Change is in the air
New directions for farm policy?

By Loni Kemp, Senior Policy Analyst for the Minnesota Project

Posted September 28, 2004: For seven decades, U.S. farm policy has basically followed one track. Some farmers get a subsidy check from the government when prices are low. However, for the first time in memory, a real chance to debate and change that track now seems possible. Surprisingly, the impetus for change is coming from an unlikely source—the World Trade Organization—rather than our own legions of disgruntled farmers and environmentalists.

The primary purpose of farm policy has been to stabilize farm income. Because weather and markets will always be volatile, it is in the public interest to ensure a relatively stable farming sector to ensure adequate food production.

But three flaws are continually embedded in farm policy. First, from the beginning only a few chosen commodities were selected for support. Corn, wheat, cotton, rice, and soybeans are the anointed crops. Livestock, dairy, fruits and vegetables are left out. So farmers who want to grow other crops must operate at an economic disadvantage. Unfortunately, the designated commodities tend to be row crops that require the greatest soil disturbance and use of chemical inputs, leading to vast environmental degradation.

The second great flaw is that we reward for each bushel produced. So farmers naturally try to maximize production of the protected crops in order to maximize their income and minimize their risk. This has led to a cycle of ever greater supplies with little change in demand, which results in lower prices and thus the drive to get more ‘efficient’ with expensive technology and inputs in order to grow more and get a bigger check from the government. The unintended consequence is more environmental harm and loss of biodiversity as every available acre—hilly, wet, wooded, or marginal—is drawn into production.

The third great flaw in commodity policy is that farmer payment limits have proven impossible to enforce, whether because of a lack of political courage or the legal creativity of some farmers. Essentially, the government continues to underwrite the great consolidation in farms that’s been under way for the past century. The big get bigger using their enormous commodity checks, and, again, care of the land suffers.

An ill-fated attempt to break this cycle of overproduction was adopted in the 1996 farm bill. Unfortunately, “decoupling”—the policy to gradually eliminate payments until we got the government out of production agriculture—forgot about the original purpose of U.S. farm policy. When income stability disappeared with dropping prices a few years later, the old system of subsidies came right back bigger than ever in the 2002 farm bill.

Now something has happened that has agriculture groups of every stripe looking for a new approach. In a landmark ruling this summer, the World Trade Organization affirmed a challenge from Brazil that most U.S. cotton subsidies are illegal. Driven by hopes for export markets, U.S. commodity groups had pushed for a level playing field for free trade by reducing the various financial advantages countries give to their own producers. Now, those same agriculture groups seem surprised that their own commodity subsidies (even the direct payments) are being challenged as unfair by other countries. Brazil argued that the subsidies led to overproduction, U.S. dumping (selling below the cost of production) on global markets, and suppressed prices, thus giving the U.S. an unfair share of the world market. While the decision will likely be appealed and has already influenced new trade negotiations, it nevertheless brings into question the future of subsidies for corn and other commodities

What is suddenly very much in demand is an alternative policy that could contribute to basic farm income, but without driving overproduction of commodities. The WTO designates such allowable subsidies as being in their ‘green box.’ Of course, we already have the essence of such a policy in the Conservation Security Program. When fully implemented, this new program will be a green payments program that offers farmers willing to meet high conservation standards a yearly paycheck in return for producing conservation benefits such as clean water, healthy soil, and wildlife habitat. In effect, we will pay for conservation produced instead of commodities produced.

Powerful farm and commodity groups are sensing a real threat to subsidies and are looking for options. As Bob Stallman, President of the American Farm Bureau Federation, testified recently, “International trade issues and budget pressures may cause a future evaluation of the means of supporting agriculture. The conservation programs authorized under Title II of the farm bill, which fit within the ‘green box’ of the World Trade Organization Agriculture Agreement as non-trade distorting programs, are important to these policy considerations” (U.S. House Agriculture Committee’s conservation subcommittee, June 15, 2004).

It is not too early to begin shaping the discussion for the next farm bill in 2007. It will take time to build a comfort level, support and detailed proposals for green payments. The Minnesota Project intends to be there every step of the way.

Published in the Autumn 2004 edition of Community Connections, newsletter of the Minnesota Project, by Senior Policy Analyst Loni Kemp.