See also: Ideas for the 2012 Farm Bill
The US Farm Bill is wide ranging legislation passed every four or five years. It has major effects on agricultural subsidies, agricultural trade, rural community development, farm credit, food aid, conservation and nutrition programs.
The current farm bill, officially called the Food, Conservation, and Energy Act of 2008, will expire in 2012.
Basic components include:
Commodity Programs - Direct payments, counter-cyclical payments, and marketing loans for wheat, feed grains, cotton, rice, oilseeds, peanuts, sugar, and dairy.
Agricultural Trade and Food Aid - Export and international food assistance programs and World Trade Organization (WTO) obligations.
Nutrition - Food stamps, supplemental food assistance, and other nutrition programs.
Farm Credit - Programs to provide federal direct and guaranteed farm loans
Rural Development - Business and community programs to support rural development, including broadband access
Energy - Program to support the bioenergy industry through biorefinery and renewable energy system development.
Miscellaneous - Other programs including crop insurance, disaster assistance, animal welfare, organic agriculture and other specialty commodities.
High costs and controversy
The Farm Bill, like agricultural subsidy programs in other wealthy nations, is highly controversial. This article summarized the criticisms and provides potential solutions that could be included in the new, 2012 Farm Bill.
Subsidies may sometimes be justified, for example to support an emerging industry in its infant stages of development or to correct for a market failure, long-term subsidies are generally regarded as inefficient and price distorting.
Nobel laureate in economics Joseph Stiglitz, argues that agricultural subsidies cause higher food prices than what a free market would provide.
The goal of subsidies is to discourage imports or encourage exports by artificially lowering the price of domestic products (or in the case of tariffs artificially increasing the price of imported products). Subsidies can be classified among the forms of protectionism and trade barriers. Agricultural subsidies are also used to keep down the cost of food and to support a self-reliant food system.
Subsidies transfer economic benefits from one group to another by using tax dollars to finance the agricultural industry.
Global market disruption
Farmers in developing countries have the competitive advantage of access to cheap land and labor. Subsidies distort these advantages and result in a system of providing commodity products that is not as efficient as it could be.
In addition to government subsidies, farmers in developed countries have the advantages of greater access to technology, easier credit and economies of scale.
The economic climate and the mounting debt in the US may lead to greater scrutiny of agricultural subsidies in the 2012 Farm Bill.
A short history of free trade
Replacing 1948 agreements, the World Trade Organization (WTO) was established in 1995 to supervise and liberalize international trade with the understanding that free trade benefits the world as a whole.
The most recent major trade negotiations, called the Doha Round, were launched in 2001 to enhance participation of developing countries in free trade and globalization.
Negotiations stalled because participating countries could not reach agreements on agricultural subsidies and other protectionist measures.
A WTO ruling in 2009 determined that US subsidies to cotton farmers were in violation of free trade agreements. To avoid retaliation, the US now pays a “technical assistance fund” of $147 million per year to Brazil as a form of compensation until a long-term solution can be arranged.
Roman Keeney, an agricultural economist at Purdue University, notes that a focus of the 2012 Farm Bill will likely include compliance with the WTO rulings. Although the compliance may be limited to the Brazilian cotton case, it is foreseeable that complaints from other WTO members regarding commodity crop subsidies will be raised in the future.
Forcing nations to need our
Ironically, these countries then must compete with subsidized imports from developed countries. For example, after Indonesia removed price controls as part of conditions for an IMF loan package, it became the largest recipient of international food aid.
The effect of commodity dumping in developing countries depends on many factors including trade balances for agricultural products. Countries or regions that are traditionally food importers benefit from artificially low priced food because it allows a greater portion of income to be spent on other investments such as health care or education.
On the other hand, countries that are or could be net food exporters are hurt by the surplus commodities dumped onto world markets because the domestic farmers are unable to compete with the subsidized products.
Since a majority of the populations in developing countries rely on agriculture as their sole means of income, many economists and nonprofits, including the End Poverty CampaignSM, regard agricultural subsidies as very harmful to developing countries.
Though it can be argued that low food prices in developing countries support the transition from sustenance farming to industrial manufacturing, this cannot occur in the short term and cannot occur without capital investments in infrastructure, training, and technology.
High food prices
This price trend is changing for three reasons:
While price increases are theoretically good for farmers in developing countries because it allows them to compete with subsidized products from developed countries, this will only happen under the right conditions.
Rising prices also bring acute food shortages. Farmers in developing countries have not been able to quickly adapt to the increased production to meet demand. Lack of access to markets, limited capital to support the acquisition of technology and inputs, and poor infrastructure are all factors that impede the ability of farmers to benefit from food price increases.
The increased price of food imports for developing countries has varying impacts on different countries. Some nations absorbed the higher food import prices because this is balanced by higher earnings from exports.
But even in countries where the balance of payments has not been adversely affected, poor households may not see their income increase at the same rate as food prices. A study performed at (Ivanic and Martin, 2008) found that in six of eight developing countries included in the study, price increased for staple food products were associated with a significant rise in poverty in the short term. However, high prices may provide opportunities to stimulate agricultural markets in the medium and long term, provided that the appropriate incentives, structure, and support are present.
Removing trade barriers in developing countries often causes food insecurity and dependence on imports. It leads to dramatic, sudden price increases causing widespread hunger and poverty.
While complete self-sufficiency in food production may not be feasible or even desirable, particularly in countries prone to drought, disease, or war, a certain level of food security protects from the global economy's price spikes.
Free trade ideally leads to the most efficient use of scare resources, but the desire for food security justifies policies that provide a more reliable and secure source of affordable food.
Developed countries such as the US and EU members support lower food prices by subsidizing their own farmers. Similar subsidies and tariffs are removed in developing countries as part of IMF loan packages. This creates food insecurity in developing countries by discouraging domestic food production. Their farmers are harmed by imports from wealthy nations whose subsidies mean food can be sold below its real cost of production.
This ultimately diminishes the effectiveness of the aid. First, the cost of shipping food can absorb half of the amount of the total aid, decreasing what is actually delivered to the recipient country. This helps for profit shipping companies, not poor people.
Second, in all but the most drastic emergency situations, this food undermines the agricultural markets in the recipient countries which is often the primary source of income for those affected by the emergency situation.
Other Criticisms of the US Farm Bill
Ideas for the 2012 Farm Bill
by Alicia Farag, with additional environmental points added by Bill Blackman, Hearts & Minds volunteers