The US Congress has just 14 days in which to agree on a new farm bill able to secure the approval of the White House, and time is running out. If a farm bill is not passed by March 15th, then the so-called ‘permanent legislation’, the provisions of the Agricultural Adjustment Act of 1938 and the Agricultural Act of 1949, would again become legally effective. The implications of this happening have recently been analysed by the US Department of Agriculture and would have such a dramatic and perverse effect on US farm programmes that it is most unlikely that Congress would let it happen. But Keith Good’s recent reporting on farmpolicy.com suggests that agreement is proving difficult to reach. There are interesting parallels but also significant differences between farm policy developments in the US and our own farm policy reform in the EU.
The 2007 Farm Bill
The White House kickstarted the debate on a new Farm Bill to replace the 2002 Farm Security and Rural Investment Act when then Agriculture Secretary Mike Johanns unveiled the USDA farm bill proposals in January 2007. The USDA proposals had been preceded by a massive public consultation exercise in the previous two years which included 52 Farm Bill Forums across America. The proposals were intended to transition towards more market-based programmes and to distribute resources more equitably among producers and commodities.
Key elements were more effective payment limits, strengthened disaster relief through a new revenue-based counter-cyclical programme, reductions in loan rates and loan rate caps, additional funding for conservation, renewable energy research and speciality crop producers, as well as revision of nutrition programmes.
The bills subsequently passed by both Houses of Congress were much more traditional, promising to make the additional payments for conservation and Californian fruit and vegetable growers but also maintaining and even extending the traditional farm commodity programme subsidies, including a new $5 billion ‘permanent disaster’ fund.
Stand-off between Congress and the White House
The difficulty is that the White House has threatened to veto any bill which comes in significantly over the Congressional Budget Office baseline for farm spending, and both Democrats and Republicans now believe the final bill could cost up to $9-10 billion more than the baseline, which the White House has indicated would not be acceptable.
Under the pay-as-you-go rules any new spending must be offset by new tax revenue or funding cuts elsewhere. Apparently, the farm policy lawmakers have been looking at all kinds of potential tax sources to close the gap, including new taxes on foreign companies setting up in America and higher taxes on consumers’ credit and debit card transactions.
Leading Senators such as Senator Tom Harkin have indicated that they are prepared to make cuts in decoupled direct payments to reach the necessary budget figures, but the White House has ruled this out.
The original USDA bill had proposed an increase of $5.5 billion in direct payments. And despite the huge increase in commodity prices for commodities such as corn and soyabeans which are major beneficiaries of direct payments, cutting direct payments does not seem to be acceptable to the White House.
The USDA analysis of the implications of reverting to ‘permanent legislation’ combined with the expiration of various payment authorities in the 2002 Farm Bill if US legislators cannot sort this out in the next 14 days are hair-raising (see also a similar analysis by the Congressional Research Service). Minimum price support for wheat producers would jump from $2.75 per bushel to £7.80 per bushel, but only if they can produce records showing that they had a wheat allotment in 1958! Payments to sugar and soybean producers would disappear, while new enrollments in conservation programmes would be halted.
Implications for EU
Apart from the substantive issue of what happens to US farm policy in two weeks’ time, the US experience raises interesting reflections for the EU reform process. For example, if the Lisbon Treaty is passed and implemented from next year, giving the European Parliament much greater powers with respect to agricultural policy, will we see the same kinds of standoff between the Commission (perhaps backed by the Council) and the Parliament as currently witnessed in the US?
Will EU legislators in the current health check be prepared to cut into the Single Farm Payment by agreeing to modulation as proposed by the Commission so that funding for conservation and other rural development initiatives can be increased, as effectively proposed by some US Congresspersons in their debate? The US debate on continuing direct payments at a time of high commodity prices deserves a wider hearing in Europe.