U.S. Agricultural Policy: Bush Proposals and other Reforms to the U.S.

Farm Bill A large criticism of previous Farm Bill legislation was the beneficiaries of U.S. subsidies for commodity production. The current administration has made some significant proposals for reform in that area with the upcoming Farm Bill of 2007. Direct Payments The administration recommends increasing direct payments to commodity producers from $5.25 billion a year to $5.8 billion. Most of this increase would be targeting beginning farmers (increasing their payments by nearly 20%) to encourage individuals to enter the farming industry. Direct payments are responsible for increasing property values, which may (in the long-term) have further negative implications toward small and beginning farmers.

Counter-cyclical Payments Current payments are price-based; meaning payments are triggered based upon the difference between the target price and the market price. The administration proposes to change these into revenue-based payments; meaning payments are triggered when the actual national revenue per acre is less than the national target revenue per acre. Currently, a producer may have enough yields to off set the effects of low prices. This change effectively reflects the need of program participants.

Payment Caps Probably the most significant of the administration’s proposals is to reduce the adjusted gross income (AGI) eligibility to receive commodity payments. The current AGI cap on receiving payments is $2.5 million, giving aid to many large corporate/industrial farms. The proposal is to reduce the cap to $200,000, allowing those farms in the greatest need (small, mid-sized, and beginning farmers) to receive government support. Another important step is the elimination of the “three entity rule”, which allowed individuals to exceed subsidy limits through the use of separate corporate entities. The administration’s proposal links payments to the individual, effectively closing the loophole. These administration proposals tackle some of the internal domestic issues regarding government subsidies, however fail to effectively address the issues raised by the international community. U.S. agricultural policy has enormous impact on the global agricultural market and without significant changes which monitor over-production

(which causes a decline in prices, which then increases government payments) the developing world’s agricultural sector remains threatened. U.S. subsidies undercut developing economies by between 10-30%, effectively destroying their agricultural sector and ergo long-term sustenance. The USDA’s Food Aid program exemplifies the issue of undercutting by selling our food products to developing countries at a discounted rate. The developing countries depend upon agricultural products to survive, however the Food Aid policy destroys current local farms and the incentive for them in developing countries. A more effective policy to build a long-term solution would be to provide developing countries money to source food locally, thereby building a sustainable agricultural market. The important thing to keep in mind is that subsidies are not the real problem, but rather lack of production control, which leads to declining prices, which therefore creates a need for government subsidies. Other Policy Issues Include: - implementation of price supports and/or inventory management systems - market concentration or the industrialization of farming - U.S. incentives/preference towards grain-fed vs. grass fed livestock