Illinois specialty farmers talk about inequities in the trade war bailout

Tufts Friedman School alum Jeff Hake is featured in yesterday's report from the Illinois State University NPR Station, WGLT.

Jeff Hake and his immediate family run Funks Grove Heritage Fruits and Grains, a nine-acre farm in rural McLean. McLean County has secured the largest payouts through the Market Facilitation Program of any county in the country, but Hake's farm won't see any of that money.

As a family farm that sells most of its products directly to consumers—things like black raspberries and Johnny cake mixes—Hake is not exactly on the front lines of the trade war, but he sees the bailouts as a symptom of a greater problem.

“It’s just throwing money at the problem and hoping that things will work out later,” Hake said.

U.S. China agricultural trade and the bailout boondoggle

Late last fall, Choices Magazine from the Agricultural and Applied Economics Association (AAEA) had a special issue on U.S. - China trade, highlighting the enormous value of China trade for U.S. farmers.

Introducing the special issue, which received an award at this week's AAEA annual meeting in Atlanta, Mary Marchant and Holly Wang wrote:

The United States and China, the world’s largest economic powers, have dueled in an escalating trade dispute since January 2018.... This trade dispute is important to U.S. agriculture, because China has been the United States’ top agricultural export market outside of North America since 2009 with an annual sale of nearly $20 billion in 2017 (USDA, 2018b).... Although the current trade dispute continues to evolve, it is valuable for us to understand the potential negative impact and to be informed of possible consequences. It is our sincere hope that U.S. and Chinese negotiators will reach an agreement, since both countries ultimately lose with a trade war, as seen from the 1930s Smoot–Hawley Tariff.

The Trump administration has sought to offset some of the harm to farmers with bailout funding to selected producers. Using data received under the Freedom of Information Act (FOIA) law, the Environmental Working Group last month reported that many payments exceeded a planned $125k limit. Some subsidy recipients received more than $900k.

For Iowa farmers, the Des Moines Register today has a fascinating report with clever searchable web tools, allowing detailed breakdowns.

How can U.S. agricultural policy remain so absurdly dysfunctional even while being exposed to this level of public transparency?

Does the United States have a "cheap food policy"?

In connection with the second edition of Food Policy in the United States: An Introduction (Routledge/Earthscan, 2018), here is the second video in a series.

Today's question is: Does the United States have a "cheap food policy"?


Parke Wilde - Does the United States Have a Cheap Food Policy? from Tufts Friedman School on Vimeo.

American Enterprise Institute (AEI) report on poverty, hunger, and U.S. agricultural policy

In a new report for the American Enterprise Institute (AEI), Dan Sumner, Joe Glauber, and I consider all the different ways that farm programs could affect prices or incomes, which in turn could affect poverty and nutrition for low-income Americans. We conclude:

Despite occasional claims to the contrary, farm subsidy programs have little impact on food consumption, food security, or nutrition in the United States.

It might surprise you to hear that this is a widely held view among researchers and policy analysts in agricultural economics. Interestingly, it depends little on a person's political ideology.

Strongly market-oriented economists tend to describe farm subsidy programs as an ineffective use of tax dollars. Ryan Nabil and Vincent Smith write this week in Inside Sources:

There is no poverty and nutrition alleviation rationale for U.S. farm subsidies because they do not have any meaningful effects on poverty. These programs simply transfer government monies mostly to well-off folks who can afford competent lobbyists but are in no need of government handouts.

At the same time, the Environmental Working Group writes this week:

Last fall, an EWG investigation debunked the agriculture industry’s claims that American farms “feed the world.” In fact, fewer than 1 percent of U.S. exports go toward feeding the hungriest nations.

Now, a study by three leading experts shows that federal farm subsidy programs such as crop insurance don’t help feed hungry Americans either.

An analysis by Joseph Glauber, Daniel Sumner and Parke Wilde for the American Enterprise Institute confirms that farm subsidies don’t improve food security for poor Americans – even for those who live in farm country.

Before reaching our conclusions, Joe, Dan, and I tried to contemplate a wide array of ways that somebody could say farm programs help the nutrition status of the poor in the United States. For example, perhaps the programs lower prices of beneficial foods (but they don't), or perhaps they help the income of poor farmers (but they go mostly to more prosperous farmers), or perhaps they help farm workers by increasing labor demand in certain industries (but the least labor-intensive industries get more subsidies).

In a spirit of open communication across diverse traditions, especially this particular week, I look forward to participating in the AEI event this Monday, Jan 23, connected with the release of this report.

House bill would cut food assistance programs, protect farm subsidies

According to the Associated Press summary, the appropriations bill passed by the Republican-led House of Representatives would cut WIC and international food aid, while protecting most farm subsidies.

The AP report said the bill:

• Directs the Agriculture Department to rewrite rules it issued in January meant to make school meals healthier. Republicans say the new rules, the first major overhaul of school lunches in 15 years, are too costly.
• Forces USDA to report to Congress every time officials travel to promote the department’s “Know Your Farmer, Know Your Food” program, which supports locally grown food, and discourages the department from giving research grants to support local food systems. Large agribusiness has been critical of the department’s focus on these smaller food producers [note: see earlier post for context].
• Prevents USDA from moving forward with new rules that would make it easier for smaller farmers and ranchers to sue large livestock companies on antitrust grounds. The proposed rules are meant to address the growing concentration of corporate power in agriculture.
• Delays for more than a year new rules for reporting trades in derivatives, the complex financial instruments blamed for helping precipitate the 2008 financial crisis. A Republican amendment adopted Thursday would require the Commodity Futures Trading Commission, which funded in the bill, to first have other rules in place to facilitate its collection of derivatives market data.
• Prevents the FDA from approving genetically modified salmon for human consumption, a decision set for later this year.
• Questions the scope of Obama administration initiatives to put calories on menus and limit the marketing of unhealthy foods to children.

The tart AP article was mentioned in our comments section recently, and was covered by Alex Tabarrok at Marginal Revolution under the rueful headline, "Not from the Onion."

Subsidies to corn sweeteners in the U.S.

The Global Development and Environment Institute at Tufts University has released a policy brief: Sweetening the Pot: Implicit Subsidies to Corn Sweeteners and the U.S. Obesity Epidemic. Alicia Harvie, a Masters candidate in Agriculture, Food, and the Environment at the Friedman School of Nutrition Science and Policy and a Research Assistant, along with Timothy A. Wise the Director of the Research and Policy Program at the GDEI produced the document.

They explore how much cheaper high fructose corn syrup (HFCS), a critical ingredient in the American diet, was from 1997-2005 due to corn prices below corn’s cost of production and the possible connection to USDA subsidies.

"While this (corn subsidies) may not have reduced soda prices to an extent that would account for rising consumption, there is little doubt U.S. agricultural policies have indirectly subsidized a sector that may be contributing to health problems."

The research was mentioned in Farm Subsidies, Bitter and Sweet, by Grist blogger, Tom Philpott.

Cross posted from Epicurean Ideal.

Farm payment reforms fail in Senate

Both amendments--Lugar-Lautenberg's "Fresh Act" and Dorgan-Grassley's payment limits-- that would have included meaningful farm subsidy reform in the 2007 farm bill failed in the past two days, the latter falling only 4 votes short of the 60 it needed to be adopted.

The Environmental Working Group and the Center for Rural Affairs blogs have some interesting analysis of how the Democrats sabotaged reform by playing politics with the vote's parliamentary procedure, in order to prevent Sen. Blanche Lincoln (D-AR) from embarrassing her own party. They place blame for the failure of Dorgan-Grassley squarely on the Democratic leadership and those reform-touting Senators who voted against the amendment.

A number of other amendments to reform agriculture policy remain to be voted on, including Sen. Tester's (D-MT) attempt to "beef up" the new Livestock Title by adding a "packer ban" to check the power of industrial meatpackers and processors by reinforcing the Packers and Stockyards Act's rules against market manipulation. Apparently, the meat industry has been hard at work preventing this amendment from passing.

You can watch here. Update 12/20/2007: fixed broken link.

WTO rules against U.S. policies that discourage fruit and vegetable production on land that gets crop subsidies

From a nutrition perspective, the most blatantly counter-productive U.S. farm subsidy policy may be the prohibition against growing fruits and vegetables on land that is eligible for direct subsidy payments.

This is a bit complicated, so bear with me.

Farm subsidies used to be criticized for encouraging overproduction of major row crops, such as corn, wheat, soybeans, and cotton, because farmers could earn more subsidies by growing more of the crop. The overproduction harmed the environment and immiserated poor farmers in developing countries by suppressing world prices for these crops. To partly -- and only partly -- remedy these problems, beginning in the 1996 and 2002 farm bills, a portion of the subsidies were converted to "direct payments," which were based on a farmer's historical production rather than current production. These direct payments were supposed to solve the problem of encouraging overproduction, because farmers could earn billions of dollars of these welfare-style payments even without growing the crop.

However, fruit and vegetable lobbyists were concerned that corn, soybean, wheat, and cotton farmers would begin growing fruits and vegetables while collecting direct payments. This would increase the supply of fruits and vegetables and suppress their prices.

From a nutrition perspective, that would be great! But, the fruit and vegetable industries are more powerful than the nutrition lobby, so they convinced Congress to prohibit farmers from growing fruits and vegetables on land that qualified for direct subsidy payments.

This prohibition is just one of the issues at stake in the important Brazil cotton case. See farmpolicy.com today and an excellent Congressional Research Service (.pdf) report last month for the full story. Brazil argued that the fruit and vegetable prohibitions meant the direct payments continued to distort U.S. farmers' planting decisions and harm the interests of farmers in Brazil. The WTO agreed. The United States took half-steps toward fixing problems with the cotton subsidy programs, but these half-steps did not include repealing the fruit and vegetable prohibition. Even the new House-passed Farm Bill fails to repeal the prohibition.

This week, news reports say a compliance panel of the WTO has ruled that the half-steps taken by the United States do not suffice. The fruit and vegetable prohibitions continue to violate our country's world trade commitments. The consequence may be that the WTO will allow Brazil legally to impose trade barriers against U.S. export industries.

So here's my question. How many Americans in these export industries will lose their jobs so that Congress can protect this grand principle: preventing farmers from growing fruits and vegetables?

Global trade talks collapse again

Here is the unintentionally ironic quote of the day (via International Herald Tribune):

When you are in the leadership circle you have to lead by example and that's not what we are seeing.
-- U.S. Trade Representative Susan Schwab

The context, according to the newspaper's sources, is that the United States came to the talks with an offer to cap major trade-distorting subsidies at $17 billion, although current subsidies in this category are $11 billion, so the "cap" is not even a functioning cap at present.

In a revealing turn of phrase, the "leadership circle" Schwab criticized was not the United States or the European Union, but rather Brazil and India, the leading representatives of developing countries in these negotiations.

From the International Herald Tribune:

A high-level meeting aimed at salvaging sputtering global trade talks collapsed on Thursday as the United States and the European Union fell out with India and Brazil over plans to slash agricultural subsidies and tariffs.

The four members of the World Trade Organization were trying to break a persistent deadlock that has bedeviled the Doha round of negotiations since 2001: How deeply rich countries will slash the domestic farm subsidies that have distorted trade in commodities like cotton, sugar and corn.

The tragic inability to offer developing countries a pro-market route to economic development is one of the fruits of our refusal to reform agricultural subsidies here in the United States.