Friday, May 16, 2008

Distortion of the global food market and the US Farm Bill

Many on the right seem desperate to lay the world food shortage at the feet of the corn ethanol movement. While corn ethanol has had a small effect on global food markets corn ethanol is really just a symptom of the greater sickness. Bee Wilson from The New Yorker writes,

Even now, there is no over-all food shortage when measured by global subsistence needs. Despite the current food crisis, last year’s worldwide grain harvest was colossal, five per cent above the previous year’s. We are not yet living on Cormac McCarthy’s scorched earth. Yet demand is increasing ever faster. As of 2006, there were eight hundred million people on the planet who were hungry, but they were outnumbered by the billion who were overweight. Our current food predicament resembles a Malthusian scenario—misery and famine—but one largely created by overproduction rather than underproduction. Our ability to produce vastly too many calories for our basic needs has skewed the concept of demand, and generated a wildly dysfunctional market.

This is something to keep in mind as the Farm Bill makes its way to the President's desk and, likely, his veto pen. It is not often that I side with President Bush on issues but the U.S. Farm Bill is full of corporate welfare for already wealthy farmers and distorts global food markets.

On the former point Andrew Oh-Willike notes that The Denver Post and Senator Ken Salazar are either misinformed or deliberately misleading the public,

The notion that our government needs to be spending $43 billion a year, more or less, subsidizing farmers making $750,000 a year net is absurd. The lion's share of these subsidizes go to farmers who are financially comfortable. The is no reason that the U.S. government should be providing corporate welfare to farmers making more than ten times the median family income. If we must have crop subsidies, which have multiple negative impacts on our economy, as a way to preserve open space and a historic way of life, they should be limited to famers who are actually struggling economically.

If Ken Salazar is going to provide corporate welfare to extremely high income farmers (and the limitations is based on a multi-year average further mitigated by generous income averaging provisions available to farmers who file their returns on Schedule F), he should at least do so knowing what he is doing and defending his stance on the merits rather than on a misunderstanding of the bill.

As to the latter point The Center for American Progress noted in 2007 that,

CARE, one of the largest humanitarian organizations fighting global poverty, announced yesterday that it would turn down $45 million in annual financing from the United States government because food grown in the United States under subsidies from the Farm Bill actually depresses the agricultural economies of the countries that receive food aid...

Crops are cheap for the federal government to buy because the Farm Bill provides subsidies to U.S. farms to over-produce commodity crops like corn and soy—a violation of international trade agreements. As the Center for American Progress’ Jake Caldwell has explained, wealthy country subsidies deprive developing countries of a market for their agricultural products, leaving many poor farmers unable to compete in the global market...

Overproduction drives down prices on the global market, while subsidies support the farms either through direct payments, loans, or price supports. Yet profit margins for individual farmers remain low compared to those of agribusiness giants that sell chemical fertilizers and genetically enhanced seeds to those farmers. Foreign farmers cannot compete with the artificial price floor created by the Farm Bill and therefore cannot compete by growing grain locally while cheap products cascade out of ships flying the American flag. Farmers in developing nations suffer while U.S. agribusiness booms.

While the President's new found religion on the farm bill is politically motivated and not grounded in policy (he supported similar Farm Bills when pushed by a GOP Congress) his veto does represent a real opportunity to educate the American public on the ramifications of our domestic agriculture policy for the rest of the world. It is not a trivial issue as millions around the world are finding out.

It's time for Congressional Democrats to unpack the various social programs (ie. Federal food stamps) from the Farm Bill, pass them separately and engage in a meaningful debate on U.S. agriculture policy. It's time we stop the tens of billions in give aways to our wealthiest farmers and it's time we deal with the global ramifications of our policies.

1 comment:

rusty said...

very insightful post and use of sources.

Big Agriculture is an industry just like Big Finance, Big Insurance, Big Auto, etc. You do have firms competing on a very narrow range of technological advancements, but there is a much greater degree of collusion between firms through a unified lobbying front to see that alternative production methods and ownership arrangements are disallowed through federal policy.

Not sure to what extent you have dabbled in farm policy in the past, but, if not, welcome. I think your healthcare policy training will be put to good use here as you find farm policy similary nonsensical, convoluted, and frustrating.