Farm subsidies are stifling free trade
Every five years or so, Congress and well-connected agricultural lobbyists begin drafting a new Farm Bill. The inevitable spending bonanza they come up with is nearly always a bad deal, not only for taxpayers and the environment, but for the ways the Farm Bill inhibits our ability to expand market access abroad for agricultural products. Thankfully, the time for real reform may be near, as the 2014 iteration of the Farm Bill expires in 2018.
The federal government currently spends about $15 billion a year on myriad agricultural subsidies, ranging from crop insurance premium support programs to newer commodity payment programs like the Agriculture Risk Coverage and Price Loss Coverage programs. The bulk of these benefits flow not to family farms, but to the wealthiest agribusinesses.
The now-scuttled Trans-Pacific Partnership agreement would have left American farmers and ranchers among the biggest net winners, with its proposed elimination of virtually all agricultural tariffs and export subsidies among signatory nations. Regrettably, the Trump administration jettisoned the promising agreement as one of its first official acts in January.
The administration’s stated desire to renegotiate the North American Free Trade Agreement also leaves farmers and ranchers concerned about a potential loss of export opportunities to Mexico and Canada. As The Economist recently noted, American corn, soybean and other agricultural exports to Canada and Mexico have grown from $8.9 billion in 1993 to $39 billion in 2015. In short, the American agricultural industry is right to be concerned about the rising specter of protectionism.
Given this anxiety, farmers and ranchers are clamoring for bilateral trade agreements with Pacific countries. Though preferable to nothing, this approach will only paper over the real problem, particularly for the American agricultural industry. What agricultural exporters really need is for the United States to reinvigorate a broad-scale agricultural liberalization at the World Trade Organization similar to the Doha Round, which would dramatically reduce barriers for their products all across the globe.
Jump-starting Doha, or a similar round of multilateral trade negotiations, requires tough choices. There is plenty of blame to go around for the demise of the Doha Round, but ultimately, as the world’s most important economy, the United States is especially culpable for its tepid offer to cut domestic agricultural subsidies. With their farmers desperately trying to export products to the United States, developing nations were rightly appalled when trade negotiators offered only modest subsidy reforms.
Here is the crux of the matter: American farmers and ranchers need to accept that widespread market access across the globe is only possible if we cut our own domestic subsidy programs. Putting forth a credible plan to curb domestic subsidies will give the U.S. trade representative moral authority to make the case for other WTO nations to do the same. But the United States must move first.
Can the United States get its subsidy house in order? Though it would be difficult, there is reason for optimism. The Trump administration’s recent budget proposal was deeply flawed, but one thing it did get right was its serious proposal to reform the farm safety net. If adopted by Congress, the Trump administration’s proposal would cut agricultural subsidies by $38 billion over 10 years. This would be a strong step toward establishing the credibility needed to push other countries to drop their subsidies and agricultural market protections.
To be sure, some of the rent-seeking domestic agricultural interests will howl with outrage. They will argue that the United States cannot “unilaterally disarm” by cutting its own subsidies. If we did, the argument goes, our farmers and ranchers would be at a competitive disadvantage, because foreign governments heavily subsidize their own domestic products and tilt the field against American producers.
This is a flawed line of reasoning. First, not all agricultural producers share in the largess of the bloated farm safety net. Many domestic producers receive little or no subsidies from the federal government. They would clearly prefer more export opportunities. It also assumes that the goal of public policy should be to protect producers at the expense of consumers. This is backward. American families and businesses would benefit from lower-priced agricultural imports, even if they are subsidized by foreign governments.
When it comes to helping the domestic agricultural industry, lawmakers in Congress are ultimately facing a binary choice: continue to subsidize domestic agriculture heavily or greatly expand international market access. One path leads to more cronyism and a raw deal for taxpayers and the environment. The other would better serve American consumers and taxpayers, and allow domestic producers to better reach the 95 percent of the world’s population who live outside the United States.
Image by Juan Aunion
