(By J. Wesley Burnett, Ph.D. & Nathan P. Mehrens, Esq.) – After one of the longest Congressional debates over agricultural policy in U.S. history, the Agricultural Act (Farm Bill) of 2014 was signed into law on February 7, 2014. This bill ended the direct payment program but left two key features. First, the Farm Bill created an expanded crop insurance system that is delivered by the private sector and enables farmers to purchase protection against crop failure and market swings. Second, the bill created new countercyclical mechanisms designed to provide assistance when prices dip below production costs.
The Congressional Budget Office (CBO) estimates that the 2014 Farm Bill will cost the federal government nearly $1 trillion over a ten-year period, and of that total, approximately $800 billion will go to nutrition programs.
While the projected $200 billion that CBO projects will be spent on agriculture programs over the next decade is a considerable taxpayer expense, farm spending has trended downward in recent years due to free market-oriented policy reforms. Federal spending on agricultural programs dropped by 40 percent between 2000 and 2014, and spending is projected to continue trending downward through 2020.
The policy reforms within the 2014 Farm Bill are consistent with the evolution of domestic farm policy since 2002, which created a more market-based system. These recent reforms have forced the agriculture industry away from a federal command-and-control system, to one where farmers have a much greater freedom to make production decisions for themselves.
Some members of Congress have recently sought additional reforms to international agricultural trade. For example, U.S. Congressman Ted Yoho (R-FL) has introduced a reform proposal for the sugar industry entitled zero-for-zero policy. Under the proposal, the U.S. government would push for zero subsidies abroad; and, in exchange, the federal government would completely rollback all domestic, government-supported sugar programs. Basically, the zero-for-zero policy calls for a lift of all restrictions and tariffs on trade among all countries that engage in the global sugar market.
The zero-for-zero policy could greatly benefit world sugar markets, but the same argument could be made for any globally-traded agricultural commodity. As the U.S. government is taking a leadership position in demanding freer global markets and the elimination of foreign trade-distorting policies, the debate should continue domestically as to how we can continue reducing taxpayer spending and encouraging more market-oriented U.S. policies.
Recent reforms to U.S. agricultural policy have given more weight to the federal crop insurance program over the direct payment program. These are positive movements in reform; however, some organizations insist that the reforms do not go far enough to achieve economic efficiency. Minimizing, if not absolutely removing, any form of subsidies in U.S. agriculture would greatly encourage the fundamental principles of competition and economic welfare.
However, the U.S. cannot and should not act unilaterally in its reforms, which would only reduce the competitiveness of domestic farms in international markets. To ensure the long-term competitiveness and viability of our industry, the U.S. needs to establish multilateral trade agreements with its foreign competitors. Congressman Yoho’s proposed zero-for-zero reform policy provides the basic fundaments for a successful subsequent Doha Round trade negotiation. However, the federal government, in close cooperation with the World Trade Organization, must take a hard stand in these negotiations to ensure that our foreign competitors are not in violation of the WTO’s Agriculture Agreement. U.S. policymakers must also stand up to foreign interests, such as the E.U.’s requirements for GMO-food labeling, to ensure that our negotiating trade partners are not putting up unfair trade restrictions, which are inconsistent with a zero-for-zero approach to trade liberalization.
Dr. Burnett is an Assistant Professor of Economics at the College of Charleston and Mr. Mehrens is the President of Americans for Limited Government Foundation.