S1016: Impacts of Trade and Domestic Policies on the Competitiveness and Performance of Southern Agriculture (S-287)
Statement of Issues and Justification
Statement of Problem:Current and future domestic policy reform and changes in trade agreements are important in determining the competitiveness of agriculture in the U.S., particularly in the South. The S-287 Project: Impacts of Trade Agreements and Domestic Policies on Southern Agriculture has been the primary national cooperative research effort to assess structural adjustments, changes in international competitiveness, and international trade with respect to major agricultural commodities resulting from a dynamic, global policy environment. The proposed project: Impacts of Trade and Domestic Policies on Southern Agriculture will focus on domestic (e.g., U.S. Food Security and Rural Investment (FSRI) Act and European Union Common Agricultural Policy) and international (e.g., World Trade Organization, Free Trade Area of the Americas, and North American Free Trade Agreement).
Justification:
The influence on Southern agriculture of domestic policy reform and changes in trade agreements is important. Without a doubt, trade and competitive impacts stemming from changes in domestic agricultural and economic policies, combined with continued reforms in trade treaties and agreements, will be major factors in determining the continued competitiveness of the Southern agriculture sector. The Southern region is an important contributor to U.S. agricultural production, processing and exports. The region is the major supplier of cotton, peanuts, poultry, pecans, tobacco, cane sugar, rice, winter vegetables and citrus fruits and an important contributor to the production of grains, soybeans, feeder cattle, pork and dairy products. Changing domestic and international policies that influence Southern agriculture, as a result, influence the food and agricultural supply of the nation as a whole.
During the next five years the U.S. agricultural sector will face a number of challenges. The passage of the Farm Security and Rural Investment Act of 2002 changes the environment for agriculture from the FAIR Act. Increased attention to income stabilization will alter crop mixes, while maintaining some flexibility for planting decisions. Major changes have occurred in peanut policy as well. The FSRI Act faces significant obstacles within the World Trade Organization as the program is implemented, necessitating timely and quality research to document the potential impacts of FSRI on demand and supply of agricultural commodities. At the same time, the FSRI Act also contains significant increases in conservation provisions, which may ultimately have impacts on farm income, competitiveness, and trade.
Several questions arise regarding the impact of this new policy environment on the agricultural sector. What will be the impact on U.S. and Southern agriculture of 1) the FSRI Act and the movement toward free trade? 2) land diversion, input subsidy, and agricultural support programs of other countries? 3) domestic and foreign country macroeconomic, fiscal, environmental, biotechnology, and development policies? and, 4) reforms in multilateral and regional trade agreements? Addressing these issues is important for policy makers, farm leaders, and their constituents to have the information necessary for informed decision making and policy design.
ESCOP recognized the importance of this research in its 1995 report Opportunities to Meet Changing Needs: An Update on the Strategic Agenda for the State Agricultural Experiment Stations. In its national and regional ranking of research initiatives, AGlobal Competitiveness@ was one of eight crosscutting issues used to evaluate the program initiatives in setting the SAES strategic agenda. Thirteen of the twenty-two research initiatives fell in this category. The USDA strategic plan contains USDA Goal 1: AExpand economic and trade opportunities for agricultural producers and other rural residents.@ Also in the plan is CSREES Goal 1: AAn agricultural production system that is highly competitive in the global economy.@ The CSREES plan has the support of the National Agricultural Research, Extension, Education, and Economics Advisory Board. Sub-goals of the USDA strategic plan include improving decision-making for public policy on global competitiveness. In addition, The Joint Council on Food and Agricultural Sciences in its Fiscal Year 1996 Priorities for Research, Education, and Economics identified five high priority research areas. They include research to improve competitiveness in global markets through technology, education, and policy. One task specified to achieve this goal involves understanding how policies affect U.S. competitiveness.
A regional approach to this research is desirable for many reasons. First, the required research is extensive and requires the expertise of a variety of agricultural economics specializations including international trade, production economics, agricultural development, agribusiness, marketing, and policy. Except for the Economic Research Service, no single Agricultural Experiment Station has an adequate number or variety of scientific personnel for conducting the needed research. Thus, a regional effort helps assure that a critical mass will be assembled to accomplish the desired goals. Second, there are many agricultural products common to project participants where international trade effects will be significant and where collective, complementary and coordinated approaches will add more to the knowledge base than would be possible with several independent state efforts. Third, a regional effort will permit economies in data collection and analysis. An effort of the magnitude required for international trade research demands a large amount of data and a collective effort will save substantial resources compared with that needed for each station to collect and analyze the data. Fourth, a regional approach allows a coordinated effort that promotes efficiency and enhances productivity. The division of labor, among the various research participants allows all to benefit but reduces the effort of each and thus permits a larger total research effort. Finally, under S-287 a considerable body of knowledge has been developed, a set of research skills enhanced, and a cooperative research approach strengthened. This proposed regional research will build on that effort and allow a more comprehensive realization of the potential that the past effort has engendered.
Regular Hatch and state experiment station funding, grants such as those of the USDA's National Research Initiative, and other sources can and will be used for international trade research by many scientists participating in this research proposal. Such funding typically tends to be used for state specific research which does not address or promote the overlapping interests of the states nor promote cooperative activities and joint undertakings. Funding from the rural development centers is used for joint undertakings but that funding is limited in quantity and is directed to domestic rural development issues although the rural development aspects of international trade could be addressed with such funds if they were adequate for the size of undertaking this effort requires. Thus, use of regional research funds and a regional research project is required to develop the cooperative effort needed for addressing regional and national issues. A regional project permits interaction between states that produces greater results than by the same amount of funds spent carrying out a series of individual state projects. This will be especially valid for this project since a large share of the principal investigators have developed good working relationships through cooperative efforts under S-287.
The principal benefits of this Cooperative Regional Research Project include information pertaining to the impact and potential impact of domestic policy and WTO and Regional Trade Agreement reform on trade creation and diversion, supply response, import demand, land values, price variability, agricultural value added, food safety and security, and the efficiency and welfare of the economy as a whole. Relevant, timely information is necessary as policy makers prepare for the coming round of WTO negotiations. To provide this type of information, existing models must be updated to account for changing world patterns (production, consumption and trade). At the same time, new models must be developed to examine relevant issues as they come to the fore (e.g., the increased emphasis on environmental issues that is likely in future negotiations). Results will be consolidated, published, and disseminated to the many users in an effective, timely, and efficient manner that should have the greatest positive impact on the region=s agricultural sector. This will provide information to policy makers that will enhance their ability to formulate agricultural related policies and enable Southern regional farmers and agribusiness firms to exploit opportunities and avoid financial difficulties given the dynamic playing field. As investigators in this project expand and develop models to provide this information, there are several potential benefits that will further science in this area. Specifically, this project should provide new research methods to address these relevant problems as well as insights into adjustment needs. Research outlined in this proposal is expected to make a major contribution to the economic literature.
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