U.S. farm bill wording sparks overproduction fears

Canadian and U.S. farmers concerned | Bill proposes that government relink price-based payments to planted acreage

U.S. and Canadian farmers worry that the House of Representatives version of the U.S. farm bill would encourage overproduction of certain crops and distort grain markets.

U.S. corn, soybean and canola growers have sent a letter to the chairs of the House and Senate agriculture committees voicing displeasure with the House version of the bill.

“For the last two years we have consistently opposed recoupling payments to planted acres under a price-based program,” said the three commodity groups.

“A similar program during the 1980s caused major planting distortions when market prices fell below target prices.”

They are pushing for a revenue-based program that would fill in some of the gaps of crop insurance.

The groups said they would be willing to accept a combination of revenue- and price-based programs but only if both were based on a rolling average of planted acres during the previous five years.

“If agreement cannot be reached on this or some other approach that avoids tying payments to current-year planted acres, we would reluctantly oppose a new farm bill and support an extension of the 2008 farm bill,” said the groups in their letter.

Rick White, general manager of the Canadian Canola Growers Association (CCGA), shares the U.S. commodity groups’ anxiety over the recoupling idea.

“If the U.S. puts in a program that puts in a price signal that’s not reflective of the international market, we’re worried that the U.S. will either overproduce corn and/or overproduce soybeans,” he said.

“With soybean overproduction, of course, that impacts canola prices significantly.”

Paul Bertels, vice-president of production at the National Corn Growers Association, said there are two competing farm bill philosophies in Washington.

The Senate version of the bill is closely aligned with what the corn, soybean and canola growers want, which is a revenue-based program.

The House version of the bill, favoured by minor crops such as rice and peanuts, calls for a price-based program that is tied to current-year acreage.

Farm programs haven’t kicked in since grain prices started to climb around 2007 because the target price for most crops is well below the market price. 

However, the target prices proposed in the House version of the farm bill are a lot closer to today’s market prices. For instance, the target price for corn would be $3.70 per bushel, up from $2.63 in the current 2008 farm bill.

If corn prices fell another 50 cents a bu., they would be at a level where the proposed target price might start looking attractive.

“If I’m guaranteed that target price on whatever acreage I plant, I’ll just plant more,” said Bertels.

“That’s why we’re opposed to this because then you start distorting planted acres.”

White said the World Trade Organization has clear rules on domestic support, and recoupling payments would likely be viewed as an amber box or trade-distorting program.

“As soon as they start to influence production or prices internally, that distorts trade and that is a challengeable offence under the WTO,” he said.

It’s why the CCGA hopes for a successful conclusion of the Doha Round of WTO negotiations because bilateral trade agreements don’t address these types of domestic support concerns.


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