlook for the farm bill if the Doha Round was not concluded by the end of 2007. Senator Chambliss responded that it was unlikely that Doha would conclude before passage of the farm bill, it was still necessary to ensure that the farm bill would work to modify U.S. subsidy programs to fit within the green and blue boxes, or non trade distorting categories, to ensure compliance with the likely Doha agreement. This would make it possible to continue to support U.S. agriculture while avoiding the risk of losing future dispute settlement cases and putting U.S. farmers into harm’s way, as with the recent decision on Brazilian cotton.

A representative of a U.S. cotton producers’ association asked whether Senator Chambliss could estimate the likely expenditures for programs for each commodity in the farm bill. Senator Chambliss said that these details are not yet established, but pointed out that there will be pressure for reductions due to budget constraints and the fact that the total amount allocated in the commodities title under the current farm bill will not be spent due to high world prices.

Panel 1: The Negotiating Challenges Ahead for Doha
Jon Huenemann, Miller & Chevalier, Moderator

H.E. Dennis Richardson, Ambassador of Australia to the United States
Ambassador Richardson discussed the progress made in agriculture negotiations in the Doha Round to date, and emphasized the challenge of narrowing the scope of exceptions to the agriculture agreement, which undermine market liberalization by allowing continued protection on sensitive crops and products. He discussed the range of proposals on officially excluded “sensitive” products; the European Union would like to keep the number very high, around eight percent of tariff lines, while Australia supports a much lower figure. Ambassador Richardson called for more forthcoming offers from developing countries on NAMA, and for more genuine engagement by all parties in the services negotiations.

H.E. Roberto Abdenur, Ambassador of Brazil to the United States
Ambassador Abdenur praised the U.S. position in the Doha Round, and commented on Senator Chambliss’ points on alternative fuel production, pointing out that while the U.S. has no duties on imports of petroleum, it imposes a 54 cent tariff per gallon on ethanol, which Brazil would like to export to the U.S. in greater quantities. Ambassador Abdenur emphasized the challenge of achieving agreement with the European Union in the Doha agriculture negotiations; he stressed the important commitments that Brazil has already made in the Doha Round, as well as its indication of future flexibility in the negotiations. He pointed out that Brazil has offered to consider as much as a 50 percent reduction in tariffs on non-agriculture market access (NAMA) if the EU is able to make further commitments on agricultural market access. This flexibility is key in moving forward in the negotiations.

H.E. John Bruton, Ambassador of the European Union to the United States
Ambassador Bruton responded strongly to the remarks of Ambassadors Richardson and Abdenur, pointing out the importance of the steps the EU has already taken in cutting subsidies through reform of the Common Agricultural Policy. He argued that the current emphasis on market access in agriculture fails to recognize these significant reforms, and treating them as a given rather than a step which should be reciprocated by Europe’s trading partners. He said that the offer of 50 percent reduction on NAMA tariffs which Ambassador Abdenur mentioned was not sufficient, unless this was a new proposal of a 50 percent reduction in applied, rather than bound, tariffs. Ambassador Bruton reaffirmed that the European Union would not be making any further commitments on market access in agriculture at this time.

Mr. Ken Roberts, Deputy Administrator of the Foreign Agricultural Service, United States Department of Agriculture
Mr. Roberts pointed out US progress on food aid, moving towards more cash programs rather than in-kind food deliveries; on export credits, working to make sure that these programs do not function as subsidies; state trading enterprises; in domestic support programs, and in cotton subsidies. He reaffirmed that meaningful market access and a limitation on the number of sensitive products were priorities for the U.S.

Discussion Session

Jon Huenemann, the moderator, asked what was needed in the domestic political arenas of WTO members in order to move forward in Doha. None of the panelists had clear solutions to this problem, but Ambassador Bruton reiterated that more detail of potential gains for the EU in NAMA and services was necessary to move forward.

Kim Elliott of the Institute for International Economics and the Center for Global Development asked whether a proposed tariff cap of 100% would apply to sensitive products. Ambassador Bruton responded that this is still under negotiation, while the Mr. Roberts pointed out that this was more a concern for Japan than for the other members.

A reporter from Inside US Trade asked who would have to make the next move to achieve progress in Doha, and Mr. Roberts responded that all the parties would have to move together to make progress.

A representative of the US Wheat Association asked about the controversy over monopoly issues in Australian wheat sales to Iraq under the Oil for Food program. Ambassador Richardson responded that the transparent, independent inquiry conducted in Australia complied with international standards to address this issue, while many other countries implicated in the Oil for Food scandal have not taken this kind of important step.

A representative of the Organization of American States pointed out the stalled Free Trade Area of the Americas process, which has failed to move forward because of disagreement between the US and its partners over whether to address subsidies in the regional context or leave them to the WTO; she asked whether the FTAA might offer more market access options than the Doha Round. Ambassador Abdenur responded that the process had been stalled for a number of reasons, including US elections and the Doha process, and the U.S. attempt to remove some agricultural goods from the table in the negotiations, rather than discussing all trade.

Panel 2: A Doha deal and the 2007 Farm Bill: Domestic Challenges, Opportunities and Outlook for U.S. Agriculture
John Gilliland, Miller & Chevalier, Moderator

Ms. Constance Tipton, International Dairy Foods Association
Ms. Tipton began by providing an overview of the state of the current state of the dairy industry in the U.S., which has seen significant increases in productive efficiency from fewer farms in recent years. These gains make American dairy products highly competitive in international markets. As a result, the International Dairy Foods Association has a lot at stake in the Doha round and is pushing for a successful conclusion on the issues of market access, export subsidies, and domestic support payments. Ms. Tipton also emphasized that her organization did not want to see dairy products classified as “sensitive” and thus subject to special protection measures.

Mr. Jay Truitt, National Cattleman’s Beef Association
Mr. Truitt detailed the disruption to the otherwise prosperous American beef industry caused by the discovery of Bovine Spongiform Encephalopathy (BSE) in some of its stock in December of 2003. This finding forced producers to pull out of several lucrative markets, resulting in an estimated annual loss of between $3-6 billion. This example, combined with the fact that U.S. beef is a unique product with strong demand worldwide, means that factors like sanitary and phytosanitary standards (SPS) can be equally as important, if not more, than market access to the future growth of the beef industry. With that said, the beef industry would like to see a new farm bill that does not pose any threats to future market access.

Ms. Barbara Spangler, Wheat Exports and Trade Education Committee
Ms. Spangler reminded the audience that half of total American wheat crop is exported abroad. Consequently, the Wheat Exports and Trade Education Committee has been actively supporting an ambitious outcome for Doha in all three agricultural pillars. The worst possible outcome for the wheat industry would be for the WTO talks to break down. She defended U.S. policy on food aid, which was the subject of protesting during the Hong Kong Ministerial, saying that the generosity of American farmers should not be turned aside in favor of cash payments.

Mr. Don Phillips, American Sugar Alliance
Mr. Phillips started by focusing on some predictions for the outcome of the Doha round. Drawing on Ambassador Bruton’s comments, Mr. Phillips did not believe the European Union had much more to offer on agricultural, and he was thus pessimistic about any breakthroughs on market access. He also expressed some skepticism about the way in which cuts in exports subsidies and domestic support payments would be implemented, and about how specific programs would be transferred into the “green box” of non-trade distorting measures. Specifically with regard to sugar, he argued that developing countries should also be subject to Doha reforms, since they produce 75% of the world’s sugar. Again, however, he believed the prospects for significant progress on sugar were dim, and that even if a comprehensive agreement on agriculture were reached there might not be enough energy or will left over to pursue sector-specific approaches. Since U.S. sugar programs do not fall under the category of cash export subsidies targeted by the WTO negotiations, little reform will be required for the next farm bill.

Audrae Erickson, Corn Refiners Association and Agricultural Trade Coalition
Ms. Erickson noted that the American corn industry would be far worse off if no deal is struck on agriculture in the Doha round, and therefore it supports the U.S.’s negotiating position and desire for a successful conclusion. She warned that U.S. agricultural programs might face more litigation without a WTO deal and be forced to reform without the corresponding concessions that can be achieved through the Doha. The corn industry is closely tied to other secondary markets, such as dairy and beef, and thus all would benefit from more unrestricted market access. Ms. Erickson believed that since trade promotion authority (TPA) was unlikely to be renewed, mounting pressure should force some resolution to the round—an outcome that would benefit developing countries as much as industrial ones.

Discussion Session
The lone question to the panel asked which venue—given the “spaghetti bowl” of bilateral, regional, and multilateral trade agreements—was the most significant one in which to pursue agricultural reforms. Ms. Tipton, representing dairy, Mr. Truitt, representing beef, and Ms. Spangler, representing wheat, all agreed that while the North American Free Trade Agreement (NAFTA) and other free trade agreements (FTAs) had brought significant gains from market access, the top priority at the moment is the multilateral forum, largely because of artificially depressed prices caused by EU agricultural programs.

Panel 3: The Global Agricultural Marketplace in 2016 and Beyond: U.S. Agriculture in a Changing World
Sherman Katz, Carnegie Endowment for International Peace, Moderator

Mr. James Wiesenmeyer, Informa Economics
Mr. Wiesenmeyer countered some of the optimism expressed by the industry representatives, citing an $18 billion (20%) decline in farm income in recent years. While protein based industries have solid growth prospects, others such as wheat face stiff international competition from the breadbasket of eastern Europe and elsewhere. The fast pace of innovations in seed technology and other areas should keep American agriculture at the forefront of the global marketplace, but many serious problems have been overlooked, including the poor quality of much of the infrastructure upon which farmers depend to bring their goods to market. Finally, Mr. Wiesenmeyer predicted that high energy prices and tight supplies—largely driven by high demand from China—will continue to be a major issue in the next decade, perhaps further hampering U.S. competitiveness.

Mr. Dan Griswold, CATO Institute
The theme of Mr. Griswold’s presentation was that the U.S. has powerful incentives to reform its agriculture policies unilaterally, regardless of what is happening in the multilateral forum. He offered six arguments to support this contention.

First, the elimination of trade distorting policies would benefit consumers. Americans pay higher prices on a wide range of products—an amount equivalent to a tax of $16.2 billion annually, or $200 per person—and this “tax” falls disproportionately on lower-income families, which spend a larger percentage of income on food.

Second, reforms would benefit producers and workers, especially those in secondary sectors whose products depend on inputs of primary commodities, such as sugar.

Third, new farm policies would make sense from a fiscal and distributive point of view. The U.S. government, which is already running historic deficits, spends $20 billion a year on agricultural support programs. Farmers already have higher than average incomes, and the bulk of support payments are directed not to the many, but rather to the few.

Fourth, reform efforts would be environmentally friendly. Inflated prices for produce also raise the price of farmland and encourage the overuse of pesticides and herbicides.

Fifth, even American farmers would be made better off. Because the U.S. has the natural advantages of rich, fertile farmland, American farmers will always be able to produce competitive products; yet subsidies that artificially inflate prices cause these farmers to price themselves out of the range of many U.S. families. Current farm policies have not achieved other promised objectives, such as rural development or job growth, and thus need to be rethought. Mr. Griswold cited the example of New Zealand, which initiated aggressive reforms 20 years ago, and now boasts a more competitive agricultural sector with a larger share of GDP.

Finally, farm policy reform is in America’s self interest because it would improve the country’s standing in the world. Current policies give the U.S. a bad name and a reputation for hypocrisy. Cotton programs, for example, depress world prices and harm the very countries we claim to want to help in the Doha round.

Ms. Sandra Polaski, Carnegie Endowment for International Peace
Ms. Polaski gave a presentation based on a forthcoming study, “Winners and Losers: Impact of the Doha Round on Developing Countries,” that will be published on March 15, 2006. The study modeled multiple scenarios to see if there would be any substantial gains to developing countries from changes in applied tariff rates. Its two major conclusions were that (1) some shifts in world export market were observed, but (2) there was little growth in agricultural demand and income gains from trade. What small gains were observed went to wealthier countries like Brazil and Thailand, with some gains in Latin America and Asia. The biggest losers were the countries that were supposed to benefit most from the round, Bangladesh, east Africa, and sub-Saharan Africa.

Mr. Jeff Schott, Institute for International Economics
Mr. Schott took the long view on the potential impact of Doha. He reminded the audience that since most trade agreements are heavily backloaded, the world would just be starting to observe some of the impact of Doha in 2016. Much will depend on the compromise reached on sensitive products, since this is the area in which the greatest benefits can be realized or squandered. Even if there is further movement on export subsidies, Mr. Schott predicted that the resulting impact would be minimal, since these trade-distorting practices have already be substantially curtailed. He did urge, however, that farmer’s most important asset is their real estate and that subsidies represent a form of embedded value; eliminating subsidies may have complicated consequences worthy of careful attention. In terms of other factors to watch out for, Mr. Schott highlighted demographic shifts and demand growth in Asia as two of the most important.

Keynote: The Honorable Mike Johanns, Secretary of Agriculture
Secretary Johanns commenced by heralding the fact that the U.S. was the first to advance with an ambitious offer on agriculture and is now waiting to see some significant movement from the European Union. U.S. productivity has been growing at a pace of 2% annually, but demand has not matched this figure. Consequently, opening new markets is a high priority for the administered. On the other side of the table, two-thirds of the WTO membership consists of developing countries, where demand for food will only increase in the coming years.

Secretary Johanns reiterated that America’s obligations from a humanitarian perspective are just as strong. In 32 least developed countries (LDCs), 70% of the poor live in rural areas, 60% of the populations are employed by agriculture, and the agriculture sector represents on average 25% of GDP. Secretary Johanns recognized the need for energy and leadership in concluding the Doha negotiations by 2006, when the U.S. president’s TPA expires. He warned, however, that despite the ambition of America’s agriculture offer, it must part of a package deal that includes duty-free, quota-free access for developing country products and aid for trade programs.

On the controversial subject of food aid, Secretary Johanns argued that aid levels represent an insignificant part of overall food exports ($1 billion compared with $65 billion). Rather than a self-interested boon for American farmers, these donations represent desperately needed assistance that should be excluded from trade politics.

Click here to read a transcript of Secretary Johanns’ remarks.