A Cheat Sheet on the Farm Bill and Development

February 07, 2014

I am still combing through the 1,000 page, $1 trillion farm bill to figure out what it means for US development and trade policy. Here’s my quick take:

  • Good, but not great, news on food aid reform
  • Mixed news on reducing cotton subsidies (and ultimately resolving the dispute with Brazil)
  • Bad news on sugar subsidies
  • Overall bad news that the new commodity programs are relatively more trade-distorting than what they replace

On international food aid:

The bill contains modest steps toward fixing the antiquated approach of buying food in the United States and shipping it long distances on US-flagged vessels at great expense. Two are particularly notable. First, the farm bill authorizes $80 million a year for local and regional food procurement in emergencies and makes that program permanent. That’s a big improvement over the 5-year, $60 million pilot program that the previous farm bill offered. But it’s still a long way to go to get to the $600 million that would have been freed from in-kind and cargo preference requirements under the Obama administration’s proposal last year. Second, the farm bill increases by 50 percent the funds that can be used for noncommodity expenses under the nonemergency program. That’s good news because it translates to a reduced need for monetization, which is a highly inefficient practice whereby the US government buys food and donates it to NGOs and other implementing partners. Those partners then have to arrange to have the food shipped to the countries where they work, on US-flagged ships of course, and then they sell it to raise money for their projects. Interaction has more info on the food aid piece here.

On international trade:

Next, there are several items in the farm bill that relate to US commitments under international trade agreements, including a long-running dispute with Brazil over US cotton subsidies. After a World Trade Organization (WTO) panel ruled that those subsidies violated US obligations and injured Brazil, the two countries agreed that the United States would pay Brazil nearly $150 million annually in compensation. These payments were to continue until Congress wrote a new farm bill that sufficiently reformed US cotton support policies, but it’s not clear this one goes far enough. The freshly-minted bill reduces or eliminates certain subsidies for cotton, but it creates a new insurance program just for cotton. Under the new program, cotton farmers can insure up to 90 percent of the value of their crop with taxpayers on the hook for 80 percent of the premium. While Congress also downsized the government-backed program that subsidizes export finance, the move was far less than Brazil had demanded.

The Brazilian government plans to meet later this month to decide whether the farm bill goes far enough. If not, Brazil could choose to retaliate against US exports. My guess is that they will move toward trade retaliation unless the US government resumes the compensation payments that were suspended last fall when the farm bill expired. Inside US Trade (gated) has more on the cotton dispute here and here. This week, Inside US Trade also reported on two trade-related issues where Congress opted to punt, leaving disputed regulations unchanged. As a result, Canada and Mexico are now likely to move toward retaliation against US exports over country of origin meat labeling regulations that a WTO panel said were discriminatory. And Vietnam could file a WTO complaint over a food safety rule that it believes discriminates against its catfish exports.

On sugar:

In short, Big Sugar wins again. There was no change to a program that reserves 85 percent of the US market for domestic producers and guarantees an above-market price.

On farm payments and the big picture:

Finally, the overall direction of the farm bill involves replacing less trade-distorting programs with subsidies that could disrupt global markets.  The $5 billion in direct payments that were eliminated by the bill are hard to defend. They were paid out in good years and bad and, instead of replacing more distorting subsidies as originally intended, they were just piled on top of all the other goodies in the farm bill. But the direct payments were at least decoupled from production and prices, so they were less damaging to world markets, and to developing country farmers. There was an effort to make the new programs minimally market-distorting, but a key one is linked to prices and the others to revenues. At best, that goes against the spirit of the international trade rules. It also means that if commodity prices keep falling, the price of the farm bill could rise sharply and the United States could find itself facing a slew of new WTO complaints.

The text of the farm bill is here and the joint explanatory statement is here. Have fun digging out your own nuggets and let me know what you find!


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.