NCPA - National Center for Policy Analysis


September 22, 2006

Over the next year, Congress will produce a new farm bill to replace the gargantuan five-year giveaway that makes up the current one. Conventional wisdom holds that it won't differ much, despite strong motivating factors for reform, says the Economist.

Under the current bill:

  • The federal government spent over $20 billion on farm subsidies last year, more than it spent on foreign aid and almost twice what it spends on subsidizing college for poor children.
  • Most of the direct cash is lavished on crops, particularly corn, soybeans, rice, cotton and wheat, causing more trade distortion and depressing world prices.
  • Farmers who grow corn, soybeans, rice, cotton and wheat crops received 93 percent of the subsidies between 2002 and 2005.
  • Six out ten American farmers get no federal money, but 10 percent of farmers get 72 percent of the available funds.

Despite the big payouts, many farmers are beginning to see the need for reform, albeit for differing reasons:

  • Fear of litigation at the World Trade Organization is one reason for reform's momentum; Brazil has already won a case against American cotton subsidies and farmers are worried that other crop subsidies could be vulnerable to a WTO case.
  • Ethanol production is a major factor; increases in input prices, especially corn, will cause subsidies to decline.
  • Public awareness of the subsidies' scale, and their inequity, has been rising; the 60 percent of farmers who get no cash from Washington, particularly fruit and vegetable producers, are increasingly cross.

From a trade perspective, the new farm bill could be a modest improvement, says the Economist. The United States may well be heading for more green subsidies and fewer trade-distorting ones. But despite Washington's budget crunch, few expect Uncle Sam's generosity to farmers to abate much.

Source: Editorial, "Uncle Sam's Teat," the Economist, September 9, 2006.

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