What are the implications of the latest farm policy?
A two-year, highly partisan clash in the US Congress officially drew to a close on February 7, when President Barack Obama signed the Agricultural Act of 2014 (the “farm bill”) into law. The law authorizes more than $950 billion in government spending on nutrition programs, crop insurance, conservation efforts, commodity programs, and more over the next 10 years. “Farm bills are always complicated. This one is particularly complicated,” says IFPRI Senior Research Fellow David Orden.
Central to the stalemate was the embattled Supplemental Nutrition Assistance Program, commonly known as food stamps. The attempt to slash food stamp funding was seen by many as a politically—and some might add, morally—questionable move, and the $40 billion in cuts proposed by the House of Representatives was ultimately trimmed to an $8 billion reduction, amounting to less than a 1 percent contraction in expenditures.
As the World Trade Organization (WTO) continues to advocate for a less distorted global agricultural system, the farm bill does little to support the cause. By tying the payments made to farmers more closely to prices and production, the law moves away from so-called nondistortionary programs and toward those that can distort markets when falling prices trigger payouts. “This is quite retrograde,” says Orden.
“We’re moving in the wrong direction, back to continuing the long tradition of providing support to farmers when prices or revenues fall.”
Crop and dairy subsidies, particularly direct payments, were a long-controversial element of farm bills past. These no-strings-attached payouts, totaling approximately $5 billion a year, were disbursed to famers based on the size of their cropland—even if, in some cases, they didn’t plant a seed. While the new bill eliminates direct payments, it keeps other subsidies firmly intact—albeit in new forms.
Crop insurance now plays a weighty role in farm policy, constituting the second-largest expenditure in the bill, surpassed only by nutrition spending. Since 2008, crop insurance covering farmers’ yield and revenue losses within a production year has displaced other types of farm assistance and was further strengthened in the farm bill. The law introduces a new Supplemental Coverage Option (SCO) that indemnifies farmers against smaller losses than covered under past insurance programs.
The farm bill also replaces past price and income support for cotton farmers with an insurance program—a change endorsed by domestic producers and intended to comply with WTO rulings on cotton. “This is perhaps the first time that the WTO has had such direct influence on US farm policy,” says Orden.
The 2014 farm bill debuts a new dairy insurance program based on the margin between milk prices and feed costs, as well. With these various additions, the insurance programs brandish a price tag of $90 billion over the next 10 years.
The farm bill strengthens more traditional types of farm assistance, too, revising past countercyclical price and revenue support programs. Farmers must choose between two types of countercyclical programs for each crop they produce: Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC). PLC provides payments to farmers when the price of a commodity drops below a predetermined floor. And ARC—like SCO—covers losses smaller than what would be covered by farmers’ crop insurance. Because these programs tie US policy more closely to prices and production, compared with the 2008 farm bill, expenditures will be less predictable and could prove significantly more costly should commodity prices fall.
The move toward policies bound to prices and production might not have happened had a stronger WTO Agreement on Agriculture been reached in the Doha Round negotiations in Bali in November 2013, Orden points out. “Now that this farm bill has been enacted into law,” he says, “it makes it all the more difficult for new WTO disciplines to be considered.”
At the end of the day, what remains is another expensive, distortionary, subsidy-laden bill. It is, indeed, a “new” farm bill but the song remains the same.
For more information on this topic:
- 21st-Century Agricultural Policies: The 2013 EU CAP and 2014 US Farm Bill, IFPRI policy seminar featuring Jean-Christophe Bureau, AgroParis Tech; Carl Zulauf, Ohio State University; David Orden, IFPRI & Virginia Tech; Shahid Rashid, IFPRI; Vince Smith, Montana State University & American Enterprise Institute, July 16, 2014