21 November 2013

The New US Farm Bill: more for the favoured, less for the poor?

According to OECD’s 2013 report on Agricultural Policy Monitoring and Evaluation, the US provided a total of $156 billion support to agriculture in 2012, of which $30 billion support to producers, $41 billion support to consumers and $81 billion of general services support (research, agricultural schools, marketing and inspection services, etc.). This support represented more than one third of the support provided to their agriculture by OECD countries ($415 billion).

In a commentary posted on the Opinion pages of the New York Times, Joseph Stiglitz, Nobel Prize winner in 2001, stresses the insanity of the US food policy: billions of dollars are paid to wealthy producers who produce more than what is required, while beneficiaries of the food stamp programme get little more than 4$/day.

According the Environmental Working Group quoted by Stiglitz ‘‘from 1995 to 2012, 1 percent of farms received about $1.5 million each, which is more than a quarter of all subsidies’’. US agricultural subsidy payments have been highly inequitable, as ‘‘some three-quarters of the subsidies went to just 10 percent of farms’’.

The support provided to consumers, mainly through the Supplemental Nutrition Assistance Program (SNAP), benefitted overwhelmingly to the poor (80% of the 47 million beneficiaries are below the poverty line), but despite this, it is estimated that around 17 million people did not eat sufficiently in 2010 in the US.

Stiglitz castigates the House Republican caucus for pushing for an extension of the farm bill that ‘‘would cut back the meager aid to our country’s most vulnerable and use the proceeds to continue fattening up a small number of wealthy American farmers’’ on the ground of balancing the US books. The Republican proposal envisions ‘‘cutting food stamp benefits by $40 billion over 10 years — that’s on top of $5 billion in cuts that already came into effect’’. It also recommends shifting ‘‘government assistance from direct payments — paid at a set rate to farmers every year to encourage them to keep growing particular crops, regardless of market fluctuations — to crop insurance premium subsidies’’. ‘‘But this is unlikely to be any cheaper. Worse, unlike direct payments, the insurance premium subsidies carry no income limit for the farmers who would receive this form of largess’’, continues Stiglitz.

The Republican proposal would clearly further skew the distribution of benefits of the Farm Bill and largely continue to perpetuate its perverse effect on the world market where it gives a huge advantage to the US farmers on other producers particularly in non-industrial countries.

It is important to recall here that on an increasingly open world market where various trade agreements leave little leverage to protect local agricultural systems, producers have to compete internationally with very different cards in hand: some, with low productivity and virtually no support - and who constitute the bulk of the poor and hungry of the world - have to compete with others who benefit from an incredible level of support from their governments (see table) and have a very high productivity.

* estimate for 2010

Sources: computed by the author based on data from FAO and OCDE

Compared to the US Farm Bill, the new Common Agricultural Policy (CAP) of the European Union for 2014-2020 which decides on support provided to European farmers and that was approved yesterday by the European Parliament, seems to be following a more positive evolution, even if only in an exceedlingly slow way. Indeed, it shows a reduction of 12% of the subsidies which are brought down to around EUR 50 billion annually (approximatively $65 billion). The new CAP is greener (30% of the direct payments will have to be linked to the respect of at least three environmental norms, and at least 5% of the area of benefitting farms will have to have an ecological function. It also envisions a reduction of disparities in payments which hitherto have largely benefited larger farmers. The share of resources going to livestock production, which had benefitted much less from EU subsidies than grain production, will be increased. Unfortunately, the capping of subsidies to a maximum of EUR 300,000/farm ($400,000) was not retained.

This new CAP has created a strong reaction of rich cereal growers who organised demonstrations and road blocks today around Paris. But it seems unlikely these demonstrations stand a chance to really question the new policy.

Some further reading:

- J. Stiglitz, The Insanity of Our Food Policy

- Environmental Working Group, Farm Bill 2013

- OECD, Agricultural Policy Monitoring and Evaluation, 2013

Last update:    November 2013

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