Iowa Ag Review: Volume 12, Issue 3
Over the last year, the most talked about agricultural topic has not been the state of Doha negotiations, what the next farm bill would include, or when Japan would completely open its market to U.S. beef exports. Rather, the focus has been on ethanol. A combination of Congress passing the Renewable Fuel Standard Program, high oil and natural gas prices, two consecutive years of low corn prices, a continuation of the tax credit for ethanol, and a phase-out of MTBE have created a frenzy of investment in ethanol plants and huge windfall profi ts for owners of existing plants. Investors are in such frenzy because they know that if they do not act quickly enough, all the corn surplus areas will be spoken for by someone else’s ethanol plant.
Last year farmers received $746 million in net crop insurance payments. But the program cost taxpayers approximately $2.5 billion, or $3.31 for each dollar paid out. Since 2001, when the provisions of the Agricultural Risk Protection Act (ARPA) fully came into force, taxpayers have paid $15.1 billion to deliver $8.82 billion to farmers. This imbalance between taxpayer costs and producer benefi ts has led some to question whether money allocated to crop insurance might be more effi ciently used elsewhere in USDA’s budget. For example, producers would have received all $15.1 billion if the funds had been sent out in the form of direct payments. Or, this $15.1 billion could support the Conservation Reserve Program for nine years. Or, of course, our national debt would be $15.1 billion smaller now without the program
The astounding ramp-up in U.S. ethanol production means that acreage planted to corn in the United States will signifi cantly increase over the next fi ve years. The number one source of additional corn acres will be converted soybean acres. Other sources will be converted pasture, land taken out of the Conservation Reserve Program, and land taken out of other crops, primarily wheat. Chad Hart shows elsewhere in this issue that the market is already signaling farmers to convert soybean acres to corn acres. Decreased U.S. soybean acres means increased demand for substitutes for U.S. soybeans, which include soybeans from other countries and other oilseeds from the United States and elsewhere
I n contrast to the Uruguay Round Agreement on Agriculture of the World Trade Organization (WTO), a successful Doha Round of WTO negotiations is likely to bring major changes in international dairy markets. Some countries protect their domestic producers by using restrictive tariff rate quotas (TRQ) and high over-quota import duties. And large export subsidies allow the European Union and other countries to continue to export dairy products despite high internal price supports. The significant tariff cuts and elimination of export subsidies currently proposed in the Doha negotiations would create notable shortages in international dairy markets in the near term. Rising world prices will undoubtedly generate a supply response in countries with historically strong dairy industries, such as New Zealand and Australia, but it is less clear which other countries will step up to fill the void created by the removal of subsidized products and meet market opportunities created by lower tariffs. Argentina and Chile are two potential beneficiaries of a new WTO agreement. We review key findings of a recent CARD study on these two countries’ dairy sectors and draw lessons for U.S. dairy.