Background

• The Farm Bill is renewed by the US congress every 5 years and extends $286 billion in crop-related subsidies to American farmers and agribusiness. Subsidies are given for the production of large commercial crops, primarily corn, cotton, rice, and wheat. The Farm Bill also includes around $44 billion in other subsidies for food assistance for farmers, land conservation in agricultural areas, money for rural communities, and more.
• The bill was first approved in 1996 as the Farm Bill, renewed in 2002 under the Farm Security and Rural Investment Act, and is up for renewal again at the end of the 2007 crop year..

Debate

• Proponents sympathize with the struggling agriculture industry, which is often portrayed as small farmers, but corporate farms enjoy most of the subsidies.

• Opponents argue that farmers in countries whose governments cannot afford to subsidize agriculture are unable to enter these crucial markets because their products are more expensive than the subsidized products. Products that can enter US and EU markets are sold at lower prices to compete with subsidized American and European products. Affected countries tend to be some of the poorest countries in the world, such as the cotton belt in Western and Central Africa. In an address given at the 2003 WTO Doha development round, the President of the west African country of Burkina Faso reported that Mali received US$37 millions of dollars in development aid from the United States and Europe but lost US$43 million from lower export revenues as a result of trade-distorting subsidies in rich countries (Source: WTO). According to economic theory, taxpayers and consumers lose, as a tariffed market would result in higher food prices, and a subsidized market uses taxpayer's dollars. This results in overall inefficiency of resource allocation.

Country Comparison

• Global
  
  • The European Union also engages in similar trade-distorting practices. The United States and Europe have been jointly criticized because agricultural subsidies are inconsistent with their own principles of free trade and the rules of the World Trade Organization (WTO). Subsidies keep the price of American and European agricultural products artificially low and tariffs are imposed on competing imports.

Recent Developments

• American and European agricultural subsidies have been central issue at Doha trade round since it was established in 2001 for the purpose of lowering barriers between developed and emerging economies. In the June 2007 round, negotiations broke down over the issue of agriculture subsidies. The United States offered to cap subsidies at only US$22 billion, which was met an equally ungenerous offer for limited cuts on industrial tariffs from the Brazilian trade minister.
• Currently, the bill provides subsidies to corn ethanol and imposes tariffs on imports from Brazil that are less expensive and more environmentally sound. But demand for ethanol has increased the price of corn and land (which is raising the price of other grains). The rise in prices has prompted President Bush to attempt a cut in crop-related subsidies to $7 billion a year and sustain the $44 billion a year on other kinds of farmer assistance. He also hopes to increase conservation spending from $4.9 billion a year to $5.7 billion. The President wishes to divert some of this assistance to smaller farms, which is popular with many Democrats (Source: The Economist).
• On July 27th, passed the 2007 Farm Bill. The Senate is expected to begin deliberations on its version of the farm bill in September 2007.

Additional Information