This week, Congress began debating whether to cut subsidies to U.S. farmers. Lawmaker are focusing on the Farm Bill, a massive, 5-year, half-trillion dollar package of subsidy, conservation and nutrition programs.
The U.S. had been backing away from policies that can undermine farmers in other countries. But critics say proposals for the new Farm Bill threaten to undo some of that progress.
The stereotype of the American farmer propped up with government cash is, at best, a bit out of date.
Government payments to U.S. farmers growing the major commodities, including maize, wheat, soybeans, cotton and peanuts, make up just eight percent of their income.
That's one of the lowest rates among developed countries, says farm policy analyst Václav Vojtech with the Organization for Economic Cooperation and Development (OECD).
“They are not the front-runners but they are pretty low on average, because the OECD average is about 20 percent,” he said.
One reason for the low payments is high global crop prices. The subsidy that pays farmers when the markets are down has not been much of a factor recently.
In fact, with grain prices way up, farmers have earned record or near-record profits the past few years. But they still receive about $5 billion per year in what are called “direct payments.” That subsidy goes out in good times and bad. Recipients don’t even have to grow a crop to get direct payments.
But Congress is looking to cut $20 to $40 billion from the Farm Bill. Even the largest U.S. farmers’ group, the American Farm Bureau Federation, expects direct payments to go away.
“Politically, I think, we just can’t sell [justify] them anymore," said Mary Kay Thatcher, the Farm Bureau’s chief lobbyist. "People feel like it’s farmers getting money for doing nothing.”
But that won’t be the end of U.S. farm subsidies.
“You might say, ‘Gee, U.S. farmers, they’re going to give up $5 billion a year of direct payments,'" said economist David Orden with the International Food Policy Research Institute. "This sounds like a good change in farm policy and a benefit to the taxpayers. But if you look at the analysis of the legislation, they’re basically clawing back about 90 percent of that.”
The legislation being considered by both chambers of Congress includes new provisions that would increase subsidies if and when crop prices go down again. One proposal raises the market price below which farmers receive a payment. Another protects their total income when prices fall.
Orden says both versions would anger farmers in other countries because they kick in when farmers around the world are also dealing with falling prices.
“Right at that point they would see the U.S. expanding its subsidies and they’d shake their heads and say, ‘There goes the U.S. again, protecting its farmers right at the time that we’re feeling the pain,’” Orden said.
Playing by the rules
In fact, as far as world trade goes, the direct payments that are going away are a more benign policy, says the Farm Bureau’s Mary Kay Thatcher.
“It’s crazy because they are practically the only commodity-type program that we have that is viewed as non-trade-distorting. And you look at the European Union, they’re moving their common ag policy toward direct payments. We’re moving away from it,” said US Agriculture Secretary Tom Vilsack.
According to Vilsack, even under the new Farm Bill proposals, the U.S. will still be playing by the rules.
“I’m confident that the work that has been done up to this point by the U.S. and the work that will be done in the future will not get us in a position where we are doing more than the international community will allow,” he said.
Under World Trade Organization rules, the U.S. is allowed to spend $19 billion on the type of subsidies proposed in the new Farm Bill. Orden says it would take an exceptionally bad year to go over that limit.
But negotiators have been working for more than a decade on new WTO rules that would lower that limit and require other countries to open their markets, too. Orden says those talks are going nowhere. And that’s one reason the Farm Bill is shaping up this way.
“The 2013 Farm Bill, in that context, will be a kind of political back-slipping," he said. "Not violate our current commitments, but a political back-slipping that will have ramifications for the future prospects, including the future prospects for U.S. farmers and exporters.”
Orden says it dims the prospects for U.S. leadership on a new WTO deal that would improve the livelihoods of farmers worldwide.