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This is Not Reform

Posted by Kara Laney on July 30th, 2007

Contrary to the claims of the Democratic and Agricultural Committee leadership, the version of the 2007 Farm Bill passed last week by the US House of Representatives does not contain meaningful reform. Instead, it perpetuates subsidy programs that distort trade, reduce the efficiency of US farmers, and harm poor farmers in developing countries.

In the Uruguay Round negotiations of the World Trade Organization (WTO), which concluded in 1995, the US committed to liberalizing its highly protected agricultural sector. The 1996 “Freedom to Farm” Bill was a promising step in this direction. To reduce the perverse production incentives created by production-linked support programs, it introduced direct payments as a form of non-trade distorting support. These payments were to be phased out over the course of seven years. The bill also eliminated automatic payments to farmers when prices were low. These support programs primarily helped corn, wheat, cotton, and rice.

However, plunging commodity prices in the late 1990s led to a retrenchment from these reforms. In the 2002 Farm Bill, direct payments were made permanent and extended to soybeans, oilseeds, and peanuts. The price support system, or Counter-Cyclical Payment program, was reinstated. Several crops that had been eliminated from a third commodity support program, the Marketing Loan program, were included again and others were added. Under this program, farmers collect a loan deficiency payment when prices are below the county price posted by USDA, but maintain possession of the grain to sell at a later date when prices rebound.

The massive increase in expenditures to specific commodities in 2002 flew in the face of the US’s free trade commitments, and the 2007 House Farm Bill essentially represents nothing more than an extension of these protectionist policies. Despite its Uruguay Round obligations, this bill — if enacted — would increase the amount of money that supported commodities are eligible for under the Counter-Cyclical Payment program and the Marketing Loan program while also raising direct payment limits. It continues to allow farmers to collect loan deficiency payments when prices are low and then sell their crops at a later date, even though US Secretary of Agriculture Mike Johanns has explained that this was not how the program was intended to work and that it is in need of reform. And it keeps in place planting restrictions on acres enrolled in commodity support programs, even though the WTO found these to be trade-distorting in its 2005 ruling in the cotton subsidy case brought against the US by Brazil.

Such policy is misguided on several fronts. First, it undermines US credibility in the WTO. The US is currently negotiating in the Doha Round, a round launched in 2001 to bring economic development to developing countries through trade liberalization. By continuing, and even increasing, its trade-distorting farm programs, the US House of Representatives has limited the ability of US trade negotiators.

Second, sheltering US farmers from market forces hurts their efficiency and damages their competitiveness in the world market. Production-linked subsidies encourage farmers to continue farming practices and crop choices that may not be the most cost-effective or appropriate for the market. Furthermore, by reducing the chances of a successful conclusion to the Doha Round, this bill impedes US farmers’ opportunities to export to developing country markets. The population growth and rising incomes that will happen over the next 50 years will not happen in the United States or in other developed countries. This growth will take place in developing countries, and US farmers should advocate for farm and trade policies that put them in a position to compete in these new markets rather than ones that obstruct open and equitable trade.

Lastly, this bill continues to place farmers in developing countries at a disadvantage. Many developing country economies rely upon agriculture, and their development depends on economic opportunities in this sector. By maintaining trade-distorting subsidy programs, this Farm Bill will thwart the ability of millions of poor farmers to participate in the international market and raise themselves out of poverty.

With high commodity prices brought on in part by the biofuels boom, the reauthorization of the Farm Bill comes at a perfect time for the United States to reconsider its farm policy, which largely dates back to the Great Depression but no longer serves its original purpose. The US needs an updated agricultural policy that reflects the current state of agriculture within its borders as well as agriculture abroad, not an extension of expensive, trade-distorting policies that undermine its agricultural sector’s competitiveness and international credibility while also hurting farmers both in US and in developing countries.

The onus now shifts to the Senate, where hopefully, a more careful and transparent examination of these important issues will occur.



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