The Impacts of The Food, Conservation and Energy Act of 2008 Policies on Southern Agriculture

1. The Impacts of The Food, Conservation and Energy Act of 2008 Policies on Southern Agriculture The Trade Title & The FCEA Linkage to U.S. WTO Commitments Mechel S. Paggi Director, Center for Agricultural Business College of Agricultural Sciences and Technology California Agricultural Technology Institute California State University, Fresno Kansas City, Missouri July 8-9, 2008

3. TRADE -- Establishes a consultative group to combat child and labor in the production of U.S. commodity imports. -- Establishes Softwood Lumber Importer Declaration Program to require importers of softwood lumber to "declare" they are importing lumber consistent with international agreements, primarily the Softwood Lumber Agreement between the U.S. and Canada. Applies civil penalties to importers for knowingly violating the law. -- Repeals the Export Enhancement Program. -- Repeals the GSM-103 export credit guarantee program as well as the 1 percent fee cap on the GSM-102 program. Funding for GSM-102 set at $40 million in mandatory spending and authorized to make at least $4 billion in credit guarantees available each year. -- Market Access Program funding is kept at $200 million in mandatory spending per year. -- Technical assistance for specialty crop funding is ramped up to $9 million in 2012 (total funding: $37 million over 5 years). -- Makes a minor change to the "buy American" provision in the Emerging Markets and Facilities Loan Guarantee Program to allow a waiver of that provision if such goods are not available. -- Authorizes $60 million in appropriations for Germplasm Conservation.

5. Trade :Prepared by the Senate Agriculture, Nutrition and Forestry Committee • REFORMS FOOD AID OPERATION AND OVERSIGHT: The bill addresses many of the shortcomings of U.S. international food aid programs identified in an April 2007 Government Accountability Office report, such as lack of attention to food aid quality and inadequate assessment of development in recipient countries. • SPEEDS EMERGENCY FOOD RESPONSE: Changes made will increase the ability of the U.S. government to pre-position U.S. commodities in overseas warehouses, thus allowing expedited food donations to countries facing dire emergencies. • PROMOTES DEVELOPMENT BY MODIFYING THE BILL EMERSON HUMANITARIAN TRUST: P.L.480 title II funds are intended for both emergency and agricultural development assistance. The bill reforms operation of the Bill Emerson Humanitarian Trust and clarifies that the Trust should be used as a source of funding in humanitarian emergencies in order to maintain more funding under Title II for development.

6. Trade : Prepared by the Senate Agriculture, Nutrition and Forestry Committee • ESTABLISHES A LOCAL AND REGIONAL PROCUREMENT PILOT PROGRAM: The bill includes a pilot program funded at $60 million over four years for the purpose of evaluating the effectiveness of local or regional procurement of food for humanitarian assistance. The Secretary of Agriculture is required to establish projects using locally purchased food in a variety of regions and situations, and to arrange for independent evaluation of the projects’ efficacy in a report to the House and Senate Agriculture Committees prior to the expiration of this bill in 2012. • REFORMS AND EXTENDS EXPORT PROGRAMS: The bill modifies export credit guarantee programs to make them consistent with the ruling in the World Trade Organization cotton case and reauthorizes the Market Access Program, Foreign Market Development Program, and the Emerging Markets and Facilities Loan Guarantee program. • EXPANDS TECHNICAL ASSISTANCE FOR SPECIALTY CROPS: This program provides financial assistance to producers and exporters of specialty crops in addressing technical and sanitary and phyto-sanitary barriers against their products in overseas markets. Funding for the program is increased from the current level of $2 million annually to $9 million annually by 2012.

7. A Trade Title Written in a Time of Plenty Fiscal Year Trade Forecasts for U.S. Agricultural Products Changes in 2008 Forecast Since FebruaryAg Exports rise $7.5 billion to record $108.5 billionAgImports rise $2 billion to record $78.5 billionAg Surplus reaches record $30.0 billion

8. U.S. Agricultural Trade Higher prices for grains & soybeans and larger grain volumes drive half of the export gain in 2008. Import growth continues at faster pace. 108.5 81.9 Record 78.5 70.0 Exports Imports 30 Trade Surplus 11.9 Cheaper Dollar Influence Doesn’t Hurt

9. FY’08 Exports Revised Since February AgExports Up $7.5 Billion to Record $108.5 Billion Major Bulk Commodity Volume Up 2.6 mmt to Record 138.4 mmt • Grains & Feeds $2.6 billion to record $35.3 billion • wheat (+) $500 million – higher prices offsets some vol reduction • animal feeds: corn (+) $500 million – (+) 1 mmt with no competition and (+) prices anticipating tighter US mkt; feeds/fodders – (+) $ 650 mil on (+) vol for DDGs • rice (+) $600 – export unit value jumps to $590/ton and some vol increase • Animal Products $2.5 billion to record $20.5 billion • dairy prods (+) $1.1 bil – (+) vols, esp. NFDM, on strong demand & NZ drought • pork (+) $475 mil – (+) 200,000 mt mainly on strong China demand • Oilseeds and Products $1.8 billion to record $20.7 billion • soybeans (+) $1.3 bil – (+) 2.3 mmt and unit values on extended late-season sales • Horticultural Products $800 million to record $20.5 billion • fruits/vegs/tree nuts (+) 600 million – good supplies, strong demand, weak dollar • Cotton $500 million but still a record 5.1 billion • volume lowered 300,000 mt on technical adjustment to China stocks and import demand • Major Bulk Commodity Export Vol 2.6 mil. tons to record 138.4 mil. tons • volume is up 13.7 mmt from 2007 and 2 mmt above previous record set in 1980 • largest annual increases: corn +8.9 mmt, sorghum +2.6 mmt, wheat +1.8 mmt

10. Ag Imports Continue Four Decades of Expansion • Demand & supply factors at work in a relatively open market • Demand: consumer preferences (variety, luxury, ethnic foods); population growth (2.7 million/year); high disposable income • Supply: capital flows build foreign capacity; technology transfer; supply chains increasingly global; production costs (lower wages favor labor-intensive crops) • FY 2008 import values for products driving most long-term growth • Horticultural products $34.8 billion (fruit & vegs $17.5 bil, wine & beer $8.5 bil) • Snack foods $5.2 bil, beef & pork $4.2 bil, vegoils $4.5 bil, dairy products $3.2 bil • Key observations for FY 2008 – imports rise $6 bil to record $76 bil • Import volume growth slows slightly with weaker dollar and consumer spending, but higher prices keep value growing near the faster pace seen in the past 5 years • Grains, oilseeds & products add $4 billion in 2008, mostly due to higher prices, but some vol increase too • Tropical products (natural rubber, coffee & other products) continue to grow above trend with strong global demand and record to near-record prices

11. Top Ag Markets and Ag Suppliers (NAFTA) Top Ag Markets… Top Ag Suppliers…

12. Agriculture & The WTO Objectives and Obligations Eliminate Export Subsidies Reduce Trade Distorting Domestic Support Increase Market Access

13. 2002 – 2005 * $10.2 billion ( $6.9 - $12.9) Dairy: $ 4.9 billion Sugar: $1.1 billion $19.1 billion U.S. NA Without Acreage Controls Direct Payments Food Stamps Etc. 2002 – 2005 $58.3 - $71.8 * Important that CCP’s and Crop Ins are in non-product specific category

14. How Much are Trade-Distorting Crop Supports The Issue for the Future? As Reported 10/4/07 Prior to this notice, the U.S. last Notified the WTO of its domestic support levels in March 2004 for the years 2000-2001.

15. The Key for Future Compliance U.S. Sugarcane & Sugar Beet Production U.S. Dairy

16. 2002 79%

17. 2003 86%

18. 2005 48%

19. Revised draft modalities for agriculture Ambassador Crawford FalconerChairmanCommittee on Agriculture, Special Session B. Final Bound Total Ams: A Tiered Formula 1. Tiered reduction formula • Reductions in Final Bound Total AMS 11. The Final Bound Total AMS shall be reduced in accordance with the following tiered formula: (a) where the Final Bound Total AMS is greater than US$40 billion, or the equivalent in the monetary terms in which the binding is expressed, the reduction shall be [70] per cent;(b) where the Final Bound Total AMS is greater than US$15 billion and less than or equal to US$40 billion, or the equivalents in the monetary terms in which the binding is expressed, the reduction shall be [60] per cent;(c) where the Final Bound Total AMS is less than or equal to US$15 billion, or the equivalent in the monetary terms in which the binding is expressed, the rate of reduction shall be [45] per cent.

20. Problems for the Future? • Current Limit: $19.1 Billion • With Reduction of 60%: $7.64

21. Sugar and Dairy AMS Estimates Using USDA Baseline Projections

22. Revised AMS Calculations for Dairy

23. Revised Dairy Sugar

24. FAPRI3/08

26. $7.6 billion Marketing Loan Benefits About $5 billion The Box for Counter Cyclical Payments With F&V Restrictions (Currently CCP’s Are reported as Non-product specific Amber, exempt under de’minis 5% of total Production Value Trigger) Unlimited? – Place for Direct Payments

27. Non Product Specific Amber Support Subject to De Minimis Exemptions Crop Insurance Has Been in this Categroy • De minimis exemption cuts • non-binding (2.5% of value of production from 5%) ? • 2007 $300 Billion • $7.5 Billion $15 Billion • Crop Insurance May Be a Problem

28. Average Crop Revenue Election (ACRE) Could Be a Real Problem • “Agriculture Deputy Secretary Chuck Conner says that since Congress approved the legislation last week, department analysts have delved deeply into ACRE’s provisions and were troubled by what they found. Assuming a high rate of participation in the program and national corn, wheat and soybean prices at $3.25, $5 and $7 per bushel, respectively, USDA could pay out around $16 billion to ACRE participants who produce those three crops in 2009 alone, says USDA.”

29. What about other Doha Round Changes?

30. Other Issues • Product Specific Limits WORKING DOCUMENT No. 6 FINAL BOUND TOTAL AMS: A TIERED FORMULA For the United States only, the product-specific AMS limits specified in the schedule shall be the resultant of applying proportionately the average actual product-specific AMS support in the [1995-2004] period to the average actual total AMS for the Uruguay Round implementation period (1995-2000). WORKING DOCUMENT No. 8 BLUE BOX For the United States, the limits to the value of support that may be provided to specific products under paragraph 1(b) above shall be [110] [120] per cent of the average product-specific amounts that would result from applying proportionately the legislated maximum permissible expenditure under the 2002 Farm Bill for specific products to the overall Blue Box limit of 2.5 per cent of the average total value of agricultural production.

31. FAPRI3/08

32. FAPRI3/08

33. FAPRI3/08

34. FAPRI3/08

35. If the Future is Certain • High Prices make government commodity supports $0.00 to below $1.0 billion, well within new commitments. Dairy and Sugar can be accommodated. ACRE Program just a safety net. • Direct Payments must remain in green box, $5.2 billion, even if planting restrictions have to go (cotton case). • Countercyclical payments notified as blue box, within commitments. • De minimis exemption cuts non-binding (2.5% of value of production from 5%) if Crop Insurance payments do go through the Roof.

36. What Will The Future Bring?

37. What Will The Future Bring?

38. The Questions Is Do You Believe The Future is Certain?