Update on 2007 U.S. Farm Bill

You can file this as an FYI.

Before Christmas both houses of the U.S. Legislative Branch passed 2007 Farm Bills and will have to move to harmonize the legislation into a single piece in a Conference Committee, a process scheduled to begin work around January 21 and possibly carrying on until early February.

I bring this up because these Farm Bills are actually five-year agriculture plans that have far reaching effects not only on international agriculture, agribusiness and the like, but influence world commodity markets and food aid (which the U.S. is the world’s largest donor). The 2007 Farm Bill will set subsidy rates for crops like cotton, but will also set aside money for investment in biofuels (especially ethanol) and make funds available for controversial food aid programs like monetization (allowing American NGOs to buy U.S. commodities cheaply and sell them at a profit in foreign markets to pay for programming) and direct food transfers, which govern how much food aid will come from U.S. farmers in contrast to food bought in local markets.

Making matters somewhat complicated, President Bush has threatened a veto if the conference report does not curtail spending present in the bills’ other versions, including controversial subsidy programs paid to farmers.

Acting Agriculture Secretary Chuck Connor had some harsh words regarding the two bills when he spoke in mid-December to the Agribusiness Club of Washington.

Congress is proposing to raise taxes in order to increase the scope of our farm bill. That's something we haven't done, haven't done since 1933. I can't imagine a time when we have $85 billion of net farm income to be talking about this being a good time to somehow raise taxes, to increase the scope of our farm bill.

Market prices are at or near record levels for virtually all of our major commodity crops. In fact, some economists are estimating net cash farm income this year will exceed the $85 billion figure I just mentioned, which that number is $18 billion higher than what we had last year. Most of you, if I would have told you last year that these are the numbers we're shooting for, you would have probably called me unrealistic. You would have gone back to Keith and said, Keith, please straighten this guy out! Which he does!

This kind of success does give us an opportunity, we believe, to enact some reforms that are necessary for us to maintain the strength of the farm economy that we are seeing today. And that is our goal, ladies and gentlemen: Is to maintain this strength and not have it simply represent a peak followed by a cliff, that some would have us believe, immediately right after.

If we can't help agriculture become more market-driven and competitive now, when farmers are enjoying the kind of economic times we have today, we really do fundamentally have to ask the question: Is there ever a time? And I think the time is now for these types of fundamental reforms.

Connor presented the group with an informal list of problems President Bush has with the two bills. One is the failure of both Houses to reduce the Adjusted Gross Income Gap to $200,000 (instead of the current $2 million), which will prohibit farmers making more than $200,000 per year to receive commodity program payments. (Former Ag Secretary Mike Johanns claimed that 2.3 percent of all Americans earn more than $200,000 per year, and the government would save more than $1 billion if the change was enacted.)

Target Pricing and guaranteed loan rates are two other issues that raised Bush’s ire. Target pricing allows the USDA to peg a crop to an amount higher than world market price, guaranteeing farmers who grew the crop in the past gain a profit. Loan rates is a program to deter loan forfeitures that allows certain farmers to borrow money from the USDA for a specific crop and repay the loan according to market prices of that crop.

From Connor:

Simply put, that is trade-distorting, further trade-distorting, and we are going to hear about it from our WTO trading partners. Is there anyone in this room who thinks we will not - not - pay an enormous price internationally for this action? Anyone here think we will not pay an enormous price for that? And all because a few farm groups who have long-standing policies favoring higher loan rates, those policies dating back to the days of parity prices, and make this case "I'm in, I'm out." And the simple fact is, we are going to pay a heavy price.

The Bush administration has long claimed to be on the side of the little guys, like African cotton farmers who suffer from low prices resulting from U.S. farm subsidies. They've always laid the blame on Congress and its venal supplication to special interest groups (like Cargill) that keeps these subsidies alive and well. This isn't entirely true. Other than proposing certain subsidies be cut, Bush has never expended much political capital to make sure that happens. (As Phillip Fraas points out, the Administration's 2007 Farm Bill proposals called for a $5 million increase in spending.)

With their constituencies forming a much larger block, most Presidents are naturally more enthralled with the idea of free trade than Senators and Representatives, who have more specific local worries: employment, interest groups and businesses. Unless currently running for President, Senators and Representatives may gain political mileage to be anti-free trade; a President, not so much.

The World Trade Organization has already ruled that some U.S. continue to break the law. As the Bush administration threatens Congress with the possibility of WTO-mandated free trade sanctions that target specific industries, it will be interesting to see how this process pans out. Like I said: there's a lot at stake.