US farm subsidies: A new deal grown old

US farm subsidies: A new deal grown old

The latest US farm Bill expands agriculture subsidies, originally devised in an impoverished world where markets seemed to have failed.

The new Bill subsidizes the wealthy, provides cash supports even at high crop prices, damages world trade talks and boosts inefficient domestic cartels for sugar and cotton.

In the 1930s, when over 20% of the US population lived on farms, crop prices were insufficient to support farm life. The Agriculture Adjustment Act of 1933 addressed that problem by subsidies both for output and for reducing cultivated land.

The new legislation’s farm subsidies, by contrast, cost around $60 billion annually and will be paid to farmers earning up to $750,000 in an era of record crop prices.

As with most “special interest" legislation, the Bill’s beneficiaries are better organized than the taxpayers who will fund it, so they command large majorities in in the US Congress, sufficient to override a presidential veto.

To the extent that Congress subsidizes food production, it tends to alleviate global shortages, although current crop prices are ample to encourage production without such measures.

However, the legislation’s limits on sugar imports raise domestic sugar prices to double the international level, preventing biofuel producers from using sugar cane and encouraging the use of corn, which is much less efficient both economically and environmentally.

Cotton import controls, meanwhile, drive domestic prices in the US higher than international ones, depressing incomes in poor cotton-growing countries such as Mali.

The Doha Round of trade negotiations broke down primarily over US and European Union (EU) farm subsidies.

The EU is now attempting to revive the talks, beginning discussions on a new farm regime to operate after the current one expires in 2013.

But the US, with the new farm Bill, has moved in the opposite direction, introducing subsidies for new crops and increasing them overall.

Democratic presidential candidate Barack Obama, from urban Chicago, favours the farm Bill, while Republican John McCain, from rural Hidden Valley, Arizona, opposes it.

Politically, the farm Bill remains paradoxical; economically it is without redeeming features.