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The 2007 Farm Bill and Beyond

by 5m Editor
22 May 2007, at 12:03pm

US - The 2007 Farm Bill is hardly small potatoes. Over the last five years, farmers have received an average of $20 billion a year in subsidies and other payments.

Is this money really well-spent? Do payments and government controls on agriculture help or hurt American consumers?

To answer these questions, the American Enterprise Institute commissioned eighteen well-known agricultural economists to ascertain the effects of current U.S. agricultural subsidies, spending programs, and regulations, and to offer policy recommendations.

Directed by Bruce Gardner, professor of agricultural economics at the University of Maryland, and Daniel Sumner, director of the Agricultural Issues Center at the University of California, the authors comprehensively review and analyze American agricultural policy. Among their findings:

  • Eliminating farm subsidies for corn, wheat, and soybeans would have virtually no effect on the production or prices of these commodities. These subsidies are, in effect, "money for nothing," claims Bruce Babcock, director of the Center for Agriculture and Rural Development at Iowa State University.

  • Farm households earn 20% more than the average American household. The average income of commercial-scale farms, which receive almost all farm subsidies, is more than three times that of the average household, contends Gardner. The median net worth of farm households in 2005 was estimated at $460,000, nearly five times the estimated $92,000 for all U.S. households.

  • Elimination of farm subsidies wouldn't harm vulnerable farm families. Only 3% of all farm households have both low-income and low-net worth. These households receive only a tiny share of the subsidies.

  • Taxpayers pay $3 billion a year to subsidize crop insurance and $2 billion for ad hoc disaster payments, according to Joseph Glauber, special ag envoy for the U.S. Trade Representative. Much of the insurance subsidy pays for administration and marketing costs; only 60 cents of every dollar gets to the farmer.

  • The U.S. sugar program costs consumers hundreds of millions of dollars each year by keeping U.S. sugar prices at about double the world level, claims John Beghin, Iowa State ag economist.

  • Current policies significantly distort international trade. Subsidies cause the United States to flood the world with excess cotton, driving down market prices by 10% , to the detriment of producers in developing countries, asserts Babcock.

  • Humanitarian food assistance in poor, disaster-stricken countries costs U.S. taxpayers nearly $2 billion a year, reports Christopher Barrett, co-director of the African Food Security and Natural Resources Management program at Cornell University. Because U.S. food aid is mandated to be bagged, processed, and shipped by U.S. producers, USAID purchased $654 million worth of food for international food aid programs and spent nearly $1 billion in transport, storage and administrative costs. Logistical costs ate up 60% of the food aid budget – compared to only 32% by Canada.
Current policies also significantly distort international trade. Subsidies cause the United States to flood the world with excess cotton, driving down market prices by 10 percent, to the detriment of producers in developing countries (Babcock).

The Farm Bill also authorizes payments for humanitarian food assistance in poor, disaster-stricken countries. These programs cost taxpayers on average nearly $2 billion a year. Contributing author Christopher Barrett examined international food aid programs, and found that:
  • In FY 2005, because of mandates which require U.S. food aid to be bagged, processed, and shipped by U.S. producers, USAID purchased $654 million worth of food for international food aid programs and spent nearly $1 billion in transport, storage, and administrative costs. Such logistical costs ate up 60 percent of the U.S. food aid budget; by contrast, Canada spent 32 percent on logistics.

  • These mandates also produce absurd results, as history has demonstrated. The 1986 Farm Bill, for example, stipulated that Great Lakes ports should retain their right to ship U.S. food aid at the 1984 level. That legislation also required food aid to be shipped in U.S. flagged vessels which no longer enter Great Lakes ports. As a result, to comply with the 1986 bill, U.S. food aid was moved overland by truck or rail to the Great Lakes region, and then transported by land to other U.S. seaports for overseas shipment.
The reauthorization debate is taking place in a unique context that may lead Congress to make significant reforms.
  • Budget deficits and Congressional pay-go rules limit new spending.

  • International trade rulings and Doha round negotiations call into question the survival of current subsidy programs.

  • Interest group demands for more spending on conservation, research and development, nutrition, and other Farm Bill issues are putting budget pressure on traditional commodity programs.

  • Concern about oil prices and energy security has lead to calls for increased ethanol and renewable energy subsidies.

  • Many believe voters punished Republicans in 2006 in part because of their allegedly free-spending ways; the Farm Bill is the first major spending issue to come before Congress since the election.
Together, the papers in "The 2007 Farm Bill and Beyond" provide important facts policymakers should consider, and offer concrete suggestions for policy reform that would serve better the nation’s interests.

5m Editor