Funny thing about this new farm bill. It’s supposed to be all about helping farmers do their jobs effectively in a global marketplace, but’s it’s really about turning votes into a cash crop.
Farm states such as Minnesota and Missouri will be battlegrounds in the next two national elections. It’s no secret that short-term political calculations shaped the legislation President Bush signed into law May 13. How else to explain those billions of dollars in additional subsidies?
Fact is, every vote is imperative as the GOP pushes hard to regain control of the Senate on Nov. 5. Same goes for the presidential race in 2004, when Senate Majority Leader Tom Daschle of South Dakota is expected to launch a stiff challenge for the White House.
When the dust settles from those elections, the farm bill is likely to be scaled back under pressure from the federal budget deficit and U.S. trade partners. But unraveling this complicated, six-year measure won’t be easy, and to an extent the damage will be done.
While the farm bill is a bonanza for big producers of favored crops such as corn, soybeans and cotton, it’s also notable for the largess it heaps on some pretty obscure stuff.
Peanuts, lentils, dried peas and, of all things, garbanzo beans, become eligible for new subsidies from Uncle Sam. The bill also restores support for wool, mohair and honey, and launches a new direct-payment program for milk.
So with all those commodities covered, who can explain oats?
Even as the nation’s legumes settle into a new life on the government dole, anyone determined to grow oats will have a tough row to hoe. The payment scheme established for that particular crop in the new farm bill is so chintzy that growing almost any other subsidized crop looks like a better option.
As a result, the U.S. is essentially ceding the market to foreign competitors. American processors will continue to be the world’s largest importers of oats, spending at least $100 million annually to fill the feed bag from Canadian and Scandinavian sources.
What about self-sufficiency?
At the same time the government is spending $19 billion a year on agriculture, wouldn’t it make sense to promote self-sufficiency?
Analyst Dan Basse of Chicago’s AgResource research firm thinks the answer is obvious, but he also says he understands why it didn’t happen for oats. “The lobbying group isn’t very strong. You could get all the people involved into one hotel room in Grand Forks,” he said. “If you don’t have the lobbyists pushing for it, that commodity gets left in the lurch. There’s no stimulus whatsoever to grow oats.”
Farmers are voting with their seeds. Last year, spring planting of oats was at its lowest acreage level since the Civil War. This year saw a small rebound amid relatively strong prices.
But Basse said he expects the acreage to decline to new historical lows over the next two or three years as the farm bill sinks in. “You wouldn’t want to be a horse.”
The kicker about those new chickpea payouts is their surprising potential for causing international incidents.
For starters, the farm bill puts an end to any thought of extending a global “peace clause” against new agricultural subsidies that has set a positive tone in trade negotiations for years. Second, the bill puts the U.S. on the verge of exceeding a $19.1 billion annual limit on certain types of payments established by the World Trade Organization, inviting sanctions.
EU, others object
Beyond that, it introduces some provocative new measures, notably a labeling requirement for meat, fruit, vegetables, fish and peanuts. To be labeled a U.S. product, the commodity will need to be raised from start to finish within the 50 states.
Already, these measures have provoked predictable complaints from the European Union, as well as Canada, Brazil, Argentina, Australia and others. Trouble is, even coming from the heavily subsidized EU, the complaints ring true.
By pushing through this farm bill, the U.S. has forfeited its leadership in the effort to reduce trade barriers and scale back trade-distorting subsidies–an effort that would benefit the U.S. in the long run. “It really lowers our credibility,” noted Philip Paarlberg, agricultural economist at Purdue University.
Back in the 1990s, Congress and the president pushed hard for reduced agricultural subsidies in the so-called Uruguay Round world trade agreement. As recently as November, at the WTO meeting in the Qatari capital of Doha, the U.S. renewed its anti-subsidy commitment.
Only six months later, the U.S. has lavished a 70 percent aid increase on its farm sector, making even the Europeans blush. As Belgian Prime Minister Guy Verhofstadt put it, “It’s hypocritical to talk about market liberalization and then not go through with it.”
Tariffs, spending
Naturally, the effect is magnified by the Bush administration’s decision earlier this year to impose tariffs of up to 30 percent on imported steel. No one should expect other nations to resist the protectionist impulse when the world’s biggest economy is embracing it.
Trade problems aside, the main reason this farm bill won’t endure is its inattention to costs.
For a few moments this spring, House and Senate conferees were said to be debating tough new limits on how much each farmer should be allowed to collect. That was supposed to address the public’s outrage about two-thirds of the money going to only 4 percent of the largest producers.
All those negotiations were much ado about nothing.
True, under the final measure, each recipient will be limited to $360,000 in annual subsidies, down from a $460,000 cap.
But the farm bill retains a glaring loophole known as “generic certificates,” which allow producers to maximize their federal payments through an accounting sleight of hand involving government Commodity Credit Corp. loans.
“In terms of payment limitations, there’s really nothing there,” Basse said. “It’s window dressing.”
Oversupply, low prices
In fact, the subsidies invite farmers to think big. Those aiming for the largest possible federal payments need only plant the highest-yielding crop, fence post to fence post, with as much fertilizer as the ground will hold.
This program has none of the acreage set-asides or other gimmicks aimed at limiting production in the past.
The resulting oversupply will push market prices down, of course. But that just calls forth even higher subsidies. No one knows where it will stop, because farmers have every incentive to bust the bins with No. 2 yellow corn.
“If prices don’t start moving up, the cost will start to mushroom,” Paarlberg said. “If it starts running $22, $23, $24 billion a year, the government is obligated to pay the money or change the rules.”
Paarlberg figures reform is more likely to come from committees charged with fiscal matters rather than from the agriculture committees.
“I wouldn’t be surprised in the context of a budget issue [to see] controls on spending,” he said.
Of course, once the payments start, they’re tough to stop. Congress lacked the political will to retreat from massive subsidies as planned under the “Freedom to Farm” legislation of 1996. Now it has created a much bigger dragon to slay–sometime after Nov. 2, 2004.
