Countervailing Calamity: Our Abundant, Aggravating Ag Subsidies

The Hill reports today that, with House leadership punting on the 2012 Farm Bill until after the November elections, Democrats in both chambers are unsurprisingly using the bill's delay to batter their Republican opponents:

The legislation, which provides subsidy and aid to farmers nationwide, as well as authorizes funding for a number of nutritional programs, expires on Sept. 30. The Senate was able to pass a bill, but House Speaker John Boehner (R-Ohio) said late last week that the House would have to wait until after the election to pick back up on the legislation, despite a flurry of last-minute activity from lawmakers on both sides of the aisle in an attempt to bring it to the floor.

Democrats in states where agriculture plays a large role have been quick to launch attacks on their opponents that aimed to hang congressional inaction around their necks. Most recently, the Democratic Senatorial Campaign Committee launched a pair of ads targeting Republican Rep. Rick Berg, running for Senate in North Dakota, where agriculture remains the largest industry, on the failed farm bill.

The Hill goes on to detail how farm state Republicans are pushing back against this criticism by highlighting their vigorous support for the Farm Bill and their opposition to Speaker Boehner's decision to not schedule a floor vote.  But given America's growing and problematic obsession with subsidies - something detailed in my forthcoming paper "Countervailing Calamity: How to Stop the Global Subsidies Race" - it's clear that serious reform, not extension or expansion, of US farm subsidy programs is desperately needed. 

First, we spend a veritable fortune on these subsidies:

Perhaps no industry has attracted more taxpayer dollars (and global ire) than U.S. agribusiness. According to the Environmental Working Group’s compilation of United States Department of Agriculture data, the U.S. government has provided approximately $277.3 billion in subsidies to U.S. farms since 1995, including more than $15 billion in each of the last two years. Specific commodity subsidies under the current system include those for feed grains ($2.1 billion in 2011); wheat ($1.4 billion); rice ($364 million); upland cotton ($825 million); soybeans ($521 million); peanuts ($77 million); tobacco ($25 million); and dairy products ($30 million). Not all of these subsidies, however, constitute trade-distorting subsidies under WTO rules. For example, only $11.6 billion of $16.3 billion in total U.S. farm subsidies in 2009 constituted “amber box” subsidies (those considered under the WTO Agreement on Agriculture to distort production and trade), and United States reported only $4.3 billion of these to the WTO because of various de minimis exclusions—well under its $19.1 billion cap. The current Farm Bill expires this year and may receive a short-term extension, but it is unlikely that any new Farm Bill will significantly reduce total agriculture subsidy levels.

Along with straining federal coffers and breeding cronyism, America's farm subsidy obsession deligitimizes any US efforts to rein in global subsidies - something that, as explained in my paper, is a pretty big necessity these days.  In short, it's pretty much impossible to credibly complain about foreign subsidies when you're flooding the globe with subsidized farm (and other) products.  And, of course, the United States' refusal to commit to slashing farm subsidies is one of the primary reasons why the WTO's Doha Round of multilateral trade negotiations is dead in the water.

Second, many of the trade-distorting subsidies included in the Farm Bill attract major criticism from our trading partners, several of whom have filed (or threatened to file) anti-subsidy cases against the United States and American farm exports.  Perhaps the most notorious of such disputes is Brazil's successful WTO challenge to US cotton subsidies:

In 2004 and again in 2005, the Brazilian government challenged U.S. cotton subsidies at the WTO as violations of the SCM Agreement and the Agriculture Agreement. The WTO’s 2005 decision authorized Brazil to retaliate against U.S. goods and services, but Brazil opted instead to allow the United States time to reform its cotton program in line with international trade rules. The U.S. government never did reform the subsidy programs, so Brazil returned to the WTO in 2009 and won permission to impose almost $300 million in retaliatory trade sanctions against U.S. exports. The WTO also opened the door for other retaliatory measures against American patent and other intellectual property rights—a novel approach to addressing noncompliance. Although the U.S. government has not complied with the WTO ruling, Brazil never retaliated because, instead of reforming the program, the United States agreed to provide approximately $140 million in new subsidies to Brazilian cotton farmers. Despite this sordid arrangement, Congress has flatly refused to reform the United States’ WTO-illegal cotton subsidy programs, even in the context of a new Farm Bill. Indeed, Brazil has warned the WTO that it is prepared to retaliate against U.S. exports or by not enforcing U.S. intellectual property rights if the proposed 2012 Farm Bill takes effect.

Other US farm commodities that have faced anti-subsidy litigation and duties include sugar (by Canada), corn and other crops (also by Canada) and distillers grains (by China), and it seems that we're constantly hearing about threats of new cases against major US crops like soybeans.  Such disputes have the potential to negate these and other commodities' global competitiveness - the exact opposite of what struggling American exporters need right now.

So maybe the next time a campaigning Democrat criticizes some rank-and-file Republican for "letting" his or her leadership delay the Farm Bill, one of them might mention the undeniable fact that our farm subsidies are breaking the (already-broken) federal budget, exposing US exports to foreign retaliation and undermining global trade negotiations in the WTO and elsewhere.

I know, I know, I'm not holding my breath.