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Troubling Harvest for Trade

Author: Robert McMahon, Editor
November 9, 2007

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The U.S. Farm Bill has been blamed for global trade-round failures, environmental abuses, even obesity. So as the measure came due for renewal this year, it looked to be particularly ripe for reform, especially with prices for the most heavily subsidized commodities surging (CNBC). But thus far, agricultural forces aligned in Congress appear on course to pass a new five-year bill totaling nearly $290 billion, keeping intact many of the subsidies that have raised such an outcry.

Farm bills date to the 1930s, when the federal government came to the aid of farmers hit by plunging commodity prices. Subsidies have persisted ever since despite substantial changes in farming and farmers' welfare. Critics say a disproportionate amount of the subsidies go to a small number of farmers (the Environmental Working Group, which tracks the farm bill, says more than 70 percent of payments between 1995 and 2005 went to only 10 percent of recipients). "Today's corporate farm is about as similar to a 1930s homestead as a massive air-conditioned tractor combine is to a team of horses," writes Victor Davis Hanson, a senior fellow at the Hoover Institution.

Supporters say the bill is a safety net for U.S. farmers and keeps food prices down. The chair of the Senate's agriculture panel, Sen. Tom Harkin (D-IA), stresses a large chunk of the bill goes to nutrition-related programs. Yet opponents say it is artificially propping up some crops over others, hurting the competitiveness of farmers. Rep. Ron Kind, (D-WI), who has sought to scale back subsidies, tells CFR.org U.S. farmers need to "learn how to compete both at home and abroad." Cheap corn and soybeans are subsidizing what author Michael Pollan says are the wrong kind of calories (NYT), "helping to make Twinkies cheaper than carrots and Coca-Cola competitive with water." NPR gives an overview of the pros and cons of the legislation.

Particularly damaging is the bill’s effect on the World Trade Organization’s Doha round of talks, hung up in part on U.S. and EU rigidity on agriculture supports. Congress is not necessarily anti-trade; the House approved the free trade deal with Peru (The Hill) on November 8. But CFR Senior Fellow Jagdish N. Baghwati noted that the House version of the 2007 Farm Bill passed last summer as talks involving the United States, European Union, India, and Brazil were in progress. The effect was to undermine the negotiating position of U.S. Trade Representative Susan Schwab, who pressed India "to offer market access in agriculture even as the U.S. offered little of her own," he wrote.

Observers from humanitarian groups to economists say the market distortions resulting from massive subsidies impede developing states that could produce some agricultural goods more efficiently. West African cotton farmers are hurt by U.S. cotton subsidies-totaling $3.3 billion in 2005 alone–that stimulate overproduction (TIME) and depress world cotton prices. CFR's Michael Gerson, a former aide to President Bush, says some of the poverty in these countries "exists because Congress has not acted in responsible ways on agricultural policy." The distortions hit at home, too. The Washington Post reports U.S. consumers and food processors pay more than $1 billion annually in higher prices for sugar because of aspects of the sugar program that keep out cheaper non-U.S. suppliers.

Though strong congressional support for the Farm Bill exists, it will not exactly have a smooth ride through the Senate. Senators Richard G. Lugar (R-IN) and Frank R. Lautenberg (D-NJ) are pushing to replace many of the subsidies with a free crop insurance program for farmers, keeping the safety net but balancing the playing field more fairly. And the Bush administration has threatened to veto (PDF) the current Senate bill, saying it would expand trade-distorting subsidies at a time of robust growth in the U.S. farming sector. The odds are long, but if a presidential veto was to take place, it "might blow the farm debate wide open," the Economist says.

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