On Wednesday, as anticipated, the House of Representatives passed the Farm Bill after a 2 year impasse with 251 to 166 votes. The Democratic leadership of the Senate has already endorsed it, making it likely that it will pass the Senate floor as well in the coming week and be on President Obama’s desk soon. Media and lobby group reactions, as well as politicians’ own levels of satisfaction, were an extremely mixed bag. One frequently cited commentary came from Rep. Tim Walz (a Democrat from Minnesota):
“Of course it’s not perfect. If you want perfect, you’ll get that in heaven. This place is closer to hell, so this is a pretty good compromise that we have come up with.”
Let’s go through the main features, shall we?
1. Overall price tag: $956 billion for five years, which apparently represents 10-year savings of $16.6 billion (according to the New York Times) to $23 billion according to Politico when you take the cuts effected during the 2 year debate period into account (I’m not sure why the different time spans are cited here.) Around one third of these cuts come from the food stamp program SNAP.
2. The SNAP compromise: After an intensive and emotional debate and various attempts to divorce the food assistance and farm policy (remember this?), SNAP policy is included in the Farm Bill again. The compromise in cuts arrived at eliminating $8 billion over the next 5 years, which is twice the amount the Senate originally proposed but still much lower than the $40 billion the House had first come up with. This means around 850,000 households will lose about $90 per month, which anti-hunger groups say would amount to the loss of 34 meals per month for those affected. Though there were also modest budget increases for food banks (around $200 million), they are not expected to cover the shortfall, leading many Democratic politicians to reject the bill. According to Joe Crowley from New York, “the fact that an $8bn cut in food stamps is considered a compromise just shows how unreasonable the original demands were. What have we come to when we arguing about how much of a cut to hungry children is reasonable?“
3. Direct payments: As one major reform step, the US is moving away from the direct payment system the EU still utilizes as one of the main pillars of its agricultural policy. Direct payments are attributed to farmers according to their size of land and/or number of heads of livestock, and thus support farmers without producing extreme production incentives, which is the EU’s rationale for using them. Having been a major part of US ag policy over 18 years, they are a thing of the past for the US now, saving around $5 billion per year. However, that doesn’t necessarily mean all support for farmers is being cut, as the next point shows.
4. Government-subsidized crop insurance: This is what will replace the direct payments, and budget hawks say that this ‘reform’ looks more like a bait-and-switch strategy since the insurance subsidies are likely to result in similar or even larger expenditures, though they are harder to plan (since they only come into action in case a crop fails or prices are significantly below what farmers were expecting). To be specific, farmers will have two options in getting assistance to hedge their risks: according to Politico, “the first, known as Agriculture Risk Coverage and favored by the Senate, promises early but temporary assistance to growers faced with a downward cycle of prices. Payments would be triggered once prices fall 14 percentage points below the prior five-year average. But the subsidy covers only a narrow 10-point band — from 86 percent to 76 percent of revenues — and will fade after several years if prices don’t improve. The second choice, Price Loss Coverage, fits the more classic countercyclical model of fixed, government-set target prices — not a rolling five-year average. PLC payments would typically be triggered later in a market downturn but then promise a more permanent floor to cover a farmer’s production costs“. Forecasts expect the combination of the two bills to cost around $27.2 billion over 5 years, which is – again – is even slightly more than the cut in direct payments. However, these forecasts are highly dependent on crop prices and are thus likely to change over time; even now, the cited estimation was using higher corn prices that are currently present.
From a (European) agricultural economics perspective, such subsidized crop insurance is not an ideal policy instrument simply because, if it fulfills its purpose, it will eliminate much of the risk of producers that otherwise lead them to more careful planting choices. When you eliminate the potential of making losses by effectively locking in prices like these proposals do, you are pretty close again to the target-price system that lead to the infamous butter mountains and milk lakes in the EU since farmers just kept producing. This is especially relevant in an agricultural system that tends to overproduction with little regard for ecological limitations when faced with price incentives. 🙁
Ok, let’s switch to some positive perspectives, shall we?
5. Overseas food aid assistance: Though not implementing large-scale reforms of the USAID system of still shipping most of its food aid in goods produced in the US, the Bill does allow for $80 million more of direct monetary assistance that USAID can use to buy food close to disaster areas. Small win!
6. Soil and conservation measures: According to Dan Wrinn, director of public policy for Ducks Unlimited, an advocacy group for birds, wildlife and wetland conservation, there are “landscape changes” happening in this Bill in the conservation realm because the crop insurance subsidies are leveraged to increase compliance with conservation measures of prairies and wetlands. After much anxiety during the debate that farm subsidies would be uncoupled from any environmental compliance criteria, it’s nice to see that a point so important to environmentalists pass (Ducks Unlimited estimated that 7-14 million acres of highly erodible lands and 1.5-3.3 million acres of wetlands across the U.S. that aren’t currently being farmed could have been impacted without conservation compliance).
7. Support for organic farmers: Politico writes that “it’s almost a coming of age for growers of organic foods” with more support for research in organic agriculture, a federal marketing campaign, and an easing of the criteria of access to the expanded crop insurance program that makes it easier for organic farmers to participate after years of practically been barred access. Yet, there is still a disproportional focus on conventional crops, says Kari Hamerschlag, a food policy analyst at the Environmental Working Group: “The support for organic farming in the farm bill is not commensurate with the economic importance of organic farming in this country. For a $32 billion to get not much more than $150 million … it’s just way out of alignment. The industry still has a ways to go in terms of getting Congress to recognize how important the sector is for job development.” Still, baby steps, right?
Well, I think that’s a wrap! Let me know if you read more interesting analyses of the Bill or any subcategories of it – in the several hundred pages there must be more fascinating tidbits hidden!
How do you feel about the Bill? Glad that at least something passed, or unhappy about the final compromises?
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