Economist: Senate Vote Bears Close Watching

An Alabama Cooperative Extension System economist says deficit reduction legislation passed by the U.S. Senate yesterday bears watching for several reasons.

The bill, which was passed following an almost straight-line party vote, would cut $3.7 billion from agriculture over the next few years and reduce commodity programs by 2.5 percent starting next year.

“A lot of things factored into the bill besides the agriculture cuts,” says Dr. James Novak, an Extension economist and Auburn University professor agricultural economics and rural sociology. “As it turned out, agriculture was pretty much given a wave through, with the final vote reflecting the Senate Ag Committee’s recommendation.”

Following House passage of its version of deficit reduction legislation, differences between Senate and House bills will be ironed out in conference committee.

In the meantime, Novak and other economists will be closely monitoring the congressional debate for signs of any major policy changes --- changes that are particularly important in an era when deficit reduction and lowering trade barriers are at the top of the agenda.

“If the bill turns out to be closer to the House version of the bill, which only calls for 1-percent reduction direct payments, we’re likely not talking about a serious departure from the status quo,” Novak says.

“On the other hand, if the legislation (that emerges out of conference committee) is closer to the Senate version, we may be seeing a shift closer to the Bush administration’s position on farm policy.”

As it moves closer to a farm policy structure grounded more on free trade and open market access than traditional farm supports, the Bush administration has found itself increasingly at loggerheads with GOP congressional leaders who have tended to favor traditional farm supports.

The final version is also considered important in terms of what effect it will have on World Trade Organization negotiations. Last month, U.S. Trade Representative Rob Portman offered to make steep reductions in U.S. farm support in return for similar cuts in European Union supports --- an offer that, up to now, has not been reciprocated.

Novak says steeper cuts reflected in the final version of the deficit reduction legislation may viewed as a welcome sign by many countries that the United States is serious about expanding world trade in return for reductions in domestic farm supports.

On the other hand, less stringent measures could be viewed negatively, he says.

“A vote to limit these reductions by only a percent over the next few years may be viewed as evidence that we’re not serious,” he says.

Even so, while the final conference committee version may end up closer to the Senate version, Novak does not anticipate a fundamental redirection in agriculture policy for the foreseeable future.

Posted by Jim Langcuster at November 4, 2005 04:45 PM | TrackBack