2014 Farm Bill Provisions and
WTO Compliance
Randy Schnepf
Specialist in Agricultural Policy
December 8, 2014
Congressional Research Service
7-5700
www.crs.gov
R43817
2014 Farm Bill Provisions and WTO Compliance
Summary
The enacted 2014 farm bill (Agricultural Act of 2014; P.L. 113-79) could result in potential
compliance issues for U.S. farm policy with the rules and spending limits for domestic support
programs that the United States agreed to as part of the World Trade Organization’s (WTO’s)
Uruguay Round Agreement on Agriculture (AoA). In general, the act’s new farm safety net shifts
support away from classification under the WTO’s green/amber boxes and toward the blue/amber
boxes, indicating a potentially more market-distorting U.S. farm policy regime.
The 2014 farm bill eliminates many of the support programs of the 2008 farm bill (P.L. 110-246),
and replaces them with several new “shallow-loss” programs, addressing relatively small
shortfalls in farm revenue—Agricultural Risk Coverage (ARC), Supplemental Coverage Option
(SCO), and Stacked Income Protection Plan (STAX)—as well as a revamped counter-cyclical
price support program, Price Loss Coverage (PLC), that relies on elevated support prices. Among
the safety net programs, only the marketing loan program and the U.S. sugar program were
extended unchanged. The sugar program will continue to count for $1.3 billion against the current
U.S. limit of $19.1 billion for non-exempt, trade-distorting amber box outlays.
The most notable safety net change is the elimination of the $5 billion-per-year direct payment
(DP) program, which was decoupled from producer planting decisions and was notified as a
minimally trade-distorting green box outlay. DPs are replaced by programs that are partially
coupled (PLC and ARC) or fully coupled (SCO and STAX), meaning that they could potentially
have a significant impact on producer planting decisions, depending on market conditions. Fully
and partially coupled farm programs influence planting decisions both by increasing the overall
profitability of farming (as low-price signals are muted), and by changing the relative returns to
planting alternative crops. Increased profitability tends to increase total planted acreage and
output, while changes in relative returns influence the share of acreage planted to each crop, with
consequences that could spill over into international markets.
Many of the new programs authorized by the 2014 farm bill have yet to be fully implemented;
thus producer participation is uncertain, while potential distortions have yet to be measured and
will likely hinge on future market conditions. For example, under a relatively high market price
environment, as existed during the 2010-2013 period, U.S. program outlays would be small and
would fall within the $19.1 billion U.S. amber box limit. Most studies suggest that, for U.S.
program spending to exceed the $19.1 billion limit, a combination of worst-case events would
have to occur—for example, low market prices generating large simultaneous outlays across
multiple programs, in addition to the $1.3 billion of implicit costs associated with the sugar
program. Such a scenario is unlikely, although not impossible, particularly since outlays under
several of the programs (including the new dairy program, SCO, STAX, and crop insurance) are
not subject to any per-farm subsidy limit.
Perhaps more relevant to U.S. agricultural trade is the concern that, because the United States
plays such a prominent role in most international markets for agricultural products, any distortion
resulting from U.S. policy would be both visible and vulnerable to challenge under WTO rules.
Furthermore, projected outlays under the new 2014 farm bill’s shallow-loss and counter-cyclical
price support programs may make it difficult for the United States to agree to future reductions in
allowable caps on domestic support expenditures and related de minimis exclusions, as
envisioned in ongoing WTO multilateral trade negotiations.
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2014 Farm Bill Provisions and WTO Compliance
Contents
Introduction ...................................................................................................................................... 2
WTO Rules Governing Domestic Support ...................................................................................... 3
AoA: Rules and Limits on Domestic Support ........................................................................... 3
SCM: International Market Distortions and Adverse Effects .................................................... 5
Changes to Farm Support in the 2014 Farm Bill ............................................................................. 6
Federal Budget “Cost” vs. International Trade Distortion “AMS” ........................................... 7
CBO Scores Budget Savings for the 2014 Farm Bill ................................................................ 8
Evaluating U.S. Farm Programs by WTO Rules ............................................................................. 8
Green Box: Decoupled Income Support .................................................................................... 9
Blue Box: Partially Decoupled or Production-Limiting Programs .......................................... 10
Amber Box: Market-Distorting Agricultural Support Programs ............................................. 11
Price Deficiency Payment Programs ................................................................................. 11
Shallow-Loss Support Programs ....................................................................................... 15
U.S. Crop Insurance .......................................................................................................... 17
Sugar and Dairy Programs ................................................................................................ 18
Permanent Disaster Assistance Programs.......................................................................... 20
De Minimis (DM) Exemptions ................................................................................................ 20
Non-Product-Specific DM Exemptions ............................................................................ 21
Product-Specific DM Exemptions..................................................................................... 21
Doha Round Implications .............................................................................................................. 21
Recap of Potential WTO Issues ..................................................................................................... 22
Figures
Figure 1. U.S. Amber Box Outlays Subject to Spending Limit ....................................................... 4
Figure 2. Total U.S. Amber Box Outlays Including De Minimis (DM) Exclusions ........................ 4
Figure 3. Ratio of Price Triggers: 2014 Farm Bill vs. 2008 Farm Bill .......................................... 14
Figure 4. Reference Prices Are Near or Well Above Average Farm Prices ................................... 14
Tables
Table 1. 2014 Farm Bill: Major Safety Net Programs and Key Parameters .................................. 24
Table 2. 2014 Farm Safety Net Programs ...................................................................................... 26
Table 3. 2014 Farm Bill Provisions: WTO Compliance Implications ........................................... 27
Contacts
Author Contact Information........................................................................................................... 41
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2014 Farm Bill Provisions and WTO Compliance
Table of Acronyms
ACRONYM Full
Term
Source
A&O
Administrative and operating
2014 farm bil
AoA
Agreement on Agriculture
WTO
ACRE
Average Crop Revenue Election program
2008 farm bil
AMS
Aggregate measure of support
WTO
ARC
Agricultural Risk Coverage program
2014 farm bil
ARC-CO
Crop-specific, county-based ARC program
2014 farm bil
ARC-ID
Farm-level ARC program
2014 farm bil
BCAP
Biomass Crop Assistance Program
2014 farm bil
CBO
Congressional Budget Office
2014 farm bil
CCC
Commodity Credit Corporation
2014 farm bil
CCP
Counter-cyclical payment program
2008 farm bil
DM
De minimis exemption
WTO
DMPP
Dairy Margin Protection Plan
2014 farm bill
DP
Direct payment program
2014 farm bil
DPDP
Dairy Product Donation Program
2014 farm bil
DPPS
Dairy Price Product Support program
2008 farm bil
ELAP
Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program
2014 farm bill
FFP
Flexible Feedstock Program
2014 farm bil
GSM-102
General Sales Manager-102 export credit guarantee program
2014 farm bil
LIP
Livestock Indemnity Program
2014 farm bil
LFP
Livestock Forage Disaster Program
2014 farm bil
MILC
Milk Income Loss Contract program
2008 farm bil
MLP
Marketing Loan Program
2014 farm bil
NAP
Noninsured Crop Disaster Assistance program
2014 farm bil
OA
Olympic average (excludes the high and low data points from the calculation)
2014 farm bil
PLC
Price Loss Coverage program
2014 farm bil
REAP
Rural Energy for America Program
2014 farm bil
SAFP
Season-Average Farm Price received by producers
2014 farm bil
SCM
Agreement on Subsidies and Countervailing Measures
WTO
SCO
Supplemental Coverage Option
2014 farm bil
STAX
Stacked Income Protection Plan
2014 farm bil
SURE
Supplemental Revenue Assurance program
2008 farm bil
TRQ
Tariff rate quota
WTO
USDA
U.S. Department of Agriculture
2014 farm bil
WTO
World Trade Organization
WTO
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Introduction
As a signatory member of the World Trade Organization (WTO),1 the United States has
committed to abide by WTO rules and disciplines, including those that govern domestic farm
policy. The WTO’s general rules concerning subsidy disciplines, trade behavior, and market
access concessions apply to all members. In addition, each individual member country also
negotiated its own specific policy commitments—spelled out in a document called a Schedule of
Concessions (or Country Schedule).2
Trade plays a critical role in the U.S. agricultural sector. USDA estimates that exports account for
about 20% of total U.S. agricultural production.3 Because the United States plays such an
important role in so many agricultural markets, its farm policy is often subject to intense scrutiny
both for compliance with current WTO rules and for its potential to diminish the breadth or
impede the success of future multilateral negotiations—in part because a farm bill locks in U.S.
policy behavior for an extended period of time, during which the United States would be unable
to accept any new restrictions on its domestic support programs.
Current U.S. farm policy is authorized by the 2014 farm bill (the Agricultural Act of 2014; P.L.
113-79) for the 2014-2018 crop years.4 The 2014 farm bill made significant changes to U.S. farm
price and income support programs. These changes could have important implications for U.S.
commitments to the WTO in terms of compliance with current spending limits and with rules on
mitigating program spillover effects and distortions in international markets.
This report briefly describes the relevant WTO rules governing domestic support programs under
the Agreement on Agriculture (AoA) and the Agreement on Subsidies and Countervailing
Measures (SCM). The report then reviews the current U.S. farm safety net programs, including
changes made under the 2014 farm bill, particularly to Title I price and income support programs,
in light of their potential for compliance with the AoA and SCM and their potential to affect the
success of the current Doha Round of multilateral trade negotiations.
This report assumes knowledge of the new U.S. farm safety net programs and their functions.
Table 3, at the end of the report, briefly reviews each of the individual 2014 farm bill provisions
that are relevant to WTO commitments, including a description of their function, average outlays,
any changes made under the 2014 farm bill, WTO status, and related potential WTO effects. For
specific farm program details, see CRS Report R43448, Farm Commodity Provisions in the 2014
Farm Bill (P.L. 113-79), CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill
(P.L. 113-79), and CRS Report RS21212, Agricultural Disaster Assistance.
1 The WTO is a global rules-based, member-driven organization dealing with the rules of trade between nations. As of
June 26, 2014, the WTO included 160 members. See CRS In Focus IF10028, “The World Trade Organization at 20,” at
http://www.crs.gov/products/if/pdf/IF00028.pdf.
2 Any possible exceptions to the WTO’s rules, e.g., certain product-specific export subsidies, are identified for
individual member countries in their Schedule of Concessions. Each member country’s schedule is publicly available at
the WTO website at http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_e.htm.
3 CRS Report R43696, Agricultural Exports and 2014 Farm Bill Programs: Background and Issues.
4 See CRS Report R43076, The 2014 Farm Bill (P.L. 113-79): Summary and Side-by-Side.
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WTO Rules Governing Domestic Support
A domestic farm support program can violate WTO commitments in two principal ways—first,
by exceeding amber box spending limits (see box below), and second, by generating market
distortions that spill over into the international marketplace and cause significant or measurable
adverse effects. For such a violation to be meaningful, another WTO member country must
successfully challenge the violation under the WTO dispute settlement process.5
AoA: Rules and Limits on Domestic Support
The Agreement on Agriculture (AoA) spells out the rules for countries to determine whether their
policies for any given year are potentially trade-distorting, calculate the costs of any distortion,
and report those costs to the WTO in a public and transparent manner.6
WTO Classification of Domestic Support Programs
The WTO’s AoA categorizes and restricts agricultural domestic support programs according to their potential to
distort commercial markets. Whenever a program payment influences a producer’s behavior, it has the potential to
distort markets (i.e., to alter the supply and market price of a commodity) from the equilibrium that would otherwise
exist in the absence of the program’s influence. Those outlays that have the greatest potential to distort agricultural
markets—referred to as amber box subsidies—are subject to spending limits. In contrast, more benign outlays, which
cause less market distortion, are exempted from spending limits. The WTO uses a traffic light analogy to group
programs.
•
Green box programs are minimal y or non-trade distorting and are not subject to any spending limits.
•
Blue box programs are described as market-distorting but production-limiting. Payments are based on either a
fixed area or yield, or a fixed number of livestock, and are made on 85% or less of historical (i.e., base)
production. As such, blue box programs are not subject to any payment limits.
•
Amber box programs, the most market-distorting programs, are cumulatively measured by the aggregate
measure of support (AMS). Certain amber box outlays may be excluded under the de minimis exemptions (see
below). Non-exempted amber box outlays are subject to an annual aggregate spending limit.
•
Prohibited (i.e., red box) programs include certain types of export and import subsidies and non-tariff trade
barriers that are not explicitly included in a country’s WTO schedule or identified in the WTO legal texts.
•
De minimis (DM) exemptions apply to spending that is sufficiently small—relative to either the value of a
specific product or total production—to be deemed benign. DM exemptions are limited to 5% of the value of
production (either total or product-specific).
The United States is committed, under the AoA, to spend no more than $19.1 billion annually on
amber box programs, subject to DM exemptions.7 Since 1995, when the AoA rules first came into
effect and member countries began notifying their outlays on domestic support, the United States
has stayed within its amber box limits (Figure 1). However, U.S. compliance has hinged on
judicious use of the DM exemptions in a number of years (e.g., 1999-2001 and 2005; Figure 2).
This has included the notification of all crop insurance subsidies as non-product-specific support,
which then allows for these outlays to be exempted under the large DM exclusion for non-
product-specific spending, as described later in this report.
5 For a detailed review of WTO domestic support classification and a description of how U.S. farm programs have been
categorized through 2011, see CRS Report RS20840, Agriculture in the WTO: Rules and Limits on Domestic Support.
6 See CRS Report RL32916, Agriculture in the WTO: Policy Commitments Made Under the Agreement on Agriculture.
7 See discussion in the section “Federal Budget “Cost” vs. International Trade Distortion “AMS”’”.
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Figure 1. U.S. Amber Box Outlays Subject to Spending Limit
$30
Amber box outlays subject to spending limit
Amber box spending limit
$25
$20
$15
$10
$5
$0
1995
1997
1999
2001
2003
2005
2007
2009
2011
Source: WTO, annual notifications of the United States through 2011, the most recent year of notification.
Figure 2. Total U.S. Amber Box Outlays Including De Minimis (DM) Exclusions
$30
DM Exclusion: nonproduct specific
DM Exclusion: product specific
Amber box outlays subject to spending limit
$25
$20
$15
$10
$5
$0 1995 1997 1999 2001 2003 2005 2007 2009 2011
Source: WTO, annual notifications of the United States through 2011, the most recent year of notification.
Notes: See the text box above for a description of amber box, the spending limit, and the DM exclusions.
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In its most recent notification (2011), the United States notified $4.65 billion in amber box
outlays subject to the amber box limit, including $3.2 billion in dairy and $1.4 billion in sugar
price support. Another $9.2 billion in amber box outlays were notified as “non-product-specific”
(including $7.5 billion of crop insurance subsidies and $1.4 billion in outlays under the
Supplemental Crop Revenue Assurance, or SURE, program) and thus were excluded under the
DM exemption.
SCM: International Market Distortions and Adverse Effects
In addition to potentially exceeding payment limits, a market-distorting program may be
challenged under Articles 5(c) and 6.3 of the Agreement on Subsidies and Countervailing
Measures (SCM) when the program’s effect spills over into international markets—that is, if it
can be established that a subsidy causes adverse market effects.8
The importance of SCM rules has been made salient by the so-called “Brazil cotton case,” in
which a WTO dispute settlement panel ruled against both the U.S. cotton price and income
support programs and the GSM-1029 export credit guarantee program.10 As a result of the ruling
and the potential for WTO-sanctioned retaliation, the United States made substantial policy
changes in the past two farm bills to bring the related programs into WTO compliance. Because
the United States is a major producer, consumer, exporter, and/or importer of many agricultural
commodities, the SCM is relevant for most major U.S. agricultural products. If a particular U.S.
farm program is deemed to result in a market distortion that adversely affects other WTO
members—even if it is within agreed-upon AoA spending limits—then that program may be
subject to challenge under the WTO dispute settlement procedures (see box below).
SCM Rules on Adverse Effects in International Markets
Based on precedent from past WTO decisions, several criteria are important under SCM rules in establishing
whether a subsidy for a particular commodity results in significant market distortions with resultant adverse effects.
First, the subsidy must meet the following criteria:
•
the subsidy constitutes a substantial share of farmer returns or of production costs for a commodity;
•
the subsidized commodity is important to world markets (i.e., it represents a significant global share in terms of
either production or trade); and
•
a causal relationship exists between the subsidy and adverse effects in the relevant commodity market.
Second, the “market distortion” of a program or policy must have measurable market effects on the international
trade and/or market price of the affected commodity, as measured by any of the fol owing criteria:
•
the subsidy displaces or impedes the import of a like product into the domestic market;
•
the subsidy displaces or impedes the export of a like product by another WTO member country;
•
the subsidy (via overproduction and resultant export of the surplus or displacement of previous imports) results
in significant price suppression, price undercutting, or lost sales in the international market; or
•
the subsidy results in an increase in the world market share of the subsidizing member.
8 See CRS Report RS22522, Potential Challenges to U.S. Farm Subsidies in the WTO: A Brief Overview.
9 Under the General Sales Manager (GSM) 102 program, the federal government guarantees repayment when U.S.
banks extend credit to foreign banks to finance import purchases into foreign markets of U.S. agricultural goods.
10 See CRS Report R43336, Status of the WTO Brazil-U.S. Cotton Case.
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For any farm program that is challenged under the SCM, a WTO dispute settlement panel reviews
the relevant trade and market data and makes a determination of whether the program resulted in
a significant market distortion. Following these guidelines, a subsidy may be found to be
actionable or prohibited. WTO actionable subsidies (i.e., policies that incentivize overproduction
and result in lower market prices or altered trade patterns) must be withdrawn or altered to
minimize or eliminate the subsidy’s distorting aspect. WTO prohibited subsidies (i.e., certain
export- and import-substitution subsidies not included in a member’s country schedule) must be
stopped or withdrawn “without delay,” in accordance with an abbreviated timetable announced by
the WTO ruling panel. If the violating policies are not withdrawn or altered according to the
timetable, then the WTO member bringing the challenge may take appropriate countermeasures.
Within the WTO framework, perhaps the most easily recognized distortion occurs when a
program offers price support or income payments based on (i.e., coupled to) the current level of
farm activity—either area planted or volume of output. Such an incentive can encourage greater
production or output than the market is prepared to absorb, and as a result, tends to lower market
prices. Given the United States’ prominent role in international agricultural markets, such
potential market distortions, should they emerge, can be quickly transmitted from domestic to
global markets.
Since most governing provisions for U.S. farm programs are statutory, new legislation may be
required to implement even minor changes to achieve compliance in the event that a WTO
challenge successfully finds a program in violation of a WTO rule.11 So, a key question that
policy makers ask of virtually every existing farm program, as well as of new farm proposals, is
how will it affect U.S. commitments under the AoA, and U.S. compliance with SCM rules? The
answer rests not only on cost, but also on each program’s design, implementation, and subsequent
market effects.
Changes to Farm Support in the 2014 Farm Bill
The Agricultural Act of 2014 reshaped the structure of U.S. commodity support, otherwise known
as the farm “safety net.” In general, the new suite of farm support programs shifts support away
from the green/amber boxes and toward the blue/amber boxes, thus indicating greater potential
for market distortion. In particular, the 2014 farm bill:12
• terminated several of the core “farm safety net” programs from the previous 2008
farm bill, including direct payments (DP), the counter-cyclical payment (CCP)
program, and the Average Crop Revenue Election (ACRE) and Supplemental
Revenue Assurance (SURE) programs;
• retained the traditional marketing loan program (MLP)—which triggers
payments when market prices drop below support levels (referred to as loan
rates)—but with a single adjustment to the loan rate for upland cotton (which is
11 The 2014 farm bill includes a provision, Sec. 1601(d), that effectively serves as a safety trigger for USDA to adjust
program outlays in such a way as to avoid breaching the amber box limit.
12 For specific program details, see CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-
79), CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79), and CRS Report RS21212,
Agricultural Disaster Assistance, by Dennis A. Shields .
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now allowed to float within a formula-determined range of 45¢/lb. to 52¢/lb. as
compared with the previous fixed value of 52¢/lb.);
• replaced CCP with a similar counter-cyclical payment program called Price Loss
Coverage (PLC) using substantially higher reference support prices;13
• added several new shallow-loss programs including Agricultural Risk Coverage
(to replace ACRE) with county-level (ARC-CO) and farm-level (ARC-ID)14
options, a Supplemental Coverage Option (SCO), and Stacked Income Protection
(STAX); and
• repealed the previous dairy product price support (DPPS) and Milk Income Loss
Contract (MILC) programs, and replaced them with a new Dairy Margin
Protection Program (DMPP) and Dairy Product Donation Program (DPDP).
Federal Budget “Cost” vs. International Trade Distortion “AMS”
Evaluating the merits of a U.S. agricultural domestic support program depends on one’s
perspective. This is because costs to the federal budget usually do not equal costs (or distortions)
in the international marketplace. For the federal budget, changes to a farm program are officially
evaluated by the Congressional Budget Office (CBO), which produces a “score” of a proposed
program change against a baseline of current farm law. The score measures the net change in
federal budget outlays from current policy—increases in outlays are viewed as costs, while
decreases in outlays are viewed as savings. From a federal budget perspective, much of the
savings associated with the elimination of the 2008 farm bill programs was used to offset the
costs of adding new safety net programs.
A foreign agricultural producer or exporter may have a different perspective, and instead may see
U.S. domestic farm programs (or commodity support from any country) as providing an unfair
advantage to covered agricultural products in the international marketplace. In this context,
domestic support programs for agriculture may be evaluated according to the WTO’s rules for
determining which programs are most likely to distort production and trade and for calculating
their annual cost as measured by the AMS.
These different approaches to tabulating costs (CBO versus WTO) may result in different
evaluation outcomes for the same program change. For example, direct payments (DPs) of the
2008 farm bill (P.L. 110-246) had a federal budget cost of approximately $5 billion annually, but
from a WTO perspective they were fully decoupled15 and mostly non-market distorting, and thus
did not count toward the U.S. amber box total.16 Replacing DPs with a “shallow-loss” program
13 Federal payments under these programs are described as counter-cyclical because they tend to rise when prices fall,
and to fall when prices rise.
14 Although the acronym, ARC-ID signifies “individual”, it is more accurately described as a farm-level program
because it uses yields from the farm to determine the guaranteed and actual revenues. In contrast, ARC-CO uses the
county average yield, rather than the farm-level yield, for determining payments. County-level programs are easier to
administrate (since county data is more reliable and more readily available than farm-level data), and discourage
producer manipulation of farm-level production data.
15 The term “decoupled,” as used here, means that program payments are not linked to either planted acres or output. In
contrast, “coupled” means that payments are directly linked to plantings or production.
16 As an aid to understanding how the new safety net of the 2014 farm bill might affect markets Table 1, at the end of
this report, groups the principal support programs into four categories: price-deficiency-payment programs, shallow-
(continued...)
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coupled to market prices and current yields, with projected annual outlays of $3 billion, would
represent a saving of $2 billion from CBO’s perspective, but would represent an increase of $3
billion in market-distorting amber box from the WTO’s perspective. Similarly, the U.S. sugar
program is required by statute to operate at “no net cost” to taxpayers,17 thus resulting in a budget
score of zero. However, the implicit price subsidy inherent in the tariff rate quota (TRQ)18
protection provided to U.S. sugar producers is valued at about $1.3 billion annually in
notifications to the WTO.
CBO Scores Budget Savings for the 2014 Farm Bill
According to the January 2014 “score” by the CBO, the 2014 farm bill will reduce the federal
budget deficit by $16.6 billion over 10 years, compared with the cost of then-current law. While
important for U.S. budget purposes, this provides little guidance with respect to farm program
compliance with WTO rules, as those budget scores were based on what are now generally
perceived as “outdated” price projections.19 The possibility that farm program costs might be
much larger than originally anticipated is due to anticipated record corn and soybean harvests in
2014, which have sent farm prices plummeting. USDA projects the season average farm prices
for corn and soybeans to be down 41% and 31%, respectively, from 2012’s record highs, which
prevailed during much of the 2014 farm bill debate and which provided the basis for many of the
program parameters in the new farm safety net.20
Evaluating U.S. Farm Programs by WTO Rules
Prior to the 2014 farm bill,21 spending under most price and income support programs was
notified as amber box: either product-specific in the case of MLP, ACRE, and the dairy and sugar
price support programs, or non-product-specific in the case of the CCP, SURE, and crop
insurance programs. The non-product-specific amber box spending was then excluded from
counting towards the amber box limit by the DM exemption. An exception to this notification
pattern was the direct payment (DP) program, which was notified as fully decoupled green box
and thus did not count towards the amber box limit.
It is unclear how USDA will classify several of the new farm programs such as ARC and PLC,
which could potentially be notified as either blue box or non-product-specific amber box outlays
in accordance with precedence and their similarity to CCP as partially decoupled programs with
(...continued)
loss programs, deep-loss programs, and programs based on supply control.
17 An important aspect of the sugar program is that it operates, to the maximum extent possible, at no budgetary cost to
the federal government by avoiding marketing loan forfeitures to USDA’s Commodity Credit Corporation (CCC). See
the section below entitled “Marketing Loan Program (MLP)” for a description of loan forfeiture.
18 Under a TRQ, a quota is established below which imports may enter with no or minimal duty, and above which
imports are subject to a higher, often prohibitive duty.
19 CBO cost estimates for the 2014 farm bill, January 28, 2014, available at http://www.cbo.gov/publication/45049.
20 USDA, World Agricultural Supply and Demand Estimate, World Agricultural Outlook Board, Nov. 10, 2014.
21 For information on pre-2014 farm bill programs, see CRS Report RL34594, Farm Commodity Programs
in the 2008 Farm Bill, CRS Report R40422, A 2008 Farm Bill Program Option: Average Crop Revenue Election
(ACRE), CRS Report R40452, A Whole-Farm Crop Disaster Program: Supplemental Revenue Assistance Payments
(SURE), and CRS Report RL34207, Crop Insurance and Disaster Assistance in the 2008 Farm Bill.
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payments limited to 85% of historical base.22 Any assessment of the WTO classification and
potential market effect of the new domestic support programs authorized under the 2014 farm bill
is very preliminary at this time. Many of the new programs have yet to be fully implemented, and
an estimate of spending under their first year (i.e., 2014) will have to wait until late 2015 for the
relevant marketing year to end.23 The programs likely will not be notified by USDA until early
2017, when a more “final” estimate of outlays becomes available. To better understand how the
new U.S. farm commodity support programs of the 2014 farm bill might comply with WTO rules,
the new programs are discussed in light of potential market distortions, using previous U.S.
notifications as a guide.24
Green Box: Decoupled Income Support
Green box programs are minimally or non-trade distorting and are not subject to any spending
limits. U.S. green box notifications have grown from $46 billion in 1995 to $125 billion in 2011.
The United States notifies a broad range of domestic support programs as green box–compliant,
including regulatory and market assistance programs, conservation activities, and domestic food
programs. The 2014 farm bill consolidated conservation programs, reauthorized and revised
nutrition assistance, and extended authority to appropriate funds for many USDA green box
programs through FY2018.
The principal U.S. farm price and income support program included in the green box (under
Decoupled Income Support) has been direct payments (DP), with annual notifications averaging
nearly $5 billion from 1996 through 2011. Because DP outlays were both fixed (they did not vary
with producer behavior or market conditions) and decoupled (they were based on historical—not
current—plantings), they did not influence a producer’s current behavior and thus were deemed
minimally market-distorting. DPs originated with the 1996 farm bill (P.L. 104-127) and were
repealed by the 2014 farm bill.
The 2014 farm bill added an option for expanded coverage up to 65% under the Noninsured Crop
Disaster Assistance Program (NAP). NAP payments are notified as green box since they involve
crop losses of at least 50% and are reimbursed at just 55% of the market price. The additional
coverage option will not change NAP’s green box status. NAP payments also have an annual
payment limit of $125,000 per person.
Also included in the green box are two subsidy components of the crop insurance program—
administrative and operating (A&O) expenses and the underwriting of program losses. For 2011,
federal outlays on crop insurance A&O expenses were notified as $1.4 billion, while underwriting
costs were another $0.6 billion.25 Using previous notifications as a guide, none of the current suite
of farm price and income support programs and shallow-loss crop insurance programs—MLP,
PLC, ARC, SCO, STAX, DMPP, and the sugar program—would qualify for the green box,
22 One prominent economist has already declared them to be “unambiguously amber box” because they are triggered by
current year market prices. See V. H. Smith, The 2014 Agricultural Act: U.S. Farm Policy in the Context of the 1994
Marrakesh Agreement and the Doha Round, Issue Paper No. 52, ICTSD, Geneva, Switzerland, June 2014.
23 Annual notifications to the WTO may correspond to each country’s relevant crop or marketing year.
24 For a description of current U.S. notifications see CRS Report RS20840, Agriculture in the WTO: Rules and Limits
on Domestic Support.
25 “U.S. Domestic Support Notification for Marketing Year 2011,” G/AG/N/USA/93, WTO, January 9, 2014.
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because they are coupled, partially or fully, to current prices and/or plantings, or receive
additional TRQ protection from imports (as is the case for U.S. dairy and sugar producers).
Blue Box: Partially Decoupled or Production-Limiting Programs
Blue box programs are market-distorting but production-limiting. Payments are based on either a
fixed area or yield, or a fixed number of livestock, and are made on 85% or less of historical (i.e.,
base) production. As such, blue box programs are not subject to any payment limits.
The United States has not notified any of its farm programs as blue box since 1995.26 As part of
the ongoing Doha Round of trade negotiations,27 it was generally agreed that the partially
decoupled U.S. CCP program would be reclassified from amber box to blue box; however, this
reclassification never occurred because the Doha Round of negotiations has not been completed
and the CCP program was repealed by the 2014 farm bill. It is not clear if the supposed CCP
designation as blue box could be resurrected for PLC outlays.
As mentioned earlier, the PLC and ARC programs (discussed more fully in the section “Amber
Box: Market-Distorting Agricultural Support Programs”) are similar to CCP and ACRE,
respectively, in program design. Both PLC and the county-level ARC (ARC-CO) are coupled to
market prices but fully decoupled from the producer’s planting decision. The farm-level ARC
option (ARC-ID) is coupled to both market prices and farm-level yields.
Under PLC, a producer receives a payment on 85% of base acres when the national season
average farm price (SAFP) is below a statutorily set reference price for an eligible program crop.
The producer need not plant a single acre of the program crop to receive a payment; instead, the
producer must have made a one-time permanent declaration of a portion of his or her historical
base acres to that program crop at sign up. Similarly, under ARC-CO, a producer does not have to
actually plant the crop to receive a payment—any payments are made on 85% of historical base
acres, not actual planted acres as in the previous ACRE program. In addition, all ARC-CO
program payments are triggered at the county level, not the farm level.28 Hence payments under
both PLC and ARC-CO are fully decoupled from planted acreage and farm-level yield, but not
from market prices.29 However, it remains to be seen how such program payments will be notified
by the United States.
Since the blue box has no spending limit, there would be plenty of room for potential PLC and
ARC payments were they to be notified as such. But such a notification would likely draw
international rebuke (if not outright challenge) for its regressive nature—backtracking from a
general commitment to gradually reform domestic policy in such a way as to reduce distortion-
causing domestic support.
26 That was the last year that payments were made under the old target-price deficiency payment program linked to
acreage set-asides, which was repealed by the 1996 farm bill and replaced by direct payments.
27 CRS Report RS22927, WTO Doha Round: Implications for U.S. Agriculture.
28 An exception would be “generic” base acres—i.e., historical cotton base acres that are no longer linked to cotton
programs but become eligible for program payments if planted to “covered” program crops. Re-establishing a link
between producer crop choices and federal payments, in effect, recouples producer behavior and program payments.
29 For more information, see CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79).
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Amber Box: Market-Distorting Agricultural Support Programs
Amber box programs, the most market-distorting programs, are cumulatively measured by the
aggregate measure of support (AMS). Certain outlays may be excluded from the amber box under
the DM exemptions. Non-exempted amber box outlays are subject to an annual aggregate
spending limit.
U.S. amber box outlays, as notified through 2011, have included product-specific payments made
under the sugar program, DPPS, MILC, MLP, ACRE, and commodity loan interest subsidies, and
non-product-specific payments made under CCP, SURE, crop insurance, farm storage facility
loans, irrigation and grazing subsidies, the Biomass Crop Assistance Program (BCAP), and the
Renewable Energy for America Program (REAP).30 The distinction between product-specific and
non-product-specific outlays is important, because non-exempted amber box outlays count
directly against the amber box spending limit. The amber box exemption most frequently used by
the United States is the non-product-specific DM exemption discussed later in this report. For
example, crop insurance premium subsidies have been exempted every year from counting
toward the U.S. amber box limit under the non-product-specific DM exemption (Figure 2). In its
2011 notification, the United States excluded $7.5 billion of crop insurance premium subsidies
and $1.4 billion of SURE payments from counting against its $19.1 billion amber box limit under
the non-product-specific DM exemption.
Price-deficiency and shallow-loss programs—which account for most non-exempted U.S. amber
box spending—are counter-cyclical in nature, meaning that their outlays tend to be highest during
periods when commodity prices are below support levels, and lowest during high-commodity-
price years. As a result, the extended period of high market prices from 2006 through 2013 has
contributed to relatively low non-exempt U.S. amber box notifications in recent years (Figure 1).
Many economists expect that payment outlook to change under the expanded price and income
support benefits of the 2014 farm bill, coupled with an outlook for lower market prices.31
Price Deficiency Payment Programs
A price deficiency payment program makes a payment when the market price is less than the
support price.32 Support prices can be either statutorily fixed or determined by a formula based on
market prices. Current U.S. farm programs include two price deficiency payment programs
(Table 1)—marketing loan program (MLP) and the new PLC program. Neither program prevents
market prices from seeking an equilibrium based on supply and demand conditions, but the
program payments do support producer incomes when market prices are below the program price
triggers.
30 REAP was originally classified as green box; however, in its 2011 notification to the WTO, USDA reclassified
REAP payments as non-product-specific amber box spending. The SURE program expired in 2011 and was not
reauthorized. CCP, DPPS, MILC, and ACRE were repealed in the 2014 farm bill.
31 For examples, see the projected prices by Food and Agricultural Policy Research Institute (FAPRI), November 2014
U.S. Crop Price Update, FAPRI-MU Report #07-14, November 2014; or the discussions by V. H. Smith, The 2014
Agricultural Act: U.S. Farm Policy in the Context of the 1994 Marrakesh Agreement and the Doha Round, Issue Paper
No. 52, ICTSD, Geneva, Switzerland, June 2014; and C. A. Carter, “Some Trade Implications of the 2014 Agricultural
Act,” CHOICES, 3rd quarter 2014, 29(3).
32 This discussion is drawn from “Market Distortion and Farm Program Design: A Case Examination of the Proposed
Farm Price Support Programs,” Prof. Carl Zulauf, FarmDocDaily, Department of Agriculture and Consumer
Economics, University of Illinois Urbana-Champaign, June 7, 2013.
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Marketing Loan Program (MLP)
The traditional nonrecourse MLP was extended under the 2014 farm bill. Under the MLP, USDA
supports prices of eligible crops at statutory loan rates via a nine-month nonrecourse loan
program. To avoid selling at the harvest-time low price, a producer may elect to place his/her crop
under a USDA marketing loan where the crop is valued at the statutory loan rate. If the market
price remains below the loan rate after nine months, the producer may forfeit the crop under loan
to USDA. Alternatively, the producer may opt for alternate program benefits that are available
whenever the posted county price, or a USDA-announced average world price (AWP) for rice or
upland cotton, falls below the respective USDA loan rates. All MLP benefits are based on actual
production. As a result, MLP outlays are fully coupled to market prices and planted acres. Like
the PLC program, MLP does not require any producer premium or fee to participate, nor does it
require any loss to receive a payment. However, it does require actual production, since payments
are based directly on output.
MLP operates like a price-deficiency payment program. It uses statutorily fixed, commodity-
specific loan rates to establish a floor price for all production of all qualifying program crops.
When market prices fall below the loan rate, producers are eligible for amber box benefits
including loan deficiency payments and marketing loan gains (which pay the difference between
the marketing loan rate and the local posted county price or a USDA-announced average world
price in the case of rice and cotton).
The marketing loan program for upland cotton was found by the WTO cotton-case panel to be
market-distorting whenever the market price fell below the fixed loan rate. The panel
recommended setting the loan rates by formula to capture current market conditions. As a result,
the 2014 farm bill included an adjustment to the loan rate for upland cotton—it was lowered from
$0.52/lb. to a formula-based marketing loan rate that moves within a range of $0.52/lb. to
$0.45/lb. All other program commodities retain their previous statutorily fixed loan rates.
Price Loss Coverage (PLC)
The PLC program uses statutorily fixed reference prices (for each major program crop) for
determining whether any deficiency payments should be made and how much those payments
should be. The PLC program does not require any producer premium or fee to participate, nor
does it require any loss or actual production to receive a payment.
Reference prices established in the 2014 farm bill were essentially agreed to during the farm bill
debate in late 2012 and early 2013, when farm prices for most program crops were at or near
record highs. As a result, lawmakers set support prices in the 2014 farm bill at levels well above
the CCP trigger price (i.e., target prices adjusted for direct payments) of the 2008 farm bill
(Figure 3). For example, the new reference price for barley ($4.95/bushel) is 107% above the
previous price trigger ($2.39/bushel) under the 2008 farm bill.
At that time (late 2012 and early 2013), reference prices appeared to provide support at levels
below then-current market conditions, as exhibited by the ratio of reference prices to season-
average farm prices (SAFPs) for the 2008-2012 period (Figure 4). However, if reference prices
are compared to average farm prices for a longer historical period (e.g., 2000-2013), they appear
to provide support at levels well above market conditions. For example, the rice PLC reference
price of $14.00/cwt. represented 95% of the average SAFP of $14.74/cwt. during 2008-2012, but
131% of the average SAFP during the 2000-2013 period.
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Fixed reference prices ignore market conditions and, when set near or above average market
levels, have the potential to distort outcomes—especially during sustained periods of low market
prices—by creating incentives to produce more than the market can absorb without additional
price declines. Thus, the new, higher reference prices leave the United States vulnerable to
sustained high product-specific amber box outlays (if notified as such) during extended periods of
low market prices.
Area Considerations vis-a-vis WTO Measures of Market Distortion
For the price-related distortions (discussed more in the next box) to occur, farms have to be able to shift acres to
the crops favored by the relatively higher support prices. The 2014 farm bill makes PLC and ARC payments on
historical base acres, thus reducing the incentive to shift current plantings toward a crop receiving deficiency
payments. Exceptions to this are (1) the annual flexibility inherent in a producer’s crop choice for generic base, and
(2) individual crop selection under the ARC-ID program. Additional y, the potential for base updating in the next farm
bill incentivizes shifting acres to the crop with a relative support price advantage.
The 2014 farm bill gives producers a one-time option of reallocating their base across program crops or retaining
their previous historical base al ocation of program crops. By al owing al farms to update their base acres to the
average acres planted in a recent time period, the program becomes more reflective of current producer behavior
and market conditions, thus better matching a farm’s current risk setting. Many producer groups had argued for using
planted acres, since a farm’s risk is tied directly to its planting decisions, and thus making payments on planted acres
enhances a program’s risk management effectiveness.33 However, recoupling program payments to planted acres also
has the potential to distort resource allocations as producers shift their plantings to crops with the highest reference
price relative to the current market price. The base and yield updating provisions are also a form of recoupling, since
payments are once again coupled to an updated base reflective of current decision-making.
In recent years, actual plantings have diverged significantly from base acres for most program crops (see figure).
When base acres diverge significantly from planted acres, producers have more incentive to shift acres back toward
their base in response to weak market prices and favorable government support prices.
Major Program Crops, Million Acres of Base versus Planted, 2012
100
Million Acres
80
Base
Planted
60
40
20
0
Corn
Wheat
Soybeans
Grain
Barley
Rice
Peanuts
Sorghum
Source: Adopted from C. Zulauf, N. Paulson, J. Coppess, and G. Schnitkey, “2014 Farm Bill Decisions: Base
Acre Reallocation Option,” farmdoc daily (4):138, Department of Agriculture and Consumer Economics,
University of Illinois, July 24, 2014.
33 Carl Zulauf, “The Base vs. Planted Acre Issue: Perspectives, Trade-offs, and Questions,” CHOICES 28(4), 4th quarter
2013.
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Figure 3. Ratio of Price Triggers: 2014 Farm Bill vs. 2008 Farm Bill
250%
207%
200%
173%
172%
157%
151%
151%
150%
136%
117%
100%
50%
0%
Barley
Sorghum
Rice
Corn
Wheat
Soybeans
Oats
Peanuts
Source: Compiled by CRS from program provisions in the 2008 and 2014 farm bills.
Figure 4. Reference Prices Are Near or Well Above Average Farm Prices
150%
2000-2013
131%
130%
2008-2012
125%
111%
107%
104%
103%
103%
98%
100%
95%
96%
94%
85%
80%
83%
75%
71%
73%
50%
25%
0%
Rice
Barley
Wheat
Peanuts
Oats
Sorghum
Corn
Soybeans
Source: Season-Average Farm Prices Received (SAFPs) are from USDA, NASS. Reference prices are from the
2014 farm bill. Average ratios compiled by CRS.
Notes: A ratio greater than 100% occurs when the reference price is greater than the average SAFP.
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Shallow-Loss Support Programs
Shallow-loss programs are designed as supplements to current crop insurance programs. In other
words, benefits are applied on top of federally subsidized crop insurance and are intended to
cover part of the insurance contract’s deductible (or so-called shallow loss). According to two
prominent economists, “The problem with designing programs that cover the risks that crop
insurance does not, is that they have the potential to influence farmer’s planting decisions.”34
Three general types of shallow-loss programs are included in the 2014 farm bill: the Agricultural
Risk Coverage, Supplemental Coverage Option, and Stacked Income Protection Plan programs.35
Agricultural Risk Coverage (ARC)
The ARC program is an example of a revenue deficiency payment program—ARC makes a
payment when the actual per-acre revenue (i.e., market price x per-acre yield) is less than the
revenue target or guarantee. The ARC program has two versions—a county-level, crop-specific
program (ARC-CO) and a farm-level, whole-farm-based program (ARC-ID).36
Like PLC and MLP, the ARC programs do not require any producer premium or fee to
participate. In addition, ARC-CO does not require any actual farm-level production or loss to
receive a payment, while ARC-ID requires a whole-farm revenue loss to occur at the farm level.
In contrast to the PLC program, both ARC programs use a five-year Olympic (excludes the high
and low years) moving average of national SAFPs to calculate the revenue guarantee. However,
an important provision in the calculation of the price component of the revenue guarantee for
ARC is that the reference price is substituted for the SAFP for any year when the SAFP is less
than the reference price. As a result, the reference price acts as a floor price in the ARC revenue
guarantee. Thus, ARC’s moving-average price will only partially follow long-term (i.e., year-to-
year) market trends—any downward trend will stop at the reference price. The requirement to use
the reference price as a price floor artificially supports the five-year SAFP Olympic average
during extended periods of low market prices. Thus, like PLC, ARC can distort planting
incentives and generate large payments during extended periods of low prices.
Supplemental Coverage Option (SCO)
SCO supplements an existing crop insurance policy. SCO is available as either a county-wide
yield or revenue loss policy. SCO pays an indemnity on county-level losses not to exceed the
deductible percentage of the underlying crop insurance policy.37 Like all crop insurance
programs, a producer must pay a premium to participate in SCO; however, the federal
government pays 65% of SCO premiums.
34 B. Babcock and N. Paulson, Potential Impact of Proposed 2012 Farm Bill Commodity Programs on Developing
Countries, Issue Paper No. 45, ICTSD, Geneva, Switzerland, October 2012.
35 See CRS Report R43448, Farm Commodity Provisions in the 2014 Farm Bill (P.L. 113-79) and CRS Report
R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
36 Whole-farm means that data for all program crops produced by the farm must be combined into a single calculation.
37 The insurance guarantee is based on historical county yield data, and the insurance “actual” uses current-year county
yield data. National SAFPs, historical and current, are combined with county yield data for revenue calculations.
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Stacked Income Protection Plan (STAX)
Cotton was dealt with separately from the other major program crops in the 2014 farm bill in an
attempt to resolve Brazil’s long-standing WTO case against the U.S. cotton program.38 In lieu of
the PLC, ARC, and SCO programs, the 2014 farm bill enacted a new cotton program consisting
of a stand-alone, county-based revenue insurance policy called the Stacked Income Protection
Plan (STAX). Similar to SCO, STAX sets a revenue guarantee based on expected county revenue
(but not revenue or yield as under SCO). Producers could purchase this policy in addition to their
individual crop insurance policy or as a stand-alone policy.
Price Considerations for Market Distortion
Market prices are a key determinant of the use of resources.39 Thus the relationship between market prices and
reference prices is essential in understanding how a program may distort producer behavior.40 Farm programs have
their strongest potential to affect market outcomes when market prices are near or below support prices. This is
because when the national season average farm price (SAFP) for a program crop falls below its support price, it will
trigger deficiency payments for participating producers. In this situation, planting incentives can be distorted: a
producer would be inclined to prefer planting those commodities with the highest reference price relative to the
current market price.
If producers make planting decisions based on statutory prices rather than market prices, then the support programs
are affecting producer behavior, the production outcome, and the market supply and demand balance. Fixed target or
reference prices have the greatest potential to create outcomes that differ from the market because they fail to
reflect changes in market conditions. The WTO panel hearing the Brazil-U.S. cotton case was very clear in its
pronouncement that price and income support programs should be responsive to market conditions and should
minimize influencing producer behavior in order to avoid noncompliance with WTO trade rules.41
PLC and ARC Price Guarantee
Since both PLC and ARC rely on statutorily fixed reference prices to establish a support price floor (ARC-CO uses a
moving-average price formula but substitutes in the reference price for those data years where the market price is
less than the reference price), both programs could—during extended periods of low prices—distort planting
incentives, depress market prices, and generate large payments. For example, based on market conditions as of May
2014, USDA estimates combined PLC and ARC outlays at $10.1 billion in crop year 2015 and $10.9 billion in 2016.42
SCO, STAX, and Crop Insurance Price Guarantees
SCO, STAX, and crop insurance link their price guarantee to current market conditions—but within-year prices, not
across-year prices as used by ARC—since they all use the pre-planting-time average of harvest-time futures contracts
as the expected price component in their price or revenue guarantee. Futures contract prices are closely linked to
current and expected market conditions. In addition, SCO and STAX payments are based on county revenue triggers
that limit moral hazard (i.e., risky behavior to increase probability of a payment). Thus, SCO, STAX, and crop
insurance avoid the potential distortion associated with using a statutorily fixed price trigger.
38 CRS Report R43336, Status of the WTO Brazil-U.S. Cotton Case.
39 Carl Zulauf, “Market Distortion and Farm Program Design: A Case Examination of the Proposed Farm Price Support
Programs,” farmdoc daily, June 7, 2013.
40 Carl Zulauf and David Orden, U.S. Farm Policy and Risk Assistance, ICTSD Issue Paper No. 44, September 2012.
41 CRS Report RL32571, Brazil’s WTO Case Against the U.S. Cotton Program.
42 “Final Rule: Agriculture Risk Coverage and Price Loss Coverage Programs,” Federal Register, vol. 79, no. 187,
September 26, 2014.
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U.S. Crop Insurance
The federal crop insurance program has grown in importance over the years to become the
preeminent farm safety net program. In 2013, federal crop insurance policies covered 296 million
acres and were available for over 130 different commodities.43 For coverage beyond the
catastrophic level, producers must pay a premium to participate; however, the federal government
pays a substantial share of producer premiums. Subsidy rates range from 38% to 80%, depending
on the coverage level and type of individual policy selected, but have averaged about 62% since
2010. U.S. federal crop insurance premium subsidies have grown substantially in recent years,
rising from a low of $119 million in 1997 to $7.5 billion in 2011, according to official U.S.
notifications to the WTO. By 2011, crop insurance subsidies were the largest single program cost,
accounting for 53% of U.S. amber box outlays. In addition to premium subsidies, underwriting
costs of $592 million and A&O expenses of $1.4 billion were notified to the WTO as green box
outlays.
SCO, STAX, Crop Insurance, and Risk-Market Distortions
WTO Compliance of Insurance Programs
Under the WTO Agreement on Agriculture (AoA), for an insurance program to be minimally market distorting
(whereby it would be included in the green box and excluded from counting against amber box spending limits), it
must be based on whole-farm revenue, any revenue loss must exceed 30% of average gross income for the preceding
three-year period (or the preceding five-year Olympic average), and indemnity payments may not compensate for
more than 70% of any loss. By this measure, crop insurance fails to meet the green box criteria and has instead been
classified as amber box. The new shal ow-loss programs also appear to fail to meet green box criteria and their
related federal subsidies will likely be notified as amber box outlays. WTO rules are less clear on when a subsidy is
product or nonproduct specific.
Shallow-Loss Coverage Close to Market Average
Because shallow-loss payments are, by definition, made on losses that very nearly approach historical average
revenues—potentially guaranteeing up to 86% of the historical average (STAX offers a 90% guarantee)—they have
potential to be market-distorting. A primary concern for policy makers is that farmers could use a combination of
government farm programs—e.g., PLC or ARC deficiency payments and crop insurance programs—to expand
production of crops with high potential returns on marginal lands that otherwise would not be cultivated.44
Federal Subsidies Alter Actuarial Soundness of SCO, STAX, and Crop Insurance
An actuarially sound premium is priced to cover losses over the long run (i.e., expected indemnities), plus a margin to
cover A&O expenses and a portion of insurance company profits. By paying for A&O expenses and a share of the
underwriting risk, the federal government alters this equation away from equilibrium and in favor of insurance
company profits, thus encouraging insurance companies to sell more crop insurance policies. Federal subsidies of an
actuarial y fair premium further alter the tradeoff so that farm operators may attain significant risk reduction at
relatively low cost, while actually increasing expected (i.e., long-run) returns. As a result, a producer buying federally
subsidized crop insurance incurs an incentive to expand plantings of the insured crop.
Non-Product-Specific Notification Status Key to WTO Compliance
U.S. crop insurance premium subsidies are notified as nonproduct-specific amber box outlays.
Crop insurance premiums are a function of both risk and crop value; as such, both premiums and
43 CRS Report R40532, Federal Crop Insurance: Background.
44 For example, J.Ifft and T. Kuethe. “The Impacts of Insurance on Agricultural Land Values.” farmdoc daily (4):231,
Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, Dec.3, 2014.
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premium subsidies will fluctuate with participation, size of the insured crop, and market
conditions. However, given the relatively high DM threshold for non-product-specific spending
(i.e., 5% of the value of total production, or about $16 billion to $20 billion annually depending
on output and market conditions), it is unlikely that crop insurance outlays would exceed the non-
product-specific DM limit.
A more concerning possibility would be a successful challenge of the non-product-specific
notification of crop insurance premiums. To date, crop insurance’s notification status has never
been challenged, although policies are purchased for yield and/or revenue specific to a
commodity—for example, a corn revenue policy or a soybean yield policy. If the non-product-
specific notification status were successfully challenged such that crop insurance subsidies were
identified with each crop, then several crops could be candidates to exceed their product-specific
DM threshold, including corn, soybeans, wheat, and cotton. When a subsidy is in excess of its
DM exemption threshold, then the entire amount of the subsidy must be counted against the $19.1
billion amber box limit.
Federal Support for Crop Insurance Expected to Grow
According to CBO, federal support for crop insurance is projected to grow from $8.4 billion in
2014 to over $9 billion by 2024—including over $6 billion in annual premium subsidies, $1.4
billion in delivery support, and about $1.2 billion in underwriting support.45
Sugar and Dairy Programs
The sugar and dairy programs are perennially two of the largest contributors of amber box outlays
notified by the United States. Both programs continue to rely on substantial import restrictions—
through WTO-compliant TRQ formulas—to support internal market prices at levels that are
generally above international market prices. To date, neither program has been challenged under
the WTO dispute settlement process, in large part because the U.S. notification of support for
both programs was negotiated as part of the final agreement of the Uruguay Round and
subsequently included in the U.S. country schedule.
The U.S. sugar price support program was left unchanged by the 2014 farm bill,46 and is expected
to continue to account for approximately $1.3 billion in annual amber box outlays, even though
the sugar program is considered a “no net cost” program with respect to federal outlays. In
contrast, the U.S. dairy program underwent dramatic changes—the Dairy Product Price Support
(DPPS) program, the Milk Income Loss Contract (MILC) program, and the Dairy Export
Incentive Program were all eliminated.
Notifications for DPPS averaged $4.1 billion annually during the 1995-2011 period (primarily the
result of tariff rate quota protection), making it the single largest component of U.S. product-
specific amber box notifications, even though federal outlays averaged only $443 million over the
same period.47 MILC program outlays were much smaller, due to their counter-cyclical design
45 CBO, “CBO’s April 2014 Baseline for Farm Programs,” April 14, 2014.
46 CRS Report R42551, Sugar Provisions of the 2014 Farm Bill (P.L. 113-79).
47 A modification to the DPPS program in the 2008 farm bill—switching the focus away from supporting the fluid milk
price and to directly supporting dairy product prices—had lowered the annual notification to an average of $2.8 billion
during 2008-2011.
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and a strict per-farm cap on payments, averaging about $287 million per year during the 1995-
2011 period.48 Repeal of the DPPS and MILC programs frees up substantial space for new
program spending under the $19.1 billion U.S. amber box limit.
The repealed dairy programs are replaced with a new insurance-like margin deficiency payment
program—the Dairy Margin Protection Program (DMPP)—that makes payments to participating
dairy producers when the national milk margin (calculated as the average farm price of milk
minus a formula-based average feed ration) falls below $4.00 per hundredweight (cwt.), with
coverage at higher margin levels up to $8.00/cwt. available for purchase.49 Under this DMPP
program design, payments are coupled to current market prices and recent historical farm-level
production (i.e., the maximum annual output during 2011-2013), with no payment limit or cap on
potential outlays at either the farm or national level.
Some economists have argued that the proposed margin program fails to follow sound insurance
principles: (1) premiums do not reflect the anticipated risk environment in milk and feed markets;
and (2) the proposed margin insurance program does not use a rating method to update
premiums—instead, premiums are fixed for the life of the farm bill.50 Another factor in
determining WTO compliance and the degree of potential market distortion is the share of the
premium paid by the federal government.51 The lower the statutorily fixed premiums are relative
to the expected indemnity (i.e., the less actuarially sound) or the higher the share of the premium
paid by the federal government, the greater will be the incentive to increase milk production
transmitted to producers by the program.
According to a recent economic analysis, if milk margins fall to levels that activate indemnity
payments, then a weakened feedback process between producers and market price signals could
(1) prevent normal market adjustment to milk production, prices, and margins (in other words,
producers will not get the necessary market signal to cut back on production), and (2) result in
persistent oversupply, lower margins, lower farm incomes, and larger federal expenditures than
would have occurred under the previous suite of dairy price and income support programs.52 The
same study found that the program design—the provision that producers may purchase coverage
on as much as 90% of their recent historical maximum output; and the $8.00/cwt. maximum
coverage option, which represents 93% of the national average milk margin during the 15-year
period preceding DMPP implementation—could result in annual outlays of as much as $5 billion
during low-margin periods, as experienced during 2009 and 2012.53 However, current market
analysis suggests that DMPP payments are unlikely to be triggered, due to strong dairy product
prices and weak feed prices.54
48 MILC outlays ranged from a low of $0 in 2001 to a high of $1.8 billion in 2002.
49 For program details, see CRS Report R43465, Dairy Provisions in the 2014 Farm Bill (P.L. 113-79).
50 John Newton and Cam Thraen, “The Dairy Safety Net Debate of 2013 Part I: Questions and Answers,”
farmdocdaily.com, December 17, 2013.
51 The fixed nature of the DMPP premium implies that the federal subsidy share is both indirect and varies with the
underlying risk conditions.
52 C. F. Nicholson and M. W. Stephenson, “Dynamic Market Impacts of the Dairy Margin Protection Program of the
Agricultural Act of 2014,” Program on Dairy Markets and Policy Working Paper Series, Working Paper No. WP14-
03, May 2014.
53 In contrast, the CBO April 2014 baseline projects DMPP net outlays of about $84 million per year through 2024.
54 Using CBO April 2014 baseline projections for the price of all-milk compared with the feed ration cost generated
using the FAPRI November 2014 price projections, CRS estimates that the annual average margin stays above $8.00
(continued...)
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Initial sign-up for DMPP is still ongoing.55 As a result, dairy producer participation and possible
program costs (and potential market distortions) are uncertain. The higher the milk margin
guarantee is set relative to historical milk margins—the national average milk margin was
$8.60/cwt. during the 15-year period preceding DMPP implementation—the higher will be the
eventual program cost and market distortion.
Permanent Disaster Assistance Programs
The 2014 farm bill permanently authorized three disaster programs for livestock—the Livestock
Indemnity Program (LIP), the Livestock Forage Disaster Program (LFP), and the Emergency
Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program (ELAP)—and one
program for fruit trees, the Tree Assistance Program (TAP).
Payments made under LIP, ELAP, LFP, and TAP are notified as product-specific amber box
outlays and count towards the amber box limit, unless they qualify for a product-specific DM
exemption. In 2011, a total of $314 million in disaster assistance payments were made to
livestock—LFP, $264 million; LIP, $42 million; and ELAP, $8 million—and another $4 million
under TAP. All payments under the four disaster programs qualified for a product-specific DM
exemption.
Payment Limits Under the 2014 Farm Bill
Per-operator program payment limits represent a potential tool for limiting or reducing total amber box outlays, and
concomitantly mitigating potential distortions. The 2014 farm bill set a $125,000 per-person cap on the total
payments received for all covered commodities under the PLC, ARC, and MLP programs, with the exception of
peanuts, which has its own separate $125,000 per person limit. This represents a tightening of the per-person limit
from the 2008 farm bill, where MLP benefits were unlimited. However, the payment limit is doubled by inclusion of
the operator’s spouse as co-operator.
There is no payment limit for the SCO, STAX, and crop insurance programs. NAP payments have an annual limit of
$125,000 per person. The three livestock-related disaster assistance programs—LIP, ELAP, and LFP—have a
combined limit of $125,000 per person. TAP has its own separate payment limit of $125,000 per person.
To qualify for any program benefits, a recipient’s total adjusted gross income (AGI) cannot exceed $900,000 (using a
three-year average). The effectiveness of program limits remains in dispute as some have argued that they may be
avoided by sub-dividing a farm operation among family members.
De Minimis (DM) Exemptions
DM exemptions are amber box outlays that, when measured as a share of a defined total output
measure (total or product-specific), are sufficiently small (i.e., less than 5%) as to be deemed
benign. DM exemptions are identified as either product- or non-product-specific. The non-
product-specific exemption is the largest and most favorable in terms of its more generous
spending limit—5% of the value of total agricultural output, inclusive of all crops and livestock
products.
(...continued)
through 2018. Actual margin payments are based on a moving two-month average, not the annual average.
55 Producers are allowed to register for the last four months of 2014 and the full 2015 program year during the
enrollment period from September 2 to December 19, 2014. M. Bozic, J. Newton, A. Novaković, M. Stephenson, and
C. Thraen, “The Dairy Subtitle of the Agricultural Act of 2014,” Information Letter 14‐01, revised September 5, 2014.
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2014 Farm Bill Provisions and WTO Compliance
Non-Product-Specific DM Exemptions
From 1995 to 2011, the U.S. non-product-specific DM exemption limit ranged from a low of $9.2
billion in 1999 to a high of $19 billion in 2011. During the most recent three years of U.S.
notifications to the WTO (2009 to 2011), U.S. agricultural production value averaged nearly $327
billion (with a 5% share in excess of $16 billion). U.S. notifications of non-product-specific DM
outlays for that same period averaged $6.9 billion—well within the limit. This category of U.S.
program outlays has seen considerable growth in recent years, driven largely by growth in U.S.
crop insurance premium subsidies, which accounted for $5.9 billion of the $6.9 billion in average
non-product-specific DM outlays from 2009 to 2011.
In addition to crop insurance premium subsidies, other U.S. farm programs that have been
notified as non-product-specific DM outlays in the past have included CCP payments, irrigation
and grazing subsidies, payments under the Supplemental Crop Revenue Assurance (SURE)
program, and payments made under two bioenergy programs—the Rural Energy for America
Program (REAP) and the Biomass Crop Assistance Program (BCAP).56 Both the SURE and CCP
programs no longer exist, while the REAP and BCAP programs are relatively small in terms of
potential outlays.57 Federal irrigation and grazing subsidies have been small (relative to crop
insurance subsidies) and unvarying since 2008, at $200 million and $45 million per year,
respectively.
The critical issue with respect to the non-product-specific DM exemption is not the size of the
limit, but rather, whether certain programs being notified as non-product-specific are in fact
product-specific, and thus should be more accurately notified as product-specific DM, where the
effective spending limit is often more constraining.
Product-Specific DM Exemptions
Product-specific amber box outlays have included payments made under the following programs:
the sugar program, DPPS program, MILC, CCP, MLP, ACRE, SURE, crop insurance subsidies,
farm storage facility loans, and commodity loan interest subsidies. U.S. product-specific DM
exemptions averaged $361 million annually during 1995-2011, including a low of $29 million in
1999 and a high of $1.6 billion in 2002. Every program commodity, with the exception of dairy
and sugar, has claimed product-specific DM at some point during the past 17 years.
Doha Round Implications
A consideration for U.S. policy makers is the potential for expanded domestic support programs
to sidetrack or delay progress in multilateral trade negotiations.58 From the U.S. perspective, a
successful Doha agreement (under the current negotiating text) would significantly lower
allowable spending limits for certain types of U.S. domestic support and eliminate export
56 REAP was originally classified as green box; however, in its 2011 notification to the WTO, USDA reclassified
REAP payments as non-product-specific amber box spending.
57 Under the 2014 farm bill, mandatory funding of $50 million per year and discretionary funding of $20 million per
year were authorized for REAP; while BCAP funding was limited to mandatory funding of $20 million per year for
FY2014-FY2018.
58 CRS Report RS22927, WTO Doha Round: Implications for U.S. Agriculture.
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2014 Farm Bill Provisions and WTO Compliance
subsidies, while allowing U.S. agricultural products wider access to foreign markets. Key
proposals with respect to new or revised disciplines on farm programs under the 2008 Doha
Round texts include two objectives.59
First, spending limits (total and product-specific) for the amber box and the two DM exemptions
would be reduced substantially, while a limit would be established on the otherwise unbounded
blue box.
• The total limit for U.S. amber box spending would be reduced to $7.6 billion
(down from the current $19.1 billion limit), while new product-specific limits
would be established at the average annual support received during the 1995-
2000 period.
• DM exemption limits for non-product-specific outlays would be set at $4.85
billion (as compared to the current variable limit based on total U.S. production,
which has averaged $16 to $20 billion), and for product-specific outlays at 2.5%
of the average annual production value during the 1995-2000 period, thus
establishing a historical base at a level substantially below current production
values.
• Blue box limits would be established for non-product-specific outlays at $4.85
billion, and for product-specific outlays at 110% or 120% of the annual average
during the 2002-2007 period.
Second, a global spending limit—referred to as the overall trade-distorting domestic support
(OTDS)—encompassing the four categories of the amber box, the two DM exclusions, and blue
box would be established at a level substantially smaller than the sum of their individual limits.
Finally, the criteria for exemption status in the green box would be tightened.
Potential program spending under the new suite of domestic support programs authorized by the
2014 farm bill might exceed the tighter spending limits proposed under the Doha Round draft
modalities. For example, the proposed limits for amber box outlays of $7.6 billion are well below
USDA’s May 2014 projections for PLC and ARC outlays of $10.1 billion in crop year 2015 and
$10.9 billion in 2016, and the proposed limit for DM non-product-specific outlays of $4.85
billion is well below CBO’s projected U.S. crop insurance premium subsidies of about $6 billion
per year through FY2024.60
Recap of Potential WTO Issues
Assessments of the potential effect of the new domestic support programs authorized by the 2014
farm bill (P.L. 113-79), and their compliance with WTO restrictions, are very preliminary at this
time. Many of the new programs have yet to be fully implemented, producer participation is
uncertain, and program outlays hinge on future market conditions. For example, under a relatively
high price environment, as existed during the 2010-2013 period, U.S. program outlays would fall
59 Although not formally approved by the entire WTO membership, the negotiating texts represent agreement among
the three countries with the largest domestic support programs—the United States, the European Union, and Japan.
60 CBO’s score of the 2014 farm bill conference agreement of H.R. 2042, the Agricultural Act of 2014, as reported on
January 27, 2014.
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2014 Farm Bill Provisions and WTO Compliance
within proposed Doha Round limits with no or only modest changes. However, if market prices
were to decline substantially below support levels for an extended period, then outlays could
escalate and potentially exceed the proposed spending limits.
All of the new farm safety net programs—PLC, ARC, SCO, STAX, and DMPP—might be
notified as amber box, although PLC, ARC, and SCO could be notified as non-product-specific
amber box. Alternatively, PLC and ARC-CO might be notified as blue box. USDA is responsible
for making this determination.
Of all the price and income support programs, MLP benefits alone are fully coupled to producer
behavior, while PLC and ARC are paid on a portion of historical plantings and thus are decoupled
from producer planting decisions, making them less vulnerable to WTO challenge. However,
because both PLC and ARC would make payments when current market prices are low relative to
historical market prices, both programs reduce producer risk associated with price variability and
thus likely result in greater acreage and production than would occur in their absence. The new
shallow-loss programs—SCO and STAX—could prove more problematic. Both programs
provide revenue (or potentially yield in the case of STAX) guarantees that are very near to the
market averages, in addition to reducing farm-level risk by protecting revenues when market
prices are low. Accordingly, they may incentivize greater acreage and production than would
occur in their absence.
Most studies suggest that, for U.S. program spending to exceed the $19.1 billion amber-box limit,
a combination of worst-case events would have to occur, for example low market prices
generating large simultaneous outlays across multiple programs, in addition to the $1.3 billion of
implicit costs associated with the sugar program. Such a scenario is unlikely, although not
impossible, particularly since outlays under several of the programs (including the new dairy
program, SCO, STAX, and crop insurance) are not subject to any per-farm subsidy limit.
Perhaps more relevant to U.S. agricultural trade is the concern that—because the United States
plays such a prominent role in most international markets for agricultural products—any
distortion resulting from U.S. policy would be both visible and vulnerable to challenge under
WTO rules. Furthermore, projected outlays under the new 2014 farm bill’s shallow-loss and
counter-cyclical price support programs may make it difficult for the United States to agree to
future reductions in allowable caps on domestic support expenditures and related DM exclusions
as envisioned in ongoing WTO multilateral trade negotiations.
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2014 Farm Bill Provisions and WTO Compliance
Table 1. 2014 Farm Bill: Major Safety Net Programs and Key Parameters
Basis for Program Payment
Price
Program
Yield Acres Triggera Limitb
Required Loss
Subsidy
Price Deficiency Payment Programs
Marketing-Loan Program
Farm
Planted
Fixed
$125,000 None needed
100%
(MLP)
Price Loss Coverage (PLC)
Basec
85% * Based Fixed
$125,000 None needed
100%
Shallow-Loss Programs
Agriculture Risk Coverage-
County,
85% * Base
SAFP,g
$125,000 14%-24%
of
100%
County (ARC-CO)e
5-yr. OAf
5-yr. OA
county avg.
Agriculture Risk Coverage-
Base
65% * Base
SAFP,
$125,000 14%-24% of
100%
Individual (ARC-ID)h
5-yr. OA
farm avg.
Stacked Income Protection
County Planted Within-year
None 10%-(D or 30%)i
80% of
Plan (STAX)
market-based
of county avg.
premium
Supplemental Coverage
County Plantedj Within-year None 14%-D
of
65% of
Option (SCO)
market-based
county avg.
premium
Deep-Loss Program
Federally subsidized Crop
Farm or
Planted Within-year None Varies from 10%
~62%l of
Insurance
County
market-based
to 50%k
premium
Hybrid Programm
Dairy Margin Protection
Basen (25%
to Margino None
None
needed
Indeter-
Program (DMPP)
90%) * Base
minatep
Program Support Based on Supply Controls
Sugar Program
Indirect support based on import restrictions, marketing allotments, and price supports
for refined beet sugar and raw cane sugar. There is no payment limit.
Source: Compiled by CRS.
a. All price triggers are set at the national level.
b. The $125,000 limit per person applies to combined MLP, PLC, and ARC payments for al commodities
except peanuts, which have a separate $125,000 limit across the MLP, PLC, and ARC programs.
c. Base yield is the historical yield of a program crop used to calculate the production that is eligible for
payments. Producers were offered a one-time option to update base yields to 90% of the average yield for
2008-2012; otherwise they would retain the program yield used under the 2008 farm bill programs.
d. Base acres are the historical planted acres of program crops used to calculate production eligible for
payments. Producers were offered a one-time option to update the allocation of program crops across the
farm’s total base acres; otherwise they would retain the base allocation used under 2008 farm bill programs.
e. ARC-CO may be applied separately for each program crop.
f.
The five-year olympic average (OA) excludes the high and low years from the calculation.
g. The five-year OA of the season-average farm price (SAFP). The 2014 farm bill stipulates that the PLC
reference price is used in the ARC guarantee for any year where the SAFP is less than the reference price;
thus the reference price acts as a floor price for ARC.
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2014 Farm Bill Provisions and WTO Compliance
h. The farm-level ARC-ID applies to the aggregate of all program crops.
i.
Whichever is smaller, 30% or the underlying insurance policy deductible (D), expressed as a percent of the
guarantee.
j.
Acres covered by ARC-CO, ARC-ID, or STAX are not eligible for SCO.
k. Crop insurance policy coverage varies across crops and regions. Coverage ranges from 50% up to 85% for
farm-based insurance and up to 90% for county-based insurance. The required loss is equal to the policy
deductible. For example, a policy with coverage of 75% requires a loss of 25% before an indemnity is made.
l.
Crop insurance premium subsidy varies by type of policy and coverage level but averages about 62%.
m. The dairy support programs combine features of (1) a price deficiency payment program that substitutes a
producer-selected margin level for a target price, (2) both shal ow- and deep-loss programs depending on
the producer selected coverage levels and market conditions, and (3) supply controls, since a system of
tariff-rate quotas continues to provide price support for various dairy products.
n. The highest milk marketings of the dairy operation during any one of the three calendar years 2011, 2012,
or 2013; special adjustments are available for beginning producers with incomplete production history.
o. The margin equals the all-milk price minus the cost of an average feed ration per 100 lbs. of milk.
p. The implicit DMPP subsidy is equal to the difference between an unspecified actuarially fair premium and the
fixed premium set in statute for DMPP. This value will vary annual y by market conditions as wel as by both
margin and coverage level selected. In addition, U.S. dairy products receive implicit subsidies from a system
of TRQs that provide protection from lower-priced foreign imports, and from federal purchases of U.S.
dairy products under the Dairy Product Donation Program.
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2014 Farm Bill Provisions and WTO Compliance
Table 2. 2014 Farm Safety Net Programs
Price Deficiency Payment Programs
•
Marketing Loan Program (MLP) and associated benefits
•
Price Loss Coverage (PLC)
Shallow-Loss Support Programs
•
Agricultural Risk Coverage, County-Level (ARC-CO)
•
Agricultural Risk Coverage, Farm or Individual-Level (ARC-ID)
•
Supplemental Coverage Option (SCO)
•
Stacked Income Protection Plan (STAX) for upland cotton
Crop Insurance
•
Premium subsidy for catastrophic (CAT) yield policies
•
Premium subsidy on additional (“buy-up”) yield and revenue insurance policies
•
Risk Sharing with private crop insurance companies under the Standard Reinsurance Agreement (SRA)
•
Delivery, administrative, and operating reimbursements to private crop insurance companies
Dairy Support Programs
•
Dairy Margin Protection Program (DMPP)
•
Dairy Product Donation Program (DPDP)
•
Tariff Rate Quota (TRQ) protection
•
Dairy Price Support Program under permanent law (temporarily suspended)
Sugar Support Programs
•
Marketing Loan for raw sugar from sugar cane and refined sugar from sugar beets
•
Tariff Rate Quota (TRQ) protection
•
Marketing Allotments
•
Feedstock Flexibility Program (FFP)
Disaster Assistance Programs
•
Noninsured Crop Disaster Assistance Program (NAP)
•
Livestock Indemnity Program (LIP)
•
Livestock Forage Disaster Program (LFP)
•
Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish Program (ELAP)
•
Tree Assistance Program (TAP)
•
Emergency Disaster loans
Special Cotton Support Programs
•
Temporary Upland Cotton Transition Payments
•
Special program provisions for Upland Cotton—import quotas
•
Special competitiveness program for extra-long staple (ELS) Cotton
•
Economic Adjustment Assistance to Users of Upland Cotton
•
Cotton Storage Payments
Source: Compiled by CRS.
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Table 3. 2014 Farm Bill Provisions: WTO Compliance Implications
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Title I Price and Income Support: Programs Eliminated
Direct Payments (DP) Fixed annual payments based on historical base
Notified annual avg.
Eliminated
Green box
Fully decoupled payments. Since green box outlays
acres and yields.
outlays of $5.3 billion
are unlimited, DP elimination has no WTO effect.
during 1995-2011
(WTO).
Counter-Cyclical
Payments triggered when annual national average
Notified annual avg.
Eliminated Nonproduct
CCP was decoupled from yield and acreage, but
Payment Program
market price or marketing loan rate, (whichever is
outlays of $2.1 billion
specific
not from market prices. Elimination represents
(CCP)
higher) fell below a statutorily fixed target price
during 2003-2008; $79
amber box
potential amber box savings; however, outlays
(adjusted for DP); payments based on historical
mil ion during 2009-
were generally excluded under nonproduct-specific
base acres and yields.
2011(WTO).
DM exclusion.
Average Crop
State-level, crop-specific, revenue-based counter-
Notified annual avg.
Eliminated Product-
ACRE payments were coupled to planted acres.
Revenue Election
cyclical program that made payments on 85% of
outlays of $171 million
specific
Elimination represents reduction in amber box
(ACRE)
planted acres when state revenue for a commodity during 2010-2013(WTO).
amber box
outlays.
is less than 90% of a market-based moving average
revenue guarantee. Participants give up 20% of DP,
and get a 30% reduction in MLP loan rates.
Supplemental
Compensated eligible producers for 60% of whole-
Notified annual avg.
Not
Nonproduct
SURE expiration represents potential reduction in
Revenue Assistance
farm (i.e., all crops grown by each producer)
outlays of $1 billion
reauthorized
specific
amber box outlays; however, outlays were
(SURE)
revenue losses relative to guarantee equal to sum
during 2008-2011(WTO).
amber box
general y excluded under nonproduct-specific DM
across all crops of both (crop insurance guarantee
exclusion.
+ 15%) and (Noninsured Crop Disaster Assistance
Program (NAP) guarantee + 20%). Crop insurance
purchase required for eligibility. Expired at end of
FY2011, was not reauthorized.
Dairy Export
DEIP provided cash bonuses to U.S. dairy
DEIP had not been used
Eliminated
Scheduled
DEIP specified in U.S. Country Schedule, thus legal
Incentive Program
exporters when certain international dairy market
since 2009 (USDA).
under AoA.
(DEIP)
conditions were met.
CRS-27
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Dairy Product Price
Supported milk, butter, and cheese prices at fluid-
Notified as $4.6 billion in
Eliminated Product-
Elimination of DPPSP reduces amber box outlays by
Support Program
milk equivalentc price of $9.90/cwt. via (1) USDA
annual amber box costs
specific
nearly $3 billion.
(DPPSP)
purchases and (2) an import TRQ. The implicit
during 1995-2007; $2.9
amber box
subsidy of the TRQ was measured by the
billion annual y during
difference between the U.S. domestic price
2008-2011, although
support rate of $9.90/cwt. and the international
budget outlays were
reference price of $7.42/cwt. multiplied by the
significantly smaller
annual U.S. milk production.
(WTO).
Milk Income Loss
Supported milk producer incomes on first 2.985
Outlays averaged $182
Eliminated Product-
Elimination of MILC represents about $200 million
Contract (MILC)
mil ion lbs. of annual production when Boston
mil ion annual y during
specific
in annual amber box savings, thus freeing up space
Program
Class I price falls below a feed-adjusted
2010-2013; $359 million
amber box
for new amber box program outlays.
$16.95/cwt.
annually during 2003-2009
(USDA).
Title I Price and Income Support: Programs Continued (with Adjustment)
Marketing Loan
USDA supports prices of eligible crops at
Notified annual avg.
Reauthorized
Product-
Because payments are coupled to actual production
Program (MLP)
statutory loan rates via 9-month, nonrecourse
outlays of $2.6 billion
specific
and market prices, MLP outlays count directly
Benefits
loan program. The crop is placed under loan and
during 1995-2011;
amber box
against the amber box spending limit of $19.1
valued at the loan rate; if the market price rises
including annual avg. of
billion.
above the loan rate, the producer reclaims the
$8 billion during 1999-
crop and pays off the loan. If the market price
2001 when market prices
remains below the loan rate after 9 months, the
were historically low
producer may forfeit the crop under loan or opt
(WTO).
for alternate program benefits. Payments are
based on actual production.
Loan Commodities
Establishes eligibility for MLP payments; includes all
—d Reauthorized
—d No
change.
covered commodities plus upland cotton, extra-
long staple cotton, wool, mohair, and honey.
Upland Cotton
USDA supports upland cotton prices via 9-month,
MLP benefits for upland
Loan rate
Product-
During 1995-2013, the monthly AWP was below
Market Loan Rate
nonrecourse loan program at a loan rate of
cotton totaled $11.5
changed to
specific
the upland cotton market loan rate of 52¢/lb. 113
Adjusted
$0.52/lb. Benefits may be triggered when a USDA-
billion cumulatively during
floating range
amber box
of the 228 months, and below 45¢/lb. 82 months; in
announced average world price (AWP) fal s below
1995-2013 (USDA).
of 52¢/lb. to
each of these instances, MLP benefits could have
$0.52/lb.
45¢/lb.
been reduced by using the floating loan rate, thus
resulting in lower total amber box outlays.
CRS-28
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Sugar Price Support
Maintains previous sugar price supports through
Notified annual avg.
Reauthorized
Product-
Continuation of sugar price support program
Program
2018 crop year—at 18.75¢/lb. market loan rate for outlays of $1.2 billion
specific
represents about $1.3 billion in annual amber box
raw cane sugar; 24.09¢/lb. for refined beet sugar—
during 1995-2011
amber box
outlays.
at no budgetary cost to federal government using
(WTO).
three tools: flexible marketing allotments that limit
the amount sugar processors can sell domestically,
sugar import quotas that restrict foreign sugar
imports, and the Feedstock Flexibility Program.
USDA continues storage payments to processors
that forfeit loans.
Feedstock Flexibility
Requires USDA to purchase excess domestic
In 2013, USDA used the
Reauthorized
Product-
Outlays may be triggered if market prices fall below
Program (FFP)
sugar production (equal to quantity of imports that FFP to purchase sugar to
specific
price support levels guaranteed by the U.S. sugar
USDA estimates exceeds U.S. food demand), and
avoid loan forfeitures,
amber box
price support program; outlays count towards the
to resell such sugar as a biomass feedstock to
then resold the sugar as
U.S. amber box.
produce bioenergy, to ensure that sugar price
biomass at a loss of $173
support program provisions (see above) operate
million (USDA). CBO
at no cost and to avoid loan forfeitures.
projects $0 outlays under
FFP for 2014-2018 (CBO-
BL).
Adjustment to
Establishes eligibility for DP, CCP, and ACRE
—d Upland
cotton
Product-
From 1995 to 2011, over $17 billion in amber box
Covered
under 2008 farm bill; PLC, ARC, and SCO under
removed as
specific
program payments were made to upland cotton
Commodities
2014 farm bill. Includes wheat, oats, and barley
covered crop
amber box
(about $1 billion annually); removal of upland
(including used for haying and grazing); corn,
cotton as covered commodity represents amber
sorghum, long and medium grain rice, and pulse
box savings.
crops (dry peas, lentils, small chickpeas, and large
chick peas); soybeans, other oilseeds (sunflower
seed, rapeseed, canola, safflower, flaxseed,
mustard seed, crambe, and sesame seed); and
peanuts.
Special Program
Special import quota imposed on upland cotton
No estimate of the
Reauthorized Specific
As long as the cumulative upland cotton import
Provisions for Upland
when U.S. cotton prices exceeds the world
implicit value of these
import
quota (i.e., sum of temporary special import quotas
Cotton—Import
market price for 4 weeks. Limited global import
provisions is available.
quotas must
and any other import quotas in effect) remains
Quotas
quota is imposed on upland cotton when U.S.
be listed in
within the quota limits defined in the U.S. Country
prices average 130% of the previous 3-year
Country
Schedule then it is WTO-compliant.
average of U.S. prices.
Schedule
CRS-29
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Special
Provides payments to domestic users and
CBO projects avg. annual
Reauthorized Product-
Any increase in outlays are likely to be notified as
Competitiveness
exporters whenever AWP for the lowest-priced
outlays of $2 million
specific
amber box.
Program for ELS
ELS cotton is below prevailing U.S. price for 4-
during 2014-2018 (CBO-
amber box
Cotton
week period; and lowest priced ELS cotton is less
BL).
than 134% of MLP loan rate for ELS cotton.
Economic Adjustment Provides assistance (3¢/lb.) to domestic users of
Avg. $80 million annually
Reauthorized Product-
Because the payment is nondiscriminatory (i.e., all
Assistance to Users
upland cotton for uses of al cotton regardless of
during 2009-2011
specific
cotton, domestic or imported, is eligible for the
of Upland Cotton
origin—domestic or foreign.
(WTO).
amber box
payment), it appears to be SCM-compliant;
however, outlays count towards the amber box.
Cotton Storage
Under the cotton storage incentive program,
No payments have been
Reauthorized;
Product-
The payment reduction lowers potential USDA
Payments Rate
when domestic prices plus accrued interest plus
notified to the WTO
the payment
specific
outlays that outlays count towards the amber box.
Reduction
storage costs for cotton being stored under
under the cotton storage
rate is reduced amber box
However, only minimal payments have been made
USDA’s MLP are above the AWP, then the CCC
program since 2008
by 10%.
under this program, such that this payment
pays a portion of the storage costs.
(WTO).
reduction is likely to have little effect.
Adjusted Gross
Maximum income that a person can earn and
No estimate available.
New feature
—d
Difficult to interpret any WTO effect: lower overall
Income (AGI) Limit
remain eligible for program payments. Under 2008
limit, but potentially larger farm and non-farm-
farm bill: a person is ineligible if income exceeds
specific incomes.
$500,000 non-farm AGI; $750,000 farm AGI.
Under 2014 farm bill: single AGI limit of $900,000
using 3-year average.
Disaster Program
Combined payment limit is $125,000 per person
No estimate available.
Limit expanded Product-
The expanded limit increases potential for product-
Payment Limit
for LIP, LFP, and ELAP; separate limit of $125,000
from $100,000. specific
specific amber box outlays.
applies to TAP, and 500 acres limit continues.
amber box
Title I Price and Income Support: New Programs
Temporary Upland
For crop year 2014, upland cotton producers
CBO estimates 2014
New program
Green box*
Ful y decoupled payments. Such green box outlays
Cotton Transition
receive decoupled payment based on historical
outlays of $515 million (to
are unlimited.
Payments
base acres equal to 60% of previous upland cotton
be paid out in 2015)
DP, in compensation for loss of “covered” status
(CBO-BL).
while awaiting implementation of STAX in 2015.
CRS-30
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Price Loss Coverage
Payments triggered when SAFP falls below a
CBO estimates no outlays New program
Nonproduct
Payments are decoupled from planted acres, but
(PLC)
statutorily fixed reference price for each covered
during FY2014-FY2015,
-specific
coupled to market prices. Fixed reference price
crop; payments based on 85% of base acres and
then annual avg. outlays of
amber box*
ignores market conditions. Similarities to CCP
historical yields.
$2.3 billion during
suggest that PLC outlays are likely to be notified as
FY2016-FY2018 (CBO-
nonproduct-specific amber box, making it eligible
BL).
for the nonproduct-specific DM exemption.
Agriculture Risk
County-wide, shallow-loss program for each
CBO estimates no outlays New program
Nonproduct
Payments are decoupled from planted acres, but
Coverage—County
covered crop. Payments triggered when county
during FY2014-FY2015,
-specific
coupled to market prices and the PLC reference
(ARC-CO)
revenue falls between 76% and 86% of a county
then annual avg. outlays of
amber box*
price (which sets an annual minimum trigger). The
revenue target (equal to product of 5-yr. Olympic
$1.2 billion during
moving-average price trigger helps ARC-CO to
avg. of county yield times the national SAFP);
FY2016-FY2018 (CBO-
reflect market conditions when prices are above
payment based on 85% of base acres.
BL).
the PLC reference price, but not when prices are
below. Similarities to CCP suggest that ARC
outlays are likely to be notified as nonproduct-
specific amber box making it eligible for the
nonproduct-specific DM exemption.
Agriculture Risk
Farm-level, shallow-loss whole-farm program
CBO estimates no outlays New program
Nonproduct
Payments made on a whole-farm basis; decoupled
Coverage—Individual
(calculated as aggregate for all covered crops).
during FY2014-FY2015,
-specific
from planted acres and but coupled to market
(ARC-ID)
Payments triggered when whole-farm revenue falls
then annual avg. outlays of
amber box*
prices. The moving-average price trigger helps
between 76% and 86% of a whole-farm revenue
$632 million during
ARC-ID to reflect market conditions when prices
target (equal to sum for al crops of product of 5-
FY2016-FY2018 (CBO-
are above the PLC reference price, but not when
yr. Olympic avg. of yield times the national SAFP);
BL).
prices are below. ARC-ID outlays are likely to be
payment based on 65% of base acres.
notified as nonproduct-specific amber box, making
it eligible for nonproduct-specific DM exemption.
Base Acre Option
One-time choice: retain current base or make a
—d New
feature
—d
Reallocation to reflect recent market conditions is
new allocation of base acres across program
a partial form of recoupling across farm bill periods
crops—may not increase base. Former cotton
of program payments to producer planting choices.
base acres may not be real ocated but become
Producers will select the base that potentially
“generic” acres available for any use.
maximizes their federal program payments.
Generic Base
Former cotton base acres are renamed generic
—d New
feature
—d Recouplesf former cotton base to current program
base and added to producer’s base acres for
choices and expands the potential base for covered
potential payments if at least one covered crop is
commodity program payments.
planted on the farm.e
CRS-31
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Base Yield Option
Each producer has a one-time choice: retain
—d New
feature
—d
Likely increases the potential historic production
existing CCC yields, or update to 90% of 2008-
base (base acres * historic yield) eligible to receive
2012 average yields.
program payments under PLC and ARC.
Restriction on
Limits planting of fruit and vegetables on base
—d Revision
of
—d
Provides flexibility to plant non-program crops on
planting of fruits and
acres to unpaid portion of base—i.e., 15% for
2008 farm bill
the % of base acres not receiving payments, but
vegetables
farms in PLC or ARC-CO and 35% for farms in
percentages of
with no subsidy for those non-program crops. This
ARC-ID. Fruit and vegetable plantings above these
unpaid base
restriction prevents producers from fully
limits will reduce payment acreage one-for-one.
acres.
responding to market conditions; it was
successfully challenged under the Brazil cotton case
to show that DPs were not ful y decoupled, but
was not pursued further in terms of requiring any
program change.
Price and Income
Designed to cap annual program payments to an
—d
Single limit of
—d
Per-operator program payment limits represent a
Support Payment
individual farm operator. Under 2008 farm bill:
$125,000 for
potential tool for limiting or reducing total amber
limits
$40,000 for DP; $65,000 for CCP and ACRE; a
PLC, ARC, and
box outlays, and concomitantly mitigating potential
separate, additional limit applies for peanuts; limits
MLB; doubled
distortions. The effectiveness of program limits
effectively doubled with spouse; no limit on MLP
with spouse;
remains in dispute as some have argued that they
benefit payments.
separate limit
may be avoided by sub-dividing a farm operation
for peanuts.
among family members.
Dairy Margin
Provides price-deficiency-like protection for
CBO projects avg. annual
New program
Product-
Outlays are likely to be notified as amber box.
Protection Program
operating margin (difference between all-milk price outlays of $107 million
specific
However, depending on market conditions, DMPP
(DMPP)
and formula-based avg. feed ration); payments are
during FY2015-FY2018
amber box*
outlays are expected to be less than previous
based on historical production (HP); HP grows
(CBO-BL).
notifications under DPPSP.
annual y with growth in national milk production
for participants; producers select margin coverage
($4.00/cwt. to $8.00/cwt. in $0.50 increments) and
portion of HP protected (25% to 90%); premiums
are statutorily fixed for FY2014-FY2018 with 25%
reduction during calendar 2014 and 2015 for smal
operations. DMPP has no payment limits.g
CRS-32
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Dairy Product
DPDP requires USDA to procure certain dairy
CBO projects avg. annual
New program
Green box*
DPDP outlays are ikely to be notified as green box
Donation Program
products when the margin falls below $4.00/cwt.
outlays of $16 million
where outlays are unlimited.
(DPDP)
for 2 consecutive months; the dairy products are
during FY2015-FY2018
distributed immediately (i.e., not stored) to
(CBO-BL).
individuals from low-income groups and are not
allowed for resale into commercial markets. DPDP
purchases and distribution end after 3 months or if
the U.S. price for certain dairy products is
significantly above world dairy product prices.
Crop Insurance Programs
Stacked Income
Upland cotton producers are eligible for a county-
Premiums will be
New program
Product-
Program prices are within-year, market-based such
Protection (STAX)
level, shal ow-loss revenue insurance program.
subsidized at 80% rate;
specific
that they will move up and down with year-to-year
Payments are triggered when county revenue falls
CBO projects avg. annual
amber box*
changes in market conditions; county-wide
between 90% to as low as 70% (but not lower
outlays of $261 million
parameters mitigate moral hazard; indemnity
than the coverage level of any underlying insurance during FY2016-FY2018
payments are coupled to planted acres. Premium
policy) of a county revenue target (which equals
(CBO-BL).
subsidies are likely to be notified as product-
product of 10-yr. trend-adjusted avg. county yield
specific amber box. Because indemnities cover
times expected price used for area-wide crop
shallow losses, they could potentially encourage
insurance policies, i.e., pre-planting-time average of
greater program participation and expanded
harvest-time futures contract prices). Payments
planting on marginal land.
are based on insured acres. The program will start
in 2015.h
Supplemental
County-level, shallow-loss insurance program for
Premiums will be
New program
Nonproduct
Program prices are within-year, market-based such
Coverage Option
covered commodities enrolled in PLC and insured
subsidized at 65% rate;
-specific
that they will move up and down with year-to-year
(SCO)
with a traditional crop insurance policy (either
CBO projects avg. annual
amber box*
changes in market conditions; county-wide
yield or revenue); SCO rides on top of the
outlays of $223 million
parameters mitigate moral hazard; indemnity
underlying policy and covers a portion of the
during FY2016-FY2018
payments are coupled to planted acres. Premium
deductible; indemnity triggered when county
(CBO-BL).
subsidies are likely to be notified as nonproduct-
losses greater than 14% and up to the deductible
specific amber box, thus qualifying for potential
of the underlying insurance policy occur; program
exemption under the nonproduct-specific DM
to begin for 2016 crop year.
exemption. Because indemnities cover shallow
losses, they could potentially encourage greater
program participation and expanded planting on
marginal land.
CRS-33
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Crop Insurance
More than 100 designated crops (livestock margins Notified outlays averaged
Reauthorized Premium Outlays for premium subsidies (like rates) vary with
and pasture) are eligible for farm- or county-level
$5.9 billion during 2009-
subsidies:
market prices and yields; they are larger during
insurance protection on yields or revenue for
2011 (WTO). CBO
nonproduct-
periods of high market prices. Also, high premium
individual crops on up to 85% of the crop’s value,
projects avg. annual
specific
subsidy rates detract from the actuarial soundness
based on trend-adjusted historic average farm
outlays for premium
amber box.
of the producer-paid premium and encourage
yields (90% coverage available using county yields)
subsidies of $5.5 billion;
Under-
greater program participation and expanded
and within-year market prices. Premiums are
underwriting costs of $1
writing costs planting on marginal land. Notification as
based on value of insured crop and risk of loss as
billion; and A&O of $1.4
and A&O:
nonproduct-specific amber box makes it eligible for
determined by market-based price and volatility
billion during 2014-2018
green box.
nonproduct-specific DM exemption.
measures. Premium subsidy varies with coverage
(CBO-BL).
level but averages about 62%.e
Peanut Revenue
Based on common revenue insurance policy
CBO projects avg. annual
New program
Same as
Expanding current amber-box revenue coverage to
Insurance
currently available for other crops, provides
outlays of $9 million
above.
peanuts will increase likelihood of higher amber
peanut growers with choice of yield, revenue, and
during 2014-2018 (CBO-
box notifications to WTO for crop insurance.
revenue with harvest-time exclusion policies;
FB).
coverage will range from 50% to 85%; premium
will be subsidized at rates similar to other crops,
i.e., about 62% on average.
Rice Margin Coverage By the 2015 crop year, FCIC is required to
CBO projects avg. annual
New feature
Product-
Expanding current amber box revenue coverage
provide margin coverage for rice producers.
increase in outlays of
specific
will increase likelihood of higher amber box
$3 million during 2014-
amber box
notifications to WTO for crop insurance.
2018 (CBO-FB).
Actual Production
The farm-level APH is a critical parameter for
CBO projects avg. annual
New feature
Nonproduct
Elimination of low-yield years raises the potential
History (APH)
calculating crop insurance guarantees, premiums,
increase in outlays of
-specific
insurance guarantee, thus increasing (1)
Adjustment
and indemnities; to be implemented starting with
$24 million during 2014-
amber box
government premium subsidies, (2) the likelihood
the 2016 crop year. APH adjustment allows
2018 (CBO-FB).
of receiving an indemnity payment, and (3) the
exclusion of yield data for any year that county
potential level of amber box outlays.
yield losses are 50% or greater.e
STAX / SCO / Crop
Limits total indemnity payments across STAX,
—d New
feature
—d
Prevents double-payment for same loss; potentially
Insurance interaction
SCO, and traditional crop insurance: they cannot
limits amber box outlays under these programs.
exceed the total insured value of the crop.
CRS-34
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
ARC-Crop Insurance
Producers are expected to purchase less crop
CBO projects avg. annual
New feature
Nonproduct
Anticipated interaction expected to lower both
Interaction
insurance coverage when participating in ARC.
savings of $48 million
-specific
federal crop insurance participation and total
during 2014-2018 (CBO-
amber box
federal premium subsidies more than ARC
FB).
subsidies, with effect of net savings of amber box
outlays.
Catastrophic Yield
To reduce government costs of reimbursement to
CBO projects avg. annual
New feature
Nonproduct
This adjustment in premium calculations would
Policy (CAT)
private insurance companies, the calculated CAT
savings of $31million
-specific
likely lower government premium subsidies notified
Premium Adjustment
premium is reduced by a formula-based
during 2014-2018 (CBO-
amber box
to WTO as amber box outlays.
percentage.i
FB).
Enterprise Units for
Under the 2008 farm bill, all land of a crop in a
CBO projects avg. annual
New feature
Nonproduct
Expanding current amber-box revenue coverage to
Irrigated and Non-
county was covered under a single enterprise unit.
increase in outlays of $38
-specific
irrigated and nonirrigated acreage will increase
irrigated crops
Starting in 2015 crop year, separate enterprise
mil ion during 2014-2018
amber box
likelihood of higher amber box notifications to
units are available for irrigated and non-irrigated
(CBO-FB).
WTO for crop insurance.
acreages of a crop.
Crop Insurance Policy Adds certain requirements governing FCIC review
CBO projects avg. annual
New feature
Green box
Likely to be notified as green box.
Research and
of and federal support for development of new
increase in outlays of
Development
crop insurance products.
$3 million during 2014-
2018 (CBO-FB).
Standard Reinsurance
The SRA between FCIC and private insurance
No cost projections
Requires any
Green box
This provision may prevent federal government
Agreement (SRA) and companies defines A&O expense reimbursements
available on potential
renegotiated
from obtaining a larger share of underwriting gains
Risk-Sharing
and risk-sharing by government; FCIC may
change in federal costs.
SRA to be
or a smaller share of underwriting losses. However,
renegotiate the SRA once every 5 years.
budget-neutral.
green box changes have no WTO effect.
Crop Production on
Additional restrictions are added as penalty for
CBO projects avg. annual
New feature
Amber box
Lowers federal subsidies (as penalty) for producers
Native Sod
cultivation on native sod—i.e., virgin soils
savings of $7 million
who cultivate on native sod. The projected effect is
untouched by cultivation or human activity.
during 2014-2018 (CBO-
to gain some savings of potential amber box
FB).
outlays.
Conservation
Adds the federally funded portion of crop
No estimate available.
New feature
—d
Potentially lowers federal subsidies for producers
Compliance
insurance premiums to list of benefits lost if a
who fail to comply with certain conservation
producer violates conservation compliance
requirements. The projected effect is to limit
restrictions.j
potential expansion of crop area onto marginal
lands.
CRS-35
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Coverage Level by
Beginning with 2015 crop year, a producer who
CBO projects avg. annual
New feature
Amber box
Expanding current amber box revenue coverage
Practice
grows a crop on both dry land and irrigated land
increase in outlays of
will increase likelihood of higher amber box
may elect a different coverage level for each
$5 million during 2014-
notifications to WTO for crop insurance.
production practice.
2018 (CBO-FB).
Beginning Farmer and
Beginning farmers and ranchers are given
CBO projects avg. annual
New feature
Nonproduct
Expanding current amber box revenue coverage
Rancher Provisions
additional support in the form of lower fees,
increase in outlays of
-specific
will increase likelihood of higher amber box
higher premium subsidies, and adjustments for
$17 million during 2014-
amber box
notifications to WTO for crop insurance.
missing historical data or excluded yields.
2018 (CBO-FB).
Crop Insurance for
By 2015, FCIC is required to offer price elections
CBO projects avg. annual
New feature
Nonproduct
Because organic prices tend to have a market
Organic Crops
that reflect actual retail or wholesale prices of
increase in outlays of
-specific
premium, the associated insurance liability,
organic (not conventional) crops.
$1 million during 2014-
amber box
premium, and premium subsidy will all be larger,
2018 (CBO-FB).
thus increasing likelihood of higher amber box
notifications to WTO for crop insurance.
Index-Based Weather
FCIC is authorized to conduct pilot programs to
CBO projects avg. annual
New feature
Nonproduct
Expanding current amber box revenue coverage
Insurance
provide producers of underserved specialty crops
increase in outlays of
-specific
will increase likelihood of higher amber box
and livestock commodities with index-based
$7 million during 2014-
amber box
notifications to WTO for crop insurance.
weather insurance; premium subsidy may not
2018 (CBO-FB).
exceed 60%.
Supplemental Agricultural Disaster Assistance Programsk
Livestock Indemnity
LIP provides disaster assistance payments to
CBO projects avg. annual
Reauthorized Product-
Outlays count against the amber box limit.
Program (LIP)
eligible livestock owners and contract growers at a increase in outlays of
specific
rate of 75% of market value for livestock deaths in
$54 million during 2014-
amber box
excess of normal morality caused by adverse
2018 (CBO-BL).
weather; LIP has no payments limit.
Livestock Forage
LFP provides disaster assistance payments to
CBO projects avg. annual
Reauthorized Product-
Outlays count against the amber box limit.
Disaster Program
eligible livestock producers who have suffered
increase in outlays of
specific
(LFP)
grazing losses on drought-affected pasture or
$434 million during 2014-
amber box
grazing land, or on rangeland managed by a federal
2018 (CBO-BL).
agency due to a qualifying fire; LFP has no
payments limit.
CRS-36
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Emergency Assistance ELAP provides payments to producers of
CBO projects avg. annual
Reauthorized Product-
Outlays count against the amber box limit.
for Livestock, Honey
livestock, honey bees, and farm-raised fish as
increase in outlays of
specific
Bees, and Farm-
compensation for losses due to disease, adverse
$18 million during 2015-
amber box
Raised Fish Program
weather, and feed or water shortages; total
2019 (CBO-BL).
(ELAP)
outlays are capped at $20 million per year.
Tree Assistance
TAP makes payments to orchardists/nursery tree
CBO projects avg. annual
Reauthorized Product-
Outlays count against the amber box limit.
Program (TAP)
growers for losses in excess of 15% to replant
increase in outlays of
specific
trees, bushes, and vines damaged by natural
$10 million during 2014-
amber box
disasters; TAP has no payments limit.
2018 (CBO-BL).
Noninsured Crop
NAP is available for crops not currently eligible for CBO projects avg. annual
Reauthorized,
Green box
Green box outlays are unlimited, thus additional
Disaster Assistance
traditional crop insurance; payment are triggered
increase in outlays of
but enhanced
NAP would have no WTO effect; however, it
Program (NAP)
for yield loss of at least 50% or prevented
$243 million during 2012-
with buy-up
remains to be seen if “buy-up” coverage is notified
plantings on at least 35% of intended area;
2014 (USDA).
option from
as amber box or green box.
participants pay a $250 administrative fee; base
previous max
premiums subsidized at 100% but buy-up coverage
of 50% up to
available with 94.75% subsidy rate; payments made
65%.
on planted or intended plantings at 55% of avg.
market price; NAP has no payments limit.
Emergency Disaster
When a county has been declared a disaster area
Total EM loans made
Reauthorized
Green box
Green box outlays are unlimited.
(EM) Loans
by either the President or the Secretary of
average less than $100
appropriations
Agriculture, producers in that county may become
mil ion per year; no data
eligible for low-interest emergency disaster (EM)
is available on the actual
loans for crop or physical loss of at least 30%;
cost or subsidy portion of
funding subject to appropriation.
the loans made.
Miscellaneous Provisions (Outside of Title I): Potential Non-Green Box
GSM-102 Export
The federal government guarantees repayment
Section 3101(b) of the
Tenor (i.e.,
Contains
When tenor reduction is added to previous USDA
Credit Guarantees
when U.S. banks extend credit to foreign banks to
2014 farm bill authorizes
length of term) implicit
program changes, GSM-102 should no longer be
finance import purchases into foreign markets of
$5.5 billion annually of
reduced to 24
subsidies
providing an implicit export subsidy. The texts for
U.S. agricultural goods.
CCC funding for the
months from
declared
the ongoing Doha Round negotiations would codify
program; however,
36 months
illegal by
export credit tenor at a maximum of 180 days or
outlays are not included
WTO in
approximately 6 months.
in U.S. notifications to the
2004l
WTO.
CRS-37
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Reimbursement
Provides payments to reimburse for higher costs
Notified outlays of $2
Reauthorized
Nonproduct
Available funding is minimal relative to the amber
Transportation Cost
of transporting a commodity or input faced by
million in 2011 (WTO).
for FY2014-
-specific
box limit, and generally excluded under the
Payment (RTCP)
“geographically disadvantaged farmers" in insular
FY2018 with
amber box
nonproduct-specific DM exemption.
[Sec. 1606]
areas, Alaska, and Hawaii; authorized under 2008
$15 million in
farm bill, but first implemented in 2010.
annual
appropriations.
Biomass Crop
Provides financial assistance to establish, produce,
Notified outlays of
Reauthorized
Nonproduct
Available funding is minimal relative to the amber
Assistance Program
and deliver biomass feedstocks under two
$8 million in 2009,
for FY2014-
-specific
box limit, and generally excluded under the
(BCAP)
categories of assistance: (A) establishment and
$11 million in 2010, and
FY2018 with
amber box
nonproduct-specific DM exemption.
annual payments, and (B) matching payments to
$1.7 million in 2011
mandatory
help eligible material owners with collection,
(WTO).
annual funding
harvest, storage, and transportation (CHST) of
of $38.6
eligible material for use in a qualified biomass
million.
conversion facility.
Rural Energy for
Provides financial assistance of grants, guaranteed
Notified outlays of
Reauthorized
Nonproduct
Available funding is minimal relative to the amber
America Program
loans, and combined grants and guaranteed loans
$83 million in 2011
for FY2014-
-specific
box limit, and generally excluded under the
(REAP)
for the development and construction of
(WTO).
FY2018 with
amber box
nonproduct-specific DM exemption.
renewable energy systems (RES) and for energy
mandatory
efficiency improvement (EEI) projects; grants for
annual funding
conducting energy audits and for conducting
of $68.2
renewable energy development assistance; and
million.
grants for conducting RES feasibility studies.
Miscellaneous Provisions (Outside of Title I): Green Box
Supplemental
USDA nutrition programs assist targeted
Notified outlays averaged
Subject to
Green box
Green box outlays are unlimited.
Nutrition Assistance
populations including pregnant or lactating women, $42 billion per year
budgetary
Program (SNAP) and
children, and low-income households to meet
during 1995-2008.m More
spending
Other USDA-
nutritional needs.
recently, 2009-2011, the
reductions.
Managed Nutrition
annual avg. outlay was
Programs
$92.3 billion (WTO).
CRS-38
Status Under
2014 Farm
WTO
Program Function
Average
Outlaysa
Bill
Statusb
Potential WTO Implications
Section 32
Section 32 permanently appropriates 30% of
About $8 to $9 billion per Authorized
Green box
Green box outlays are unlimited..
annual customs receipts to support the farm
year, of which ~$7 billion
outside of farm
sector through a variety of activities. Most funds
annually is used for child
bill.
are used to supplement child nutrition programs
nutrition programs, with
and for emergency removal of surplus
the remainder available
commodities, disaster relief, or other
for other USDA
unanticipated needs.
programs.n
Conservation
USDA currently administers about 20 programs
Notified outlays averaged
Reauthorized
Green box
Green box outlays are unlimited.
Programs
and subprograms that are available to directly or
$2.3 billion per year
subject to
indirectly assist producers and landowners who
during 1995-2008. More
consolidation
wish to practice conservation on agricultural lands. recently, 2009-2011, the
and budgetary
annual avg. was $4.6
spending
billion (WTO).
reductions.
Specialty Crop
Individual specialty crop and organic producers do
No direct specialty crop
Mandatory
Green box
Green box outlays are unlimited.
Provisions
not directly benefit from price and income
outlays; instead, support
funding
supports as traditional program commodities;
is indirect primarily
expected to
instead, most support is indirect in the form of
through green-box-type
average $773
research; pest and disease control; food safety and
programs.
million
quality standards; support for local foods and
annual y.
markets; generic market promotion; and nutrition
programs favoring fruits and vegetables.
Source: Compiled by CRS from various sources as cited.
a. Outlay estimates are from four sources: U.S. notifications to the WTO (WTO); USDA program data (USDA); CBO’s score of the 2014 farm bill conference
agreement of H.R. 2042, the Agricultural Act of 2014, as reported on January 27, 2014 (CBO-FB); and CBO’s “April 2014 Baseline for Farm Programs,” April 14,
2014 (CBO-BL). Outlays from both CBO sources were made using price projections that are substantial y above current market conditions. As such, they likely (a)
understate farm program outlays, since they do not include the substantial decline in farm prices that occurred through the spring and summer of 2014, and (b)
overstate crop insurance subsidy outlays, since premiums are based on the underlying insured value, which declines with falling prices.
b. Potential WTO classification is based on previous U.S. program notifications or, if a new program, on CRS estimate of most likely notification. An asterisk is used to
denote CRS estimates, i.e., * = CRS estimate of likely WTO classification for new U.S. farm programs.
c. The dairy products cheese, butter, and powdered milk are converted to a common unit—the content of fluid milk in the underlying product—to derive the support
price in fluid-milk equivalents.
d. Program feature that does not involve specific outlays, but may be relevant to payments made under other farm programs.
CRS-39
e. Specifically, for each crop year, generic base acres are attributed to (i.e., temporarily designated as) base acres to a particular covered commodity base in proportion
to that covered crop’s share of total plantings of all covered commodities in that year. However, if the total number of acres planted to all covered commodities on
the farm does not exceed the generic base acres on the farm, only generic acres equal to the amount of acreage actually planted to a covered commodity are eligible
for payment.
f.
Federal payments made to historical base acres were decoupled from producer behavior by the 1996 farm bill (P.L. 104-127) which established the Direct Payments
(DP) program. DP payments were made independent of producer planting choices. The new “generic base” recouples federal payments to producer crop choices.
g. For details on the DMPP and DPDP programs, see CRS Report R43465, Dairy Provisions in the 2014 Farm Bill (P.L. 113-79).
h. See CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
i.
For details see CRS Report R43494, Crop Insurance Provisions in the 2014 Farm Bill (P.L. 113-79).
j.
For more information on conservation compliance, see CRS Report R42459, Conservation Compliance and U.S. Farm Policy.
k. For more information, see CRS Report RS21212, Agricultural Disaster Assistance.
l.
USDA intended to operate the GSM-102 program in a subsidy-neutral manner with fees and charges covering any costs to USDA; however, in 2004 a WTO panel
found that GSM-102 was being operated with an implicit illegal subsidy. USDA responded with several program changes, including a risk-based fee structure to
increase user charges so as to ensure that they covered long-run operating costs. In the 2008 farm bill, Congress removed a 1% cap on user fees.
m. A large subset of USDA-managed nutrition programs—most notably, Supplemental Nutrition Program for Women, Infants, and Children (WIC)—are authorized
outside of the farm bill; however, these programs are notified together under the general title of “domestic food aid.”
n. For more information, see CRS Report RL34081, Farm and Food Support Under USDA’s Section 32 Program.
CRS-40
2014 Farm Bill Provisions and WTO Compliance
Author Contact Information
Randy Schnepf
Specialist in Agricultural Policy
rschnepf@crs.loc.gov, 7-4277
Congressional Research Service
41