A new American law will ensure that farmers there will continue to be lavished with subsidies even as poorer countries such as India are under pressure to open their agricultural markets. The US Farm Bill 2007 (now, the Food, Conservation and Energy Act of 2008), a $288 billion, five-year agricultural policy law, is a prime example of how political expediency overrides economic good sense.
Illustration: Malay Karmakar / Mint
The Bill has been argued against by economists, the US administration (President Bush vetoed it on 21 May) and the trade community. Many view it as an anti-free trade measure. Yet, such is the strength of the US farm lobby that the presidential veto was overridden the very next day: 306 to 108 in the Congress and 82-13 in the Senate.
Running into 1,700 pages, the law is likely to cost $600 billion to American taxpayers when its extensions after the 2012 period are taken into account. This is a big sum, but when one takes into account the distortions in world markets it will cause, the effect will be much more magnified. For example, the law has increased the number of crops that can avail subsidies. Fifteen more crops, such as lentils, chickpeas and dry peas, have been added to the list.
Another example: Farmers with an income up to $1.5 million per year are eligible for subsidies. The US administration wanted this figure to be brought down to $200,000, but the legislators would have none of it. In contrast, the richest farmers in India, who grow non-cash crops, don’t earn more than Rs30,000 per acre. Yet, there is considerable pressure to do away with subsidies for Indian farmers. What the US has done will only serve as ammunition to domestic opponents of free trade.
The high subsidies that Western nations pay their farmers do artificially keep down the price of food globally, thus helping consumers. But, farmers in Asia and Africa do suffer since they have to compete with rich farmers who get huge subsidies.
Trade talks will get dampened further because of the US law. The European Union may object to the subsidy provisions of the US law, more so after the reform announcement for its Common Agricultural Policy. Because of the prevailing political climate in developing countries such as India and Brazil, matters are likely to get even more complicated at the trade talks.
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