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TechnoratiThe US Farm Bill and the Global Food Crisis
Last week Congress passed a pork laden farm bill that could cost American taxpayers up to $289 billion over five years. At the same time, a global food crisis is deepening. Average prices for wheat, rice, and corn have gone up 41 percent since October 2007. Food riots are rocking cities from Haiti to Egypt to Ethiopia. Tragically, U.S. agricultural policies, designed to placate American agribusiness, are contributing significantly to today's global food crisis.
In the short-term, skyrocketing food prices have been driven by a perfect storm of rising reliance on biofuels; droughts and floods in key food producing regions; the surging price of oil, which raises the costs of petrochemical fertilizers and transportation; and rising demand for meat in China and other newly prosperous areas of the developing world.
According to the International Food Policy Research Institute, 30% of the U.S. maize crop currently goes to ethanol production, and biofuel subsidies range between US$11 billion and US$13 billion a year. By encouraging U.S. farmers to switch land away from food production, U.S. subsidies for ethanol contribute to the biofuel dimension of the food crisis.
In the long-term though, the real damage done by America's agricultural policies has been to undermine agriculture in developing countries. This structural imbalance makes poor countries reliant on food imports and vulnerable to volatile international food markets; limits opportunities for agriculture exports; decreases global food supply; and prevents farmers in poor countries from quickly growing more food in response to rising demand.
Since WWII, U.S. farm policies have promoted the growth of agribusiness by guaranteeing prices to assure profitability as well as paying farmers not to grow in order to prevent a glut of food on the market. Developing country farmers simply cannot compete -- domestically or internationally -- with cheap subsidized rice, corn, and wheat from the United States. This market distortion undermines both public and private investment in food production in the global south.
When Peru introduced a "shock" import liberalization program in the 1990's to lower tariffs, food imports increased dramatically, particularly of cereals and rice. According to Oxfam International, increased food imports stiffened the market competition faced by smallholder farmers, who cultivate traditional Andean products like quinoa and potatoes. The availability of cheap, imported grain changed eating patterns in favor of wheat and rice, and precipitated a decline in potato consumption.
Cheap food from the U.S. reduces the incentive for developing country governments and the international development community to invest in increasing the productivity of small hold farmers in Africa, because even more productive crops would be competing against subsidized U.S. food exports. The green revolution of the 1960's in Asia -- an important underpinning of subsequent economic growth -- was spurred by advances in agricultural productivity targeted towards the soil, climate, and crops specific to the region. Farm yields doubled and tripled within a decade. Similar technological investments have not been made in African agriculture. In fact, public agricultural research and development spending actually declined during the 1990s. African farmers lack access to improved seeds and fertilizer, and many small producers grow less than one-fifth as much on the same amount of land as their counterparts in Asia.
The inability to compete with subsidized U.S. crops also reduces the incentive for governments to invest in the rural-to-urban transportation infrastructure urgently needed by farmers. Currently, poor transport infrastructure makes it very costly for rural farmers to export crops or get their goods to domestic urban centers. But even if transport costs were decreased significantly, the reductions might not be sufficient to overcome the subsidy advantage enjoyed by American agribusiness.
Moreover, competition from cheap U.S. food imports have encouraged some rural farmers to focus on subsistence farming or to abandon farming entirely and move to cities. At the same time, U.S. subsidies make it more difficult for food exporters to find buyers on the international market. Competition from U.S. subsidized agribusiness -- both domestically and internationally -- has shrunk agricultural capacity in developing countries, making it difficult for farmers to quickly grow more food now in response to rising prices.
The demand of a growing urban workforce for affordable food has historically played a key role in pushing governments and farmers to make food cheaper by boosting agricultural yields and reduce production costs. When urban food demand is met by subsidized food imports, there is less pressure for farmers to produce more, or for governments to improve agricultural productivity or transportation infrastructure so rural farmers can get their crops to cities. Being priced out of the international market depresses public and private investments even more. In a vicious circle, underinvestment contracts the agricultural sector, makes small hold farmers less competitive, and increases the price of food grown in developing countries compared to subsidized crops from the United States.
Ironically, artificially cheap global food prices over the past few decades, made possible by U.S. agricultural subsidies, are making the world's poor vulnerable to skyrocketing food prices today.
At the same time, U.S. food "aid" is more a vehicle to dump excess U.S. production than a benefit for hungry populations. Congress requires that food aid be purchased from U.S. growers and shipped overseas. This hurts developing country farmers by undercutting them in their local markets, further reducing domestic production. The policy also prevents the U.S. from contributing to the emergence of food futures markets in the global south. Lack of predictability often makes poor farmers reluctant to invest in improvements that may not turn a profit for several years. Futures contracts, common in the U.S. and Europe but virtually unheard of in rural Africa, Asia, or Latin America, would guarantee farmers' incomes and increase incentives to make investments with short-term costs but long-term gains.
Meeting the growing demand for food in the face of rising energy costs requires increasing the agricultural productivity of small-hold staple food farmers in Africa and the Caribbean; reducing reliance on oil dependent inputs like petrochemical fertilizer; improving the transport infrastructure necessary for developing country farmers to be competitive; and raising the profits realized by small farmers in poor countries, in order to encourage them to produce more. Key is improving agricultural yields using techniques other than oil based petrochemicals. These measures will reduce poor countries' reliance on volatile international oil and food markets and increase global food supply.
A long term solution to the food crisis is very difficult so long as U.S. agricultural policies continue to distort the market. The real tragedy of the global food crisis is that the hunger gripping families from Port-au-Prince, Haiti to Yaounde, Cameroon is not inevitable. The blame rests, at least in part, with us.
Terra Lawson-Remer, J.D, is a graduate of NYU School of Law and is currently completing her Ph.D. in Political Economy at NYU's Law & Society Institute. Her research addresses globalization and the political economy of economic development, including natural resource governance, international trade and human rights law, property rights, poverty and climate change, extractive industries, transnational corporations, and the relationship between formal law and informal social norms.
Copyright © 2008 HuffingtonPost.com, Inc.
12 Comments so far
Show AllOk, bad article, and in some ways good.
First the good. Better than most articles on the food crisis, it gives us a picture of poverty in Least Developed Countries which are 70%+ rural. There really is a lot to think about along those lines in this article. "In the long-term though, the real damage done by America's agricultural policies has been to undermine agriculture in developing countries." Excellent. Yes that's the most important point!
Then the bad. The view of the commodity title of the U.S. farm bill given here is false, with the most important factors omitted. (And so to in most articles in the mainstream or progressive media.)
"Since WWII, U.S. farm policies have promoted the growth of agribusiness by guaranteeing prices to assure profitability as well as paying farmers not to grow in order to prevent a glut of food on the market." Ok, so far not totally wrong, except the best programs didn't pay farmers to reduce the supply, it was required. Payments went with weak, voluntary programs. But this was good, not bad, for LDC farmers! But more importantly this hasn't continued "Since WWII." It was reduced 1953-1995 and then ended in 1996. Basically though, the government set a price floor and ceiling, managed supply and kept strategic reserves. The reason is that farm prices lack price responsiveness on both supply and demand sides (http://agpolicy dot org/weekcol/248.html and many other articles there).
"Developing country farmers simply cannot compete -- domestically or internationally -- with cheap subsidized rice, corn, and wheat from the United States. " Ok, I split this off from the quote above. This is also almost true, but not under the programs I described above. First, there were no commodity subsidies 1933-1961 as is repeatedly claimed across the web (except for a few cotton subsidies 1934-1939). And fair trade/living wage prices in the US were not "cheap ... rice, corn, and wheat." Ok, after the price floors were lowered for many years, cost of production fell below full costs (ie. 1981-2006) and we almost always exported at a loss, "cheap." And yes, they haven't been able to compete. And yes, all those bad impacts occur.
Ok, then ethanol, in helping to raise prices, helps get fair trade prices for LDCs, to end poverty there.
Actually, it is false to say "so long as U.S. agricultural policies continue to distort the market." We stopped managing supply and placing a floor under the market in 1996. But yes, it's not rational to be below cost, to export at a loss. A non distorted market is usually below our costs, well below.
Subsidies don't cause any of the oversupply or low prices (Rethinking U.S. Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide, http://agpolicy dot org/blueprint.html). They just unfairly shield US farmers from the world farm depression. Eliminating them does nothing economically to help LDC farmers. Prices will still be just as low, with only indirect changes (a few precentage points vs 30-60% dumping) (See Paradox of Agricultural Subsidies, Tufts University, p. 21, http://ase dot tufts.edu/gdae/Pubs/wp/04-02AgSubsidies.pdf).
So, to "placate American agribusiness" is in below cost gains to buyers (exporters, CAFOs, processors), not in subsidies to farmers to partially compensate for massive losses.
Ok, "artificially cheap global food prices over the past few decades, made possible by U.S. agricultural subsidies, are making the world's poor vulnerable to skyrocketing food prices today." Yes, finally someone is pointing that out. But no explanation. Dumping makes the farmers poor in LDCs (70%+ rural) destroying their economic engine, (economic multiplier, job multiplier, wealth creator) farming.
Search my name and "price floor" or "food crisis" to get more info and sources.
Good article.
And that 200 billion food aid? It's 2 billion.
Thats was a Democratic congress passed that bill. I thought WTO was against subsidies. My god, I am on the same side as Bush on this.
http://www.heritage.org/Research/Agriculture/bg2134.cfm
"Farm subsidies are intended to alleviate farmer povÂerty, but the majority of subsidies go to commercial farms, which report an average income of $200,000 and a net worth of nearly $2 million.
Farm subsidies are supposedly needed to keep farmers afloat, yet 90 percent of all subsidies go to growers of just five crops (wheat, cotton, corn, soybeans, and rice). Farms producing the majorÂity of farm products (including fruits, vegetables, beef, and poultry) survive without subsidies.
Farm subsidies are intended to raise farmer incomes by making up for low crop prices. Instead, subsidies promote overproduction, lowering prices even further. Expensive proÂgrams to restrict plantings are then impleÂmented to raise prices again. Ethanol mandates raise prices further.
Farm subsidies are intended to help struggling family farmers. Instead, they harm those farmers by excluding them from most subsidies; financÂing the consolidation of small, individually owned farms into business conglomerates; and raising land values to levels that prevent young people from entering farming.
Farm subsidies allegedly are intended to be conÂsumer- and taxpayer-friendly, but they cost Americans billions of dollars each year in higher taxes and higher food costs.
Washington would continue to spend approximately $25 billion annually to subsidize a small, elite group of farmers through policies that do nothing to help the farm economy
snip
"No matter how high corn prices soar, the direct payment program would force taxpayers to send $2 billion in direct payments to corn farmers every year. Wheat farmers would receive $1 billion in annual direct payments, and farmers of other crops would receive a combined $2 billion in annual direct payments.
These payments are not based on farmer incomes, crop prices, or any standard of need. Farmers are not even required to grow the listed crop to get a subsidy; the law requires only that they have grown it at some point in the past.
Although prices of the subsidized crops have more than doubled since the last farm bill, the conference agreement reportedly reduces direct payments by just 2 percent, which would then be restored in the final year to preserve the bloated spending baseline. If farm subsidies are designed to compensate farmers for low incomes caused by low crop prices, then conÂtinuing to pay more than $5 billion annually to farmers regardless of crop price is an improper use of taxpayer dollars."
Obama and Hillary, what is their position. Being from Illinois I assume Obama is for it and using food as gasoline.
Might just root for McCain. Voting in a Democrat will just give the neocons an excuse to attack us again so they can get elected in 2012 on a platform of the Dems being too weak on terror. Both parties are committed to the destruction of America anyways, might as well let the Republicans take the credit for when the UN gets invited in to help control the cranky people as they wake up. Go McCain! (sorry Iran, it's either you or Obama doing Russia and/or Pakistan).
Only by falsehoods is Bush seen as good on the farm bill. And the Heritage stuff is false, and footnoted to other false sources, and misses the largest scandal of all. See my other posts.
Subsidies are for massive losses in an absurd farm bill wanting to continue our quarter century policy of losing money on exports. Fruits and vegetables don't want what grain has! They're more profitable on various measures (return on equity, parity, share of the food dollar).
There's nothing consumer/taxpayer friendly about farm subsidies. They're totally unneeded expenses, but price floors and supply management are needed instead.
It's not about $25 billion in subsidies, it's about the bigger and hidden (not in government budget) below cost gains as the US loses billions on exports. Gains: $2.5 Billion each for Tyson and Smithfield. (Search their names and Tufts and Timothy Wise and Elanor Starmer.
In WTO's free trade ideology, subsidies are falsely blamed and below cost gains (and real dumping) are ignored. Direct Payments are "green box" and, by ideology, claimed to be non trade distorting, and good. Many progressives fell for this and signed on, but then forgot it and attacked them. But it's all really bogus and irrelevant.
Subsidies for the main crops are much worse in this farm bill, and will very possibly help move US agriculture from an economic strength (2007-2008) into a crisis or depression.
Why is it that the people lecturing us on food and ag issues have no real background in this area? The author went to NYU law school. Are you kidding me? The closest she has probably ever got to a green plant was in Central Park (ok I admit i exaggerate, but for a reason).
By the way, farmers do NOT get a huge chunk of subsidies if the crop prices are too high. It' called a Loan Deficiency Payment (LDP). I won't see any of that subsidy this year I can assure you (I have crop land).
Another big part of the farm bill is money for the Conservation Reserve Program(CRP). It seems leftists are now bashing a major step forward in environmental conservation and habitat restoration (check out the left wing's ewg.org website bashing CRP payments to farmers). Since when are liberals against environmental causes?
It seems the desire for cheap food and cheap gas among liberals is winning out. My conservative friends are the ones maintaining their conservation land instead of turning it into production land. My liberal friends don't seem to gave a sh#T except having more land for cheap food. Oh the irony!!!
Most of the rest of the farm bill (200 Billion$) is for feeding poor people. Since when are liberals against feeding the poor?? Again: oh the irony!!
I would suggest the author go West of the Hudson River once and a while.
With crude oil over $125.00 a barrel ethanol production is hugely profitable even with corn at $13.30 a bushel (a bushel of corn is 56 pounds of the shelled grain at a very low moister content). A bushel of corn will produce 2.7 gallons of ethanol and a 18 pounds of a byproduct called distiller's grain, a medium quality livestock feed. The new farm bill lowered the federal tax credit on ethanol production from 51 cents a gallon to 45 cents a gallon. Any subsidy for ethanol with the current market conditions is insane.
By the harvest this fall the U.S. will have built enough ethanol distilleries to convert every bushel of corn we now export into ethanol. The United States accounts for nearly 75% of the world's corn exports.
America's ethanol production will have the same effect as if America's corn crop failed.
Ethanol production at current levels effectively pegs food costs to energy costs, since it is pretty obvious that the world has reached peak oil we should expect food prices to continue to soar; increased costs for food and energy will inevitably lead to lowered standards of living.
Finally much of the increase in grain prices can be attributed to the shrinking value of the dollar. Bush's war created massive federal deficits, while his tax cuts helped transfer vast amounts of wealth from the middle class and working poor to the wealthy elites creating enormous pressure to lower the value of the dollar against other currencies.
Anti-birth control religion and cheap labor seeking corporations at work.
I am sure Ms Lawson-Remer means well and has the complete answer to all of the countries and the world`s agricultural policies, but as complicated as they are, it is doubtful.
She did not mention that two thirds of the "farm" bill is spent for the food stamp and school lunch programs, so it is good to keep that in mind when talking about "pork laden" bills that go to greedy agricultural interests.
What happens when the geese stop laying golden eggs for our overloards?
Money always wins, it seems.
Read Frederick Douglas. Fair shares aren't just given, you have to stand up and fight for them. This isn't utopia.
Corporate farming wins.
Why is this a surprise, given the corporate sponsorship of guv, especially Congress?
Our overlords have spoken.