Domestic Farm Policies And World Trade

Some form of price, income or other support for farmers is used in almost every agriculture-producing country. In the late 1970s and early 1980s, as world agricultural market conditions became increasingly variable, most agriculture-producing countries instituted programs to stabilize the domestic market. Countries strengthened existing programs or put new policies in place to shield their farmers from what was often regarded as a "foreign" disruption. In recent years these policies have contributed to shrinking foreign markets for agricultural commodities, failing international commodity prices and growing agricultural commodity surpluses in many exporting countries.

In the 1980s, American farmers entered a period of economic difficulty. Agricultural exports declined, partly due to the high value of the U.S. dollar relative to other currencies (which raised the cost of U.S. products to foreign buyers). Crop prices fell, interest rates rose and farmers found themselves hard pressed to keep up payments on loans taken on when incomes were higher. Several government and private programs were started to aid economic recovery.

In 1985, Congress enacted a new farm law designed to improve the international competitiveness of U.S. agricultural products. In simplest terms, the law called for price supports for basic farm commodities to change in response to shifts in average market prices. In addition, this legislation included a program to idle 16 to 18 million hectares of environmentally sensitive cropland for 10 to 15 years and reduced target prices by about 10 percent over a five-year period.

In July 1986, the United States announced a new proposal for the comprehensive reform of international agricultural trade as part of what was known as the Uruguay Round of multilateral trade negotiations. The United States asked the more than 90 countries that are members of the world's foremost international trade arrangement, the General Agreement on Tariffs and Trade (GATT), to negotiate as part of a larger package of trade reforms the gradual elimination of all farm subsidies and other policies that cause price, production, trade or other distortions of agricultural markets.

Following the submission of the U.S. proposal, several other proposals were introduced by other countries or by groups of countries. Although these proposals varied widely, initially the vast majority of participants seemed to agree on the idea of moving away from trade-distorting subsidies and toward freer markets. Specifically, the United States sought a commitment for eventual elimination of European farm subsidies and the end of bans by the Japanese and South Koreans on rice imports. However, the negotiations did not run smoothly; as had often been the case in previous attempts to get international agreements cutting farm subsidies, no agreement could be reached by the targeted deadline of December 31, 1990. The negotiations appeared stalled and possibly headed for failure, but in mid-1991 the heads of the major Western industrialized nations recommitted themselves to a successful completion of the Uruguay Round and negotiations continued through early 1992.

Meantime, with the federal budget deficits continuing to run at a high level, the U.S. government in 1990 undertook still more efforts to reduce the burden of farm supports on American consumers and taxpayers. Legislation passed by Congress that year provided the opportunity to plant alternative crops or crops other than that for which the farmer has traditionally received deficiency payments, while reducing the acreage qualifying for deficiency payments. It was hoped that this would result in savings of about $10 thousand-million over five years by spurring planting of crops that do not qualify for deficiency payments, and at the same time encouraging environmentally sound crop rotation practices. But high and rigid price supports were retained for certain commodities, and extensive government management of some farm commodity markets continues.