Two scholars say one of the U.S. farm subsidy programs is a “federal budget nightmare” and threatens to land the U.S. in World Trade Organization disputes it will not win.
Vincent H. Smith of the American Enterprise Institute and Barry H. Gordon of North Carolina State University say the Average Crop Revenue (ACRE) program introduced in 2008 could cost $10 billion some years and an average of $6 billion a year.It benefits mainly corn, soybean and wheat producers and is designed to provide subsidies when market prices decline. It is, in other words, a lot like Ontario's new risk management programs for grains, oilseeds and livestock.
Smith and Gordon say the price support feature means it violates the commitment the U.S. and other countries made when they signed on to the current World Trade Organization deal that is currently in force. There is a promise in that deal to not introduce any new program that is tied to current prices or production levels.
Smith and Gordon say that the cotton case which the U.S. lost shows what is likely to happen if and when world grain prices decline and other countries start blaming the U.S. subsidy programs.
The World Trade Organization ruled that U.S. cotton subsidies did violate the rules and ordered it to either stop the subsidies or face penalties. The U.S. bought off Brazil in “an Alice in Wonderland” deal to pay $147 million a year to help Brazil’s cotton farmers become more competitive.
Ontario’s new risk protection program includes a price-support formula that tracks the cost of production.
The concern the World Trade agreement sought to address is that subsidies encourage farmers to keep producing when markets have so much that prices are depressed below the cost of production. This is of particular concern to poor nations that cannot afford to subsidize production when world prices fall below the cost of production.
Federal Agriculture Minister Gerry Ritz has refused to put any federal money into Ontario’s new risk management program, citing the risk of trade sanctions as his reason.
The government of Dalton McGuinty in Ontario seems determined to set up subsidies and trade barriers that invite WTO retaliation. Its green energy program, for example, requires made-in-Ontario components for solar and wind projects and so it's no surprise that Japan and others have already filed WTO complaints.
