Many in the development research and advocacy communities engaged heavily in the mid-2000s debate over what became the 2008 farm bill and were sorely disappointed with the outcome. At that time, the push for farm bill reform was part of a broader campaign to push the Doha Development Agenda round of international trade negotiations to a successful conclusion, including by sharply reducing the levels of trade-distorting support that rich countries provide to their farmers. Those policies boost the incomes of farmers in rich countries at the expense of farmers in developing countries, who face suppressed global prices and have to compete without the benefit of subsidies. Within weeks of the subsidy-laden farm bill passing, the Doha Round collapsed and it is now effectively, if not officially, dead.
Today there is relatively more awareness about the impact of high food prices on poor consumers in developing countries, but rich-country policies are still a concern. Ethanol subsidies are widely faulted for contributing to the upward pressure on prices. Other commodity subsidies add to global price volatility and, when prices eventually go down again, will dampen incentives for developing countries to invest in agriculture.
Without the prospect of a multilateral trade deal to encourage farm policy reforms, could the budget pressures Congress is facing push in that direction as they did in the European Union? Maybe, but we can’t count on it. Signs so far are that the least globally distorting subsidies, the so-called direct payments, are the most likely to be cut with some savings diverted to more trade-distorting forms.
We should get a better idea of where things are headed over the next month as the Senate Agriculture Committee holds a series of hearings on the upcoming farm bill. Based on the line-up, the hearings seem very domestically-focused with proposed topics including energy and economic growth for rural America, strengthening conservation, nutrition and local production, and risk management tools for American farmers. It’s not surprising that the focus is on American interests and American farmers, but I hope that the impact of American policies on our trading partners – developing country farmers in particular – will not be completely ignored. So here are three things that I hope to see discussed during the upcoming hearings:
- Congress saved $6 billion annually by allowing the subsidies for ethanol to expire at the end of 2011, but it is important to remain vigilant and beat back pressures for new subsidies for transportation and delivery infrastructure that would further lock us into yesterday’s technology and even allow the market to expand further.
- Reform food aid and expand the administration’s flexibility to use funds for local and regional purchase when appropriate. This would both save money and make U.S. food aid more effective and responsive.
- Ensure that cuts to commodity program subsidies are not diverted to more trade-distorting uses. Elimination of the $5 billion in “direct payments” that farmers receive annually, regardless of market prices, appears likely and adds up to $50 billion over a 10-year budget window. During the budget super committee debate last year, the agricultural committees proposed $23 billion in cuts—where’s the other $27 billion going?
I doubt anyone reading this blog doesn’t care about the impact of U.S. policies on poor countries. But there are plenty of home-grown reasons to reform agricultural policies, including domestic equity concerns, as I noted during last summer’s budget debate. On this issue, it is also worth taking a look at a new USDA report that documents how subsidies are increasingly going to larger and richer farm operations, with a quarter of payments going to those with household incomes above $200,000. I wonder if that will come up in the hearings.
In addition to following the hearings, we’ll also be closely following the broader process. There are reports of another attempt, similar to what was attempted with the Super Committee last fall, to ram something through quickly with little scrutiny. The budget situation offers opportunities to reform American farm policy to make it more efficient and equitable—at home and abroad—but only if the issues are debated fully and openly and with all the stakeholders represented. Stay tuned.