The 2014 Agricultural Act:
U.S Farm Policy in the context of
the 1994 Marrakesh Agreement and the Doha Round
Vincent H. Smith,
What impact will the new American 2014 Agricultural Act passed earlier this year have on the commitments and positions of the United States within the WTO? A recent study by ICTSD revisits the new provisions of the new Farm Bill and questions their compliance with WTO rules as well as the revisions put forward by the Doha Round.
As detailed in the study (extract here1), the 2014 Agriculture Act relies on multiple, complex and countercyclical insurance programs. This reinforcement of support measures should, theoretically, increase the AMS (total aggregate measurement of support) used by the WTO, which groups together in a single figure all product-specific and non-product specific support measures.
However, the use of non-product specific de minimis provisions is at the heart of the American support system, because government support for various insurance programs account for 96% of all support paid under the non-product specific de minimis clause ($8.9 billion out of on $9.2 billion). The maximum authorized amount of aid under the non-product specific de minimis is set at $19 billion; this leaves an effective working margin of $9.8 billion.
Consequently, contrary to the opinion of this report’s author, the United States could multiply by 2 the amount allocated to insurance subsidies without having to report their AMS calculation. An amber box budget increase would therefore have no effect on their position within the WTO (quite the contrary).
momagri Editorial Board
The 2014 Farm Bill and the Doha Round
Perhaps a more serious long term issue concerns how the increases in amber box subsidies that seem likely to occur under the provisions of the 2014 farm bill may adversely affect the willingness of the United States to support effective reductions in AMS caps under a new WTO agreement.
For example, the Revised Draft Modalities for Agriculture put forward in December 2008 proposed that AMS caps for a developed country with a current Final Bound AMS of more than 15 billion dollars but less than 40 billion dollars would be reduced by 60 percent (WTO, 2008).
These draft modalities would also reduce the de minimis exemption from excluding program specific AMS payments in a country’s reported AMS expenditures. For a developed country, the proposed de minimis exemption would decline from 5 percent of the value of the basic agricultural product (for product specific annual AMS expenditures) or the Member’s total value of all agricultural production (for non-product-specific annual AMS expenditures) to a maximum of 2.5 percent. Given the likely costs of the new programs introduced in the 2014 farm bill, the United States could well be reluctant to support those types of changes in AMS caps and de minimis exemptions.
The current US Total Bound AMS cap is 19.1 billion dollars; reducing that limit by 60 percent would result in a US AMS cap of 7.64 billion dollars. Under the provisions of the 2014 farm bill, in some years annual expenditures on just corn and wheat PLC and ARC subsidies appear quite likely to exceed seven billion dollars if, as recent USDA price forecasts indicate, prices for those commodities decline. Annual expenditures on PLC and ARC subsidies for other commodities (including soybeans, peanuts and rice) and subsidies under the STAX program for cotton could also quite easily exceed one or two billion dollars.
In addition, the dairy-focused DMPP program has the potential to involve AMS subsidy outlays well in excess of two or even three billion dollars in some years. It is likely to cost at least 300 million dollars in an average year (Congressional Budget Office, 2014). At the same time, in any given year, AMS amber box subsidies associated with the current US agricultural insurance program are unlikely to be less than four or five billion dollars (even if prices for major commodities like wheat, oilseeds, corn and other feed grains decline quite substantially from recent record and near record levels).
Thus, it is difficult to envisage the United States regularly being able to stay below a Total Bound AMS cap of 7.64 billion dollars, given the provisions of the 2014 Farm Bill, unless there is extensive use of AMS de minimis exemptions.
Like many other countries, the US has used the de minimis provision of the 1994 Agreement on Agriculture to avoid reporting some amber box subsidies as contributing to their annual AMS expenditures. For example, in recent years this has been the US practice for subsidy expenditures under the now defunct Countercyclical Payments Program, which have been reported as non-product-specific AMS expenditures, and the current heavily subsidized crop insurance program, which have also been reported as non-product-specific AMS expenditures (Orden, Blandford and Josling, 2011).
Since it was introduced in 2002, annual subsidy payments under the CCP program have been relatively modest, rarely exceeding half a billion dollars, and their reported status as non-product specific outlays has not been challenged. However, outlays under the new PLC program, which has the same structure as the CCP but uses much higher price supports, and under the companion new ARC and SCO programs, are likely to be much more substantial. Over the past four years the value of US agricultural production has ranged between 310 and 400 billion dollars (including record levels of farm income from sales of agricultural products). Thus expenditures in excess of $10 billion on these linked programs would exceed a de minimis 2.5 percent exemption criterion if they were reported as non-product specific.
The United States would have even more difficulty in reporting the PLC and ARC subsidies as de minimis if they were determined to be product specific rather than non-product specific amber box expenditures. The reason is that crops typically account for only about 50 percent of the value of US agricultural production. Moreover, farmers in the United States have been allowed to update the crop specific production bases on which such subsidies are paid in two of the last three farm bills (the 2002 and 2014 farm bills). Thus it may be more likely that the United States will eventually be required to report PLC and ARC expenditures as product specific subsidies as a result of challenges from other countries.
Overwhelming, agricultural insurance subsidies in the US are also tied to crops rather than livestock products (which account for roughly half of the value of US agricultural output).
If, also perhaps as a result of challenges from other countries, the US were required to report agricultural insurance subsidies as product specific, then the de minimis criterion would not apply to those subsidies. The reason is that, for most crops, those subsidies amount to more than four percent of the value of the crop’s total production, considerably more than the 2.5 percent de minimis exemption limit.
1 The full report is available from