NGFA Urges More Trade Recognition

The National Grain and Feed Association (NGFA) is urging the Senate to develop a farm bill that recognizes the interrelationship between agricultural and trade policy, and the essential importance of U.S. competitiveness in export markets to the future growth of U.S. agriculture.

In a letter to all U.S. senators and in face-to-face meetings with staff members of several senators this week, the NGFA voiced its support for an efficient and reasonable government farm income safety net that does not undermine producers' ability to earn income from domestic or export markets. The NGFA's seven-page letter also urged the Senate to earmark environmental spending on working farmlands and livestock and poultry operations, particularly on programs that target improvements in water quality.

The Senate Agriculture Committee next week is expected to begin consideration of its version of a new farm bill, after the House approved its bill (H.R. 2646) on Oct. 5. The NGFA is the U.S.-based nonprofit trade association of about 1,000 grain, feed, processing and grain-related firms comprising 5,000 facilities that handle more than two-thirds of all U.S. grains and oilseeds.

NGFA noted that grain-related growth in trade since the mid-1990s has been dominated by expansion in the meat and poultry sector, contributing to a steadily upward trend in agricultural trade growth. A study conducted by the ProExporter Network for the National Grain and Feed Foundation - the research and education arm of the NGFA - issued in September found that trade represents about 30% of total U.S. corn utilization and 50% of both U.S. soybean and wheat utilization - exported either as raw, semi-processed or meat-equivalent products.

The NGFA's letter urged Congress to approve legislation granting President Bush trade promotion authority (previously known as "fast track") to negotiate additional reductions in agricultural tariffs and trade-distorting domestic subsidies worldwide. "[T]he United States clearly can compete very effectively in certain agricultural markets, provided the next World Trade Organization (WTO) round yields greater access to world markets," the NGFA said.

But the NGFA warned that the potential for the United States to capture its share of expanding world trade based upon successful outcomes in future world trade negotiations would be largely negated if Congress adopts a farm bill that undercuts the ability of U.S. agriculture to compete. To minimize this possibility, the NGFA urged that farm income supports be provided through direct payments, rather than through counter-cyclical payments that base payments on production and price levels. The NGFA noted that direct farm income payments - such as the AMTA payments authorized under the current farm law - have several additional advantages:

(1) They are permitted under current U.S. commitments to the WTO, and would give U.S. trade negotiators the greatest possible leverage in negotiating reductions in foreign trade-distorting subsidies and protectionism.

(2) They are the most efficient mechanism for enhancing farm income. A recent study showed that counter-cyclical income schemes, such as higher loan rates, have only a 70% efficiency level, while AMTA payments are nearly 100 percent efficient in transferring income directly to farmers.

(3) Direct payments not tied to production are less likely to cause lengthy periods of depressed market prices compared to higher loan rates or counter-cyclical approaches that provide economic incentives for "chronic excessive production."

(4) Direct payments could be coupled with tax-deferred income-bearing accounts for farmers or other mechanisms to allow producers to directly manage yearly fluctuations in cash flow.

The NGFA also noted that income support programs that are tied directly to production or price carry "huge risks" of federal budgetary exposure to taxpayers, and potentially violate the United States' WTO commitments.

NGFA also called for a new, more comprehensive and more rational approach to conservation in the next farm bill and urged that the Conservation Reserve Program be capped at no more than its current 36.4-million-acre statutory limit, and that no more whole-farm enrollments be permitted. The association noted that the more than 33 million acres currently enrolled in the CRP represent about half of the total planted acreage in Canada.

"In addition to its known benefits of enhancing game-bird populations, reducing soil erosion, and, to a lesser extent, improving water quality, the CRP has considerable negative 'side effects,'" the NGFA said. The associated cited:

(1) The devastating impact to rural economies in counties where CRP enrollment represents 25% or more of total cropland. The NGFA asked, "Is it really legitimate for the federal government on one hand to be spending tax dollars to revitalize rural communities while simultaneously applying the brakes to economic activity with expanded CRP programs*(that have) driven out jobs and depopulated rural areas?"

(2) Land-idling programs, whether CRP or acreage-reduction programs, increase average crop production costs, thereby raising land rental rates and reducing the operating efficiency of farm management, including tenant farmers.

(3) Expansive CRP programs impede U.S. competitiveness, resulting in reduced U.S. exports and increased agricultural imports. The NGFA noted that the United States is idling nearly 7 million acres through the CRP in Montana and North Dakota, while currently importing approximately 100 million bushels of Canadian hard spring and durum wheat to meet demand from U.S. flour millers - roughly four times the level of such imports in 1990.

Instead of expanding the CRP, the NGFA urged the Senate to adopt environmental provisions that address the "most important environmental issue facing the future of U.S. agriculture - improving water quality." The NGFA urged an expansion of funding for USDA's Environmental Quality Incentives Program (EQIP), which provides incentive and technical assistance payments to livestock and poultry operations.

"Whatever conservation programs are developed, we urge the Senate to work toward programs that allow productive assets to continue in production while maintaining sound environmental practices," the NGFA said.

The NGFA also recommended that the Senate avoid reestablishing grain reserves, which in the past have had negative consequences and noted that the farmer-owned grain reserve program that existed during the late 1970s and early 1980s unnecessarily extended low-price periods for U.S. grains by artificially isolating grain stocks that the market still knew existed.

"The United States' ultimate guard against shortages is its proven ability to grow crops of grains and oilseeds on par with any country in the world, and to respond rapidly to market supply-and-demand factors," the NGFA concluded. "We urge Congress to fashion policies that continue to rely on market mechanisms for food security to the maximum extent possible."