With the current farm bill set to expire this year, Congress has an excellent opportunity to improve our federal farm policy.
In 1996, Congress passed the Freedom to Farm Act, which put U.S. farm policy on a fiscally responsible course oriented toward the free market. Unfortunately, it only took Congress a couple of years to veer off course and institute record spending on farm programs. By 2002, Congress had replaced the Freedom to Farm Act with the Farm Security Act. Without an emphasis on reform, the next farm bill reauthorization will continue the spending trend and push us even further off course from market reforms.
The best place to begin reforms is with farm payments. Over the last decade, the U.S. has spent about $160 billion on farm subsidies. In 2005 alone, while farmers nationwide were seeing three years of record incomes, the federal government spent more than $20 billion on subsidies. As U.S. Department of Agriculture Secretary Mike Johanns pointed out in recent comments to the Farm Bureau, the economic situation that surrounded the expensive rewrite of the farm bill in 2002 has all but evaporated. The value of farm exports and farm cash receipts has been consistently high, relative to 2002 levels. In addition, according to Secretary Johanns, farmers saw a historically low debt-to-asset ratio in 2006. These factors, combined with the possibility of smaller farm payments due to higher commodity prices, make 2007 a perfect opportunity for reform. Congress should refuse to pass any farm bill that doesn’t transition the agriculture payments programs to a more fiscally responsible footing.
Aside from the cost, there are well-known implementation problems associated with the subsidies program. Simply put, the current program provides disproportionate benefits to a few, some of whom are not even farmers, at the expense of many. The Congressional Research Service reported that only about a third of farmers receive subsidy payments. The commodity crops have received the lion’s share of federal payments, while non-commodity crops have received little or nothing. The USDA reported that the largest 7.5% of farms received more than half of all federal payments in 2004. In addition, the act of farming is not even required to receive farm payments. According to the recent Washington Post series on farm subsidies, the federal government has paid more than a $1 billion in direct payments since 2000 for rice and other crops to individuals who do no farming whatsoever. These reasons, as well as reports of farm payment recipients like CNN founder Ted Turner and former NBA star Scottie Pippen, demonstrate that the farm subsidies program’s problems run deeper than its cost.
In 2005 alone, while farmers nationwide were seeing three years of record incomes, the federal government spent more than $20 billion on subsidies.
In addition to the extreme cost of the program and its problematic implementation, the farm policy detailed in the Farm Security and Rural Investment Act of 2002 is incompatible with our international trade obligations. Without reform, U.S. farm policy will continue to be a hurdle to future free trade agreements.
The U.S. sugar program and its supporters nearly sidelined the Central American Free Trade Agreement (CAFTA). The sugar industry in the U.S. represents a sliver of our economy, yet the protectionist program was front and center during CAFTA negotiations. The Administration bent over backwards to accommodate the sugar industry, proposing to allow these developing countries to supply only an additional one percent of our domestic market supply. Yet the U.S. sugar lobby responded with furious opposition to CAFTA, claiming it would doom family farms. This opposition put billions of dollars in additional exports for U.S. agriculture and other industries at risk.
With the outcome of the Doha Round of World Trade Organization negotiations up in the air, it is likely that the emphasis will need to be on bilateral and regional free trade agreements as a means to open markets. Without significant reform to our protected agriculture markets, it is likely that they will continue to be a hurdle to negotiating free trade agreements.
It is worth noting how other countries have tackled this problem. In the late 1980s, New Zealand voluntarily and unilaterally rid itself of most of its subsidies for farmers and opened its markets to foreign competition by dismantling most import barriers. While the transition was difficult for farmers, New Zealand reports that the benefits of reforms have led to an increase in efficiency and exports. In addition, the estimates of farmers exiting the market due to these reforms were widely overestimated.
I have no illusions that making significant and meaningful cuts in the subsidies program won’t be an uphill battle. So many different crops receive subsidies that nearly every Member of Congress has some constituency that will pressure them to maintain, or even increase, subsidies.
However, I hope that Congress will look beyond the short-term political anxiety that the farm bill re-authorization may cause and put the long-term fiscal and economic health of the country first. RF
Jeff Flake represents the 6th District of Arizona in the U.S. House of Representatives.