Thursday, 20 October 2011

Follow the Money

I've written a fair amount on the impact of large farm subsidy programs in the U.S. and Europe on Canadian farmers. ( )We tend to be the boy scout of trading countries, generally because Canada didn't have as large a government treasury to draw on, although that's clearly changing since the 2008 financial/banking crisis, and the impact that's had on American and European sovereign debt.  The bottom line is that Canadian farmers compete in international markets, and for space in Canadian supermarkets, and are at a disadvantage if competitors get additional support from government cheques in the mailbox.

As the U.S. and Europe try to wrestle with huge deficits, expensive agriculture policies are under the microscope. U.S. programs have traditionally been geared towards increasing production of a handful of commodities (corn, soybean, rice, feed grains, sugar, etc... grow these crops and a farmer gets a cheque in the mail, even if these crops are highly profitable in the marketplace). European policies  lean towards subsidizing the export of commodities (which really hurts farmers in developing countries) and some strong measures to protect the environment. (see  for more on this).

Reports this week that, not surprisingly,  agricultural interests in the U.S. and Europe are working hard to hold onto what they have. If there could be real reform it would benefit Canadian farmers. Food prices would have to better reflect the cost of production, not the level of government support. This could lead to somewhat higher food prices.

October 17, 2011
Farmers Facing Loss of Subsidy May Get New One

It seems a rare act of civic sacrifice: in the name of deficit reduction, lawmakers from both parties are calling for the end of a longstanding agricultural subsidy that puts about $5 billion a year in the pockets of their farmer constituents. Even major farm groups are accepting the move, saying that with farmers poised to reap bumper profits, they must do their part.

But in the same breath, the lawmakers and their farm lobby allies are seeking to send most of that money — under a new name — straight back to the same farmers, with most of the benefits going to large farms that grow commodity crops like corn, soybeans, wheat and cotton. In essence, lawmakers would replace one subsidy with a new one.

“We are very much aware of the budgetary constraints of the federal government,” said Garry Niemeyer, an Illinois farmer who is president of the National Corn Growers Association. “We want to do our part as corn growers to help resolve those issues, but we only want to do our proportional part. We don’t want to have everything taken out on us.”

But Vincent H. Smith, a professor of farm economics at Montana State University, called the maneuver a bait and switch.

“There’s a persistent story that farming is on the edge of catastrophe in America and that’s why they need safety nets that other people don’t get,” he said. “And the reality is that it’s really a very healthy industry.”

The subsidy swap is gaining momentum as lawmakers seek to influence the cuts in farm programs that are expected to be made by a special Congressional panel charged with slashing $1.2 trillion from future budgets.

On Monday, leaders of the House and Senate agriculture committees said they were preparing recommendations for $23 billion in unspecified cuts over 10 years, far less than some other proposals.

Lawmakers’ reluctance to simply eliminate a subsidy without adding another in its place demonstrates how difficult it is for Washington to trim the federal largess that flows to any powerful interest group. Indeed, the $5 billion program that lawmakers are willing to throw under the tractor, known as the direct payment program, was created in 1996 as a way to wean farmers off all such supports — and instead was made permanent a few years later.

The new subsidy is being championed by Senator Sherrod Brown, Democrat of Ohio, and Senator John Thune, Republican of South Dakota.

Mr. Thune, a leading voice in favor of deficit reduction, received at least $80,000 in campaign contributions since 2007 from political action committees associated with commodity agriculture, according to data compiled by the nonpartisan Center for Responsive Politics, which tracks campaign spending. Mr. Brown has received $5,500 in PAC contributions from such groups in that period.

It is unclear how much support a new subsidy would garner, since many lawmakers view farm programs as a likely source of budget savings.

Critics say that farm subsidies today have little to do with helping struggling family farmers. Instead, they go predominantly to well-financed operations with large landholdings. All told, the subsidies amount to about $18 billion a year — about half of 1 percent of the federal budget.

An analysis of federal data by the Environmental Working Group, an advocacy group that tracks farm subsidies, showed that the top 10 percent of direct-payment recipients in 2010 received 59 percent of the money under the program. Those 88,000 people, including farmers, their spouses and absentee landowners, got an average of $29,598.

In lean times, such support might seem vital, but in recent years commodity farmers have done well.

The Agriculture Department forecasts that farm profits this year, measured on a cash basis, will total $115 billion, 24 percent higher than last year, thanks to soaring crop prices. Adjusted for inflation, profits are expected to be at their highest level since 1974.

The average income for farm households has been higher than general household incomes every year since 1996. The average household income was $87,780 for all farms in 2010, and $201,465 for families living on large farms.

“How do you justify this kind of money going to a sector of the economy that’s booming while other folks in the country are suffering?” Craig Cox, a senior vice president of the Environmental Working Group, said of the subsidies.

Lobbyists and farm-state lawmakers have long argued that farmers face risks, like bad weather, pests and volatile markets, that merit special treatment.

Direct payments have come under fire, however, because farmers get them whether markets are high or low. The new subsidy, called shallow-loss protection, would act as a free insurance policy to cover commodity farmers against small drops in revenue.

Most commodity farmers already buy crop insurance to protect themselves against major losses caused by large drops in prices or damage to crops. Those policies typically guarantee 75 to 85 percent of a farmer’s revenue, with the federal government spending $6 billion a year to pay more than half the cost of farmers’ premiums.

The proposed new subsidy would add another layer of protection to guarantee 10 to 15 percent of a farmer’s revenue, paying out not only in years of heavy losses, but also when revenue dipped less severely.

The shallow-loss plan getting the most attention is in a bill introduced last month by Senators Brown and Thune that would simplify and expand an existing program.

Gary D. Schnitkey, a professor of farm management at the University of Illinois, said the Brown-Thune plan would help protect farmers during longer periods of depressed prices. Without such a program, he said, “we would see financial stress and we would see farmers go out of business.”

It is unclear how much the proposal would cost taxpayers. Dr. Schnitkey said the plan could pay farmers $40 billion over 10 years. That would be $20 billion less than the programs it replaced, including direct payments and some smaller subsidies.

But Dr. Smith, the Montana State economist, said the cost could be much greater because the plan used recent high crop prices as its benchmark.

“If farm prices move back towards what are widely viewed as more normal levels than their current levels, farmers will be compensated for going back to business as usual,” he said.

In a statement Senator Thune said the proposal in the bill “corrects inefficiencies in several farm programs with a streamlined and cheaper approach.”

Representative Marlin A. Stutzman, an Indiana Republican, said that a shallow-loss plan would give farmers more flexibility in managing risk. “Farmers shouldn’t have to pay the brunt of the deficit problem,” he said.

Mr. Stutzman and Senator Richard Lugar, also an Indiana Republican, included the Brown-Thune plan in matching farm bills they introduced this month.

Congress is due to write a new five-year farm bill next year, but some lawmakers want to use the deficit-cutting process to revamp farm spending. President Obama has proposed cutting $33 billion from farm programs over 10 years, including ending direct payments without adding a shallow-loss program. Mr. Stutzman’s bill would slice $40 billion, with more than half coming from programs like food stamps and soil and water conservation.

Europe has blown its chance to reform the common agricultural policy

The consensus is that once-in-a-generation chance to overhaul an unjust and ecologically illiterate scheme will be squandered

 So what do we like about the European commission's proposals for the reform of the common agricultural policy (CAP), published on Wednesday?

The move away from historical payments to a flat-rate payment scheme is welcome; capping payments to the biggest farmers is only fair; more help to young farmers would refresh an industry; help for organic farmers is long overdue, and a basic requirement to put a proportion of farmland into environmental management is admirable.

But what don't we like? Handing out €435bn of taxpayers' money over the next 10 years to some of the most destructive corporations and richest individuals in Europe – as millions of people across the continent lose their jobs – is crass. There is to be no rethink of the export subsidy system which is unfair to developing countries, and no new obligation on farmers to protect rivers or biodiversity. The overall cut in funding for agri-environment schemes spells disaster.

Last week we saw some leaks of the proposals, but on Wednesday we received some considered responses from farmers, businesses, unions and environment groups. The consensus is that Europe had a once-in-a-generation chance to reform an unjust and ecologically illiterate scheme, but blew it.

The RSPB, which is one of the biggest recipients in Britain of farm subsidies, fears that conservation will go backwards. Here is Gareth Morgan, head of countryside conservation:

    "This a big let down for wildlife-friendly farmers. There will be an overall cut in funding for agri-environment schemes and on top of that countries could be free to re-allocate already overstretched rural development funding away from these schemes. There is also no targeted support proposed for high nature value farmers and crofters in areas such as the Scottish Highlands and islands which provide vital habitats for wildlife."

Greenpeace is furious:

    "If these proposals are left unchanged, the plan will allow the agri-chemical business to keep a firm lock on the food chain. Unless the European parliament and governments strengthen this proposal, the EU will spend €435bn of taxpayers' money to continue polluting nature and pumping our food full of chemicals. This is quite simply unjustifiable."

And the Friends of the Earth and WWF says the "greening" measures do not go far enough.

    "Agriculture is the biggest driver of biodiversity loss and water pollution in Europe. The current proposal should link not just 30% but a total 100% of direct payments to greening measures to decrease the pressure of agriculture on the environment. We need to make sure that each European farmer implements a meaningful crop rotation, devotes at least 10% of their land to biodiversity, and stops converting pastures into arable land that destroys our landscapes and increases carbon emissions. Today's proposal is far from achieving these changes."

But to my mind, the most telling response to the proposals comes from the National Farmers' Union (NFU), which represents most of Britain's 80,000 farmers, and the County Land and Business Association (CLA), effectively the union of hereditary and big landowners, who today issued a joint statement:

    "In terms of equity, we want to ensure that we have equivalent greening measures throughout the European Union. The purpose of this reform must be to bring the whole of Europe up to the standard of the better-performing countries. We want to see a fair allocation of the budget to the UK, in both pillars, so that there is no necessity subsequently to move money between the two pillars - in either direction. Specifically, we don't support the attempt to allow up to 10% modulation. We also need to see the capping proposals that would discriminate against the UK rejected. In terms of reducing complexity, we want to see greening measures which can be easily administered and monitored.

    What we don't want to see are definitions of active farmers that would be a nightmare to enforce. The restrictive definition of an active farmer, and the proposed payment reduction and capping, are highly discriminatory - hitting farms of equal size and payment to a sharply different extent. They will also hinder structural changes that may be needed to improve efficiency. And in terms of competitiveness we would want the obligation to take up to seven per cent of a farm's area out of production significantly reduced. We will also insist that any greening measures do not have perverse consequences from a market or agronomic point of view."

Translated , this means that the two groups, who between them own most of the land in England, are acting like selfish, spoilt bullies. They do not want to see the subsidies of big farmers capped, nor they do not want more money to be given to the environment rather than single farm payments.

Moreover, they object to the EC trying not to pay people who do not actually farm, and they don't like the proposal to take up to 7% of a farm's area out of production. They make no mention of trying to help the small or the vulnerable hill farmers, and when they talk of equity they mean they want as much money as some of the biggest European agribuinesses get. In other words, "sod the environment, we want more".

Ten years ago, after a series of food scares, diseases and scandals, British farmers and landowners were widely pilloried for being socially out of touch with the public, grasping and irresponsible. They have only recently won back some of the trust and admiration but if the NFU/CLA continued to ignore the wider economic situation and try to take their welfare is more important than anything else, they will lose all the goodwill they gained.

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