US, EU diverge on ag programs, frustrate developing countries
July 23, 2014 | 09:36 PM
Appearing at the International Food Policy and Research Institute seminar last week, from left, are Vince Smith, Shahid Rashid and David Orden. Smith, a Montana State University professor, is director of agricultural policy research at the American Enterprise Institute; Rashid is an IFPRI senior research fellow, and Orden, a Virginia Tech professor, is also an IFPRI senior research fellow. (Alex Gangitano/The Hagstrom Report)
By JERRY HAGSTROM
and ALEX GANGITANO
The United States and the European Union have updated their farm programs within the past year, but they have gone in divergent directions, prominent academic analysts said at an International Food Policy and Research Institute seminar in Washington last Wednesday.
David Orden, a senior research fellow at IFPRI and a professor at Virginia Tech, presented a paper written with Carl Zulauf of The Ohio State University which noted that the United States had moved away from its previous policy by eliminating the direct payments to crop farmers and shifting back toward countercyclical support with new crop subsidy programs and a broader crop insurance program.
The U.S. government has also continued conservation programs with less of an emphasis on idling land and more on assistance to keep working lands healthy, the paper said.
Orden noted that the U.S. cotton program was changed to bring the United States into compliance with World Trade Organization rulings, but said “little else in the new law moves U.S. farm policy in the direction implied by the disciplines on production and trade distorting support in the WTO Agreement on Agriculture.”
“The elimination of fixed direct payments and increased reliance and increased reliance on risk management programs replaces WTO green box measures [the least trade-distorting] with WTO amber box measures [the most trade distorting],” he said.
But Orden said that whether the new farm bill will cause the United States to exceed its annual cap of $19.1 billion on domestic support is unclear.
“If we get a period of relatively low prices, we will be back in the environment of … challenges arising in the WTO,” he said.
The possibility of the United States exceeding the cap may depend on choices that farmers make between the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programs.
“These are decisions farmers are going to have to make, choosing between these with imperfect information,” he said.
At the same time Congress was rewriting the farm bill, the European Commission and European Parliament completed a new version of the European Common Agricultural Policy, noted Jean-Christophe Bureau, a professor at Agro-Paris Tech, part of the Paris Institute of Technology, and director of research in public economics at France’s National Institute of Research in Agronomy (INRA).
But while Congress got rid of the direct payments, the European Union stuck with the single farm payment program that it established in the mid 1990s at the same time the United States established the direct payments.
The European payments, which go to a much broader range of farmers, were changed, with grain producers getting less money, grazing livestock producers getting more, and countries that wanted to help smaller farms more getting the flexibility to make larger payments on the first 52 hectares.
The payments are also supposed to be restricted to “real” farmers,” rather than golf courses or absentee landowners, he said.
In addition, Bureau noted, 30 percent of the single farm payment will be a “green” payment. European farm groups opposed that provision, and it was watered down from the way environmentalists wanted the payments structured. The rewrite also ended dairy and sugar quotas, liberalized rights for wine plantations and created a budget to deal with crises.
There was not much of a budget reduction, and in general members states were given so much flexibility that “the CAP is no longer really ‘common’,” Bureau said. But the European Commission, the executive branch of the EU government, resisted pressure to establish a large-scale crop insurance program.
“This reform is often seen as quite disappointing because it hasn’t changed much,” Bureau said.
Orden said that because the new U.S. programs are somewhat decoupled from current planting decisions the U.S. program is “not as different from the EU fixed income support as it first appears.”
Orden said that he and Zulauf had concluded that the passage of the bill and President Barack Obama’s signature on it “indicates continued political strength of the U.S. farm support lobby” and the “continued political strength of the coalitions that arise to enact farm bills.”
The final legislation, he noted, reauthorized the Supplemental Nutrition Assistance Program, better known as SNAP or food stamps, with only a 1 percent reduction in projected outlays.
“They pulled it together one way or another, [which is] strong evidence of a very strong farm lobby. We’re kidding ourselves that it has become weaker,” Orden concluded.
“Nutrition programs needed the farm lobby to push nutrition into the agenda, [this is] probably in reverse now,” Orden said. “But that coalition has certainly stayed strong.”
Bureau said, however, that he is under the impression there is more support in the EU for the new policies than in the United States.
During a comment period, Vincent Smith, a professor at Montana State University and director of agricultural policy research at the American Enterprise Institute, said American farmers are fortunate to have a new farm bill at all.
Smith attributed Congress’s decision to pass the bill to the negative reaction to the government shutdown.
“We have, what is relative to what previously existed, a very expensive farm bill,” Smith said.
Of the expanded U.S. crop insurance program, Smith said, “The right question to ask, which too many analysts in the World Bank have failed to ask, is not how do we make crop insurance work, [but] is that the most efficient use of funds?”
“Which is exactly the issue that should be raised. The right question is always what is the cost efficient policy to achieve the goal- and crop insurance is rarely that right tool.”
Shahid Rashid, an IFPRI senior research fellow, noted that neither developing country officials nor their advocates have responded positively to either the new U.S. or European programs.
The EU did not reduce its farm budget much, Rashid noted, adding that regarding the U.S. farm bill “[there is] a state of confusion over if subsides are for farmers or insurance companies.”
▪ U.S. Agricultural Act of 2014: Reaffirming Countercyclical Support
▪ — Synopsis
▪ EU CAP: Income Support and Eligibility Requirements
▪ Video — Seminar on 21st Century Ag Policiies
