Roger Thurow - Outrage and Inspire - "Something to Cut"

SOMETHING TO CUT

With many words in this column, we have discussed what not to cut from the federal budget.  Namely, administration requests to fund agriculture development, especially in Africa, under the Feed the Future initiative and the Global Agriculture Food Security Program.

Now, a word – just a single word -- on what to cut.  Subsidies.

Not all the agriculture subsidies, especially those that help keep smaller farmers afloat or help maintain our food security.  But those billions of dollars in subsidies that end up in the hands of people who never get soil under their fingernails (but may own a piece of land eligible for the payments) or in the coffers of corporate farms – mainly those who don’t need the taxpayer-funded subsidies to spur greater production – or in the accounts of an ethanol industry that turns some 40% of the U.S. corn crop into fuel for cars while the world faces the looming challenge of nearly doubling food production by 2050 to meet the demand of a growing population and the growing prosperity of that population.

For decades, the ever-expanding agriculture subsidy programs of the U.S. and Europe have constituted one of the supreme hypocrisies of geopolitics and world trade.  As their subsidies grew, the rich world countries, and the international development agencies they control, were directing African governments, for the sake of fiscal austerity, to get out of agriculture and to stop subsidizing their farmers.  This created a huge imbalance in the global trade of agriculture goods; subsidized farmers were cushioned from the impact of falling commodity prices, while the unsubsidized farmers in the poorer precincts of the world suffered mightily from declining prices if their products, like cotton, were sold on the world market.  The result was that the farmers of Africa were left tilling terribly uneven plowing fields; they were left to fend for themselves in a global trading system increasingly tilted against them.

The subsidy schemes in both the U.S. and Europe had been initiated with good intentions during times of much poverty and desperation, especially for farming communities.  But, as Scott Kilman and I wrote in the book Enough: Why the World’s Poorest Starve in an Age of Plenty:

“Over the years (the subsidies) became entrenched.  The political will to scale them back grew ever dimmer as farmers became wealthier relative to the rest of society and better able to finance powerful lobbies in Washington.  In fact, although America and Europe were tight allies in the arms race with the Soviet Union, they furiously battled each other in an escalating farms race by subsidizing the prices that foreign customers paid for commodities such as wheat.”

The American subsidy payments were fiercely defended by the agriculture lobby during negotiations over the Farm Bill, which became the best example of Darwinian evolution in legislation.  Nothing could kill it, or even pry it open for reform.

In the battle over the 2008 Farm Bill, a number of organizations from across the political, religious and humanitarian spectrums formed the Alliance for Sensible Agriculture Policies to campaign against the subsidy system.  It looked like they were making progress, even winning converts in the Farm Belt, but in the end they were badly outgunned.

From Enough:

“The Farm Bill that was finally enacted in June 2008 had 672 pages, 60% more than the 2002 Farm Bill.  According to Congressional Budget Office forecasts, the federal government will spend about $104.2 billion during the life of the five-year bill on programs that put money into the bank accounts of farmers.  The amount covers everything from crop-price support payments to land idling checks to crop insurance subsidies.”

But now, as negotiations over the fiscal 2012 budget heat up and the parameters for a new Farm Bill are shaped, some members of Congress are saying that subsidies shouldn’t escape the budget-cutting scrutiny, that some tightening and reform should be considered.  “We shouldn’t be giving corporate farms, these large agribusiness companies, subsidies.  I strongly believe that,” Representative Paul Ryan, the chairman of the House Budget Committee, told a gathering of reporters last week.

Even some farm groups acknowledge that the time is ripe for a recalibration of subsidies.  With prices of many staple commodities rising to a higher plateau, and with farm incomes up, the need for price support fades.  And many farmers have been supporters of Congressional candidates clamoring for overall budget cuts and debt ceilings.  Also, the impact on farmers in the developing world is being better understood; if those farmers are to contribute to the doubling of food production in coming decades, they need incentives to produce surpluses, which means level plowing fields in the global trading system.

Still, the budget warfare will be fierce.  As we quoted an official of a subsidy watchdog group in Enough: “The staying power of subsidies is remarkable.”

Comments

[george clark]

To subsidize ethanol production does seem insane.

[Gregory Vaughan]

I am not sure if the prognosis of cutting subsidies is appropriate. What about retooling them to the system of price supports and supply controls prevalent in the US before the 1970s? Basically the government was a guaranteed last-resort buyer when prices fell below a certain level, and sold off stored surplus when prices rose. This stabilized prices and grain supply, for the US and presumably for the rest of the world too. Farmers and consumers benefited from a predictable, stable price and supply. Starting in the 1970s, this system changed such that the government simply paid farmers for any price shortfalls, as opposed to actually buying low-priced grain from farmers. Hence the government spends the same amount or more as it did before, but without serving as a buffer to grain supply and prices. Farmers have a permanent incentive to overproduce, driving prices lower, world supply higher, and costing ever more to the government. The main groups that benefit from the present modality of US farm subsidies are food traders and processors, who don't want stable, reasonable commodity prices. Processors want low prices, and traders want unstable ones.

To summarize, I would argue that the problem with US farm subsidies isn't their amount but rather their way of functioning.