When Nebraska Gov. Mike Johanns, whom President Bush has just nominated as the next agriculture secretary, takes office, his first order of business should to push for an end to America’s drastically distorted farm subsidy programs.
Eliminating U.S. farm subsidies would dramatically reduce government spending, end a program that mostly benefits corporate interests and the wealthy, strengthen U.S. agriculture, give us much needed leverage in international trade negotiations, and allow the United States to extricate itself from embarrassingly undermining its own foreign aid program.
The United States made $17 billion in direct government payments to farmers and ranchers in 2003 — amounting to 32 percent of net farm income. On top of this were additional billions in indirect assistance, delivered via subsidized loans and insurance, loan guarantees and tax breaks.
If the farm lobby’s argument that such largess is necessary to preserve the family farm ever applied, it doesn’t now. According to the Agriculture Department, about 40 percent of all farms receive government payments of one kind or another. The bulk of these payments, however, go to larger farms. In fact, while just 7 percent of all U.S. farms have sales of $250,000 or more, this 7 percent receive almost half of all government payments.
How could a domestic aid program become so distorted?
The reason is simple: Eligibility for farm subsidies is determined by crop, not by income or poverty standards. Growers of corn, wheat, cotton, soybeans and rice receive more than 90 percent of all U.S. farm subsidies. Growers of most of the other 400 crops grown domestically receive nothing.
Because eligibility is determined by crop, rather than need, billionaires such as Ted Turner and corporate behemoths such as Georgia Pacific and Cargill are subsidized. The struggling little guy, often as not, receives nothing.
The U.S. cotton industry serves as a stark example of this distortion. Growers in the Mississippi Delta are among the highest-cost cotton producers in the world. According to a recent report by the international aid agency Oxfam, the U.S. spends nearly $4 billion a year on subsidizing cotton producers, making America the world’s largest subsidizer of cotton. Reflecting the farm industry overall, the largest 10 percent of cotton farms receives 79 percent of all payments, and the top 1 percent receives 25 percent. The average payment to cotton growers was $331,000 in 2002; 25 growers received more than $1 million each.
Farm subsidies are a barrier to trade, putting the United States at a disadvantage in negotiations for increased market access in other countries. Other countries are less than eager to remove trade barriers — agricultural and others — when the United States won’t remove its own.
Subsidies also undermine U.S. efforts to help developing economies. On one hand, the United States provides billions of dollars in foreign aid each year to developing countries. At the same time, U.S. farm subsidies prevent those countries’ farmers from effectively competing in, or with, the U.S. market.
U.S. farmers claim that since their European counterparts receive subsidies, they need them to compete. Yet New Zealand’s prosperous agricultural sector — which at one time was also addicted to subsidies — shows this is untrue.
New Zealand farm subsidies today are the lowest in the world, and the Federated Farmers of New Zealand say the country’s agricultural sector has grown faster than the overall economy.
In 1984, the New Zealand government did away with almost all farm subsidies. Without subsidies, New Zealand’s farmers no longer made decisions based on government handouts. They regrouped and reorganized. They cut spending. They found ways to increase their crops’ market value or switched crops.
Expectations to the contrary, New Zealand lost less than 1 percent of its farming businesses. Family farming, not corporate farming, expanded. New Zealand agriculture was not destroyed. Rather, it was forced to change to meet the demands of the market and thrived.
What happened in New Zealand could be duplicated in the United States. In fact, the U.S. has less at stake than New Zealand did. Agriculture in New Zealand comprises more than 13 percent of the country’s gross domestic product. Here, agriculture accounts for around 2 percent of GDP.
Simply, there are too many reasons for eliminating farm subsidies. Such a reform — which the farm lobby would fight tooth and nail — would force U.S. agriculture to make decisions based on market conditions, rather than the availability of government subsidies. New Zealand has proven it’s possible; it is time for the United States to prove it again.
Sara F. Cooper is a visiting fellow at the American Institute for Economic Research, Great Barrington, Mass.