Concerns about US Farm Bill’s scrapping of direct payments
By Brian Beary in Washington | Friday 18 January 2013
Farm subsidies may be less divisive an issue today for EU-US relations than they were in the past, but they still feature on the radar. While from the 1990s, the EU and US converged somewhat in how they chose to subsidise their farmers, the latest US Farm Bill proposal, which will set farm supports for 2013-2017, reverses that trend. Some EU officials are watching with concern as the US prepares to abandon the so-called ‘direct payment’ model of subsidy that the US itself pioneered in the 1990s and which today is a key part of the EU’s Common Agricultural Policy (CAP). Direct payments have gained a bad reputation in the US, seen by some as giving public money to farmers for doing nothing, so Congress is set to jettison them, replacing them with more crop insurance subsidies. This could eventually set the EU and US on a collision course at the World Trade Organisation (WTO), which sets ceilings on subsidies that it deems to be trade-distorting. The crop insurance subsidies that Congress looks set to embrace would be classified as trade-distorting under WTO rules. So, if the US increases their use, it could be at risk of overshooting its subsidy ceiling should food prices rise.
The current WTO ceiling on ‘amber box’ trade-distorting subsidies for the US is $19 billion. Analysts anticipate that crop insurance payments under the Farm Bill as it is currently drafted would amount to at least US$9 billion a year. Back in 1990, crop insurance subsidies in the US were just US$0.4 billion. By comparison, under the European Commission’s proposals for farm spending for 2014-2010, direct payments – which are classified as non-trade distorting by the WTO and thus there is no ceiling on them – should amount to around €40 billion a year. This model is likely to be retained by the EU, albeit tweaked slightly to promote more environmentally-friendly farming practices. The EU has its own crop insurance programme. This is considered by the WTO as ‘green box’ or non-trade distorting because farmers’ revenue losses must exceed 30% for them to be eligible to receive payments. The US government began to subsidise its farmers back in the 1920s, while the EU’s CAP dates from the 1950s.
Some in the EU, however, view the rise of crop insurance subsidies in the US as a positive development. For example, in the European Parliament, which is now co-legislator on all aspects of farm policy, the Chair of the Committee on Agriculture (AGRI), Paolo De Castro (S&D, Portugal), recently told
Europoliticsthat he viewed the US crop insurance model as something that the EU should consider emulating. The existing US regime, set under the 2008 Farm Bill, will expire in September 2013 so the coming months should see the details emerge. While the overall volume of farm subsidies remains to be negotiated, both parties in Washington agree that direct payments should be phased out.