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Where Farm Policy Meets the Food Crisis

Author: Lee Hudson Teslik
May 28, 2008

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Farmers in the United States and European Union will be watching more than the weather this summer. New legislation pending on both sides of the Atlantic holds significant implications for the future of agriculture markets, international trade policy, and the food crisis that continues to grip large swaths of the developing world.

At first blush, Europe's efforts seem broader than Washington's. On May 20, the European Commission presented a proposal (VOA) that would do away with decades-old rules capping domestic agricultural production, while simultaneously overhauling how European governments dole out subsidies to farmers. This could mean an end to the practice where farmers are paid to leave land fallow, which economists say represents a major market distortion. The legislation might also attempt to cajole farmers into greener behavior (Telegraph) by eliminating subsidies for farmers who refuse to adopt ecologically friendly reforms such as limiting pesticide use. To pass, however, the bill must gain approval from all EU member states, and that could be a tall order.

In the United States, Congress recently forged its own comprehensive agriculture legislation, though economists didn't much like the results. The Economist lambastes the new U.S. Farm Bill, which required Congress to override President Bush's veto. Despite an effort to cut back on subsidies to the wealthiest U.S. farmers, the article says a Byzantine system of handouts and insurance benefits mean only households making over $1.5 million a year will see any reduction to their subsidies—and even those restrictions can be avoided through loopholes. Several countries at recent World Trade Organization meetings slammed the legislation (Reuters). CFR's Sebastian Mallaby says Washington's policies have aggravated the global food crisis—"not for the first time in Washington do the fat welfare queens of the farm lobby trample on the poorest people in the world," he writes.

For this dynamic to be amended, experts say structural adjustments to U.S. food aid policy will be necessary. President Bush proposed earlier this year that the U.S. farm bill should require the United States to purchase a quarter of its food handouts overseas, a plan aimed at making food donations cheaper and more plentiful, and at bolstering local agriculture markets in the developing world. Congress acknowledged this line of reasoning by authorizing the purchase of $60 million worth of local food (USNews), but critics say that's a drop in the bucket, given the scope of the global food crisis. Many economists hope future iterations of the U.S. farm bill will allow for a much larger percentage of U.S. foreign food aid to be bought overseas.

It's hard to overstate the stakes. The Financial Times' Martin Wolf reckons no sector is as grossly distorted by subsidies and protectionist policy as agriculture. The promise of a multilateral trade deal from the Doha round of trade talks does not seem to have provided incentive for policy change. The food crisis, on the other hand, just might. The run-up in food prices stands out not just as a humanitarian crisis, but potentially a security matter as well. An interactive map shows civil unrest bubbling in dozens of countries pinched for food supplies—including energy providers like Mexico and Uzbekistan and some important commodity exporters in Africa.

Experts say major revisions to U.S. food aid policy or the EU's Common Agricultural Policy—if legislators can muster the will to pass them—will play an important role in alleviating these problems. Wolf puts trade and other policy interventions alongside humanitarian aid and productivity gains as the three critical elements to solving the food crisis. In a new working paper, CFR's Laurie Garrett says the focus should fall squarely on structural reforms to agricultural policy, without which broader issues like rising energy costs due to ethanol subsidies will remain unaddressed. With a U.S. presidential election on the horizon, many observers hope more lasting policy change could be afoot. If Europe's leaders push through their proposed subsidy cuts in Brussels, they would set a meaningful example.

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