Budget cuts, freezes expected in farm support regimes
By Brian Beary in Washington | Wednesday 16 November 2011
The ongoing debt crises in Europe and the United States are having an impact on farm support regimes too, with both sides moving to limit or reduce total spending on agriculture. Whereas the EU and US have fought bitterly in the past over farm subsidies, today’s political climate is much more harmonious. Spending levels are flatlining, there is greater awareness of the need for subsidies not to be trade distorting, and food prices are high, which has reduced the need for supports. However, as senior EU and US agricultural policy officials outlined new policy proposals at a seminar at Johns Hopkins University in Washington DC, on 15 November, significant policy divergences were also evident. While the EU is firmly wedded to a direct payments-based system, the US has grown dissatisfied with this model and is more keen on crop insurance, something the EU has not thus far embraced.
According to Joe Glauber, chief economist at the US Department of Agriculture (USDA), “there has been a move toward re-coupling in the US. I think you are going to see this trend continue in the Farm Bill”. Congress is now debating the 2012 US Farm Bill, which will set farm spending levels and policies for the next five years. Given the US government’s urgent need to reduce its overall spending deficit, lawmakers are expected to slash farm spending by between US$23 billion and US$33 billion in the coming decade. But the USDA’s Glauber noted that more of those farm payments would be classified as ‘amber box’ payments at the World Trade Organisation (WTO), meaning the US would probably move closer to its WTO spending ceiling. That said, the US would still remain well below that ceiling, Glauber forecast, given today’s high food prices. Tassos Haniotis, director of economic analysis at the European Commission’s DG Agriculture and Rural Development, similarly noted that the EU would not come close to its WTO spending ceilings given the state of the market.
GROWING POLICY DIVERGENCES
The seminar was organised by the International Food and Agricultural Trade Policy Council, a Washington-based think tank. Haniotis briefed the audience on the core elements of the Commission’s new proposal, unveiled on 12 October, that sets farm spending for the 2014-2020 period. Of the roughly €60 billion a year in proposed spending, 75% would come in the form of direct payments, he said. Direct payments were useful in stabilising farm incomes and ensuring farmers’ compliance with certain policies, he argued. But the USDA’s Glauber noted that direct payments have been criticised in the US for paying farmers needlessly when prices were high and he felt that their stabilising effect was overstated. On crop insurance, Glauber noted there had been a sharp uptake in the popularity of insurance schemes in the US, with corn the biggest beneficiary. The Commission’s Haniotis noted that the EU had not introduced a crop insurance scheme so far mainly due to reluctance from the EU member states. Another policy difference is the large environmental component in the EU proposals, with 30% of payments linked to farmers taking measures like growing at least three different crops. In the US, meanwhile, the debate is focusing on the whether to continue with the mandatory corn ethanol production targets that Congress enacted in 2007.
It was noted that the European Parliament, for the first time, enjoys the same lawmaking powers on farm policy and spending as those enjoyed by the US Congress. Haniotis pointed out that given that Parliament was a newcomer in the process, it did not yet have the same research resources that Congress has. That said, MEPs are actually expected to devote more time to deciding on the new proposals than their counterparts on Capitol Hill. The US Farm Bill adoption process looks like being a more truncated affair on this occasion, largely because of the intense pressures on US lawmakers to slash spending across the board. A Congressional super-committee is in the midst of trying to meet a self-imposed 23 November deadline for agreeing US$1.2 trillion in spending cuts over the next ten years.