Huge American farm subsidies distort markets

The Daschle-Harkin farm bill up for debate in the U.S. Senate would add $73.5 billion in spending over 10 years on top of the $98.5 billion that would go to maintaining current programmes. Among its worst features, according to Senator Dick Lugar (Rebublican, Indiana), is that it encourages overproduction - further eroding farm prices and prompting even more subsidies.

Critics argue this policy distorts food prices, frustrates innovation, limits product diversity and subsidises a select group of farmers at enormous public cost - because the majority of payments in most states go to only the top tenth of farmers.

While the prospect of the downward spiral is obvious to politicians in both parties, most will probably vote for the bill - since both parties are fighting for control of Congress and neither wants to be labelled "anti-farmer."

Senator Lugar wants to break this cycle and has suggested a programme for achieving that:

  • As an alternative safety net for crop and livestock farmers and ranchers, he proposes that each receive a federal payment equalling 6 percent of total farm receipts.

  • This would allow them to pay the premium for whole-farm income insurance that would provide assurance of 80 percent of an average income taken over a five-year period.

  • Not only would such an arrangement be less expensive than $172 billion over 10 years, it would be more market-oriented and would allow farmers more choice.

    To pass such a programme and alter the disastrous course of current farm policy, Lugar is soliciting the organised support of groups that would benefit from the change. He cites the need for involvement among consumers, environmentalists, taxpayers, Social Security recipients and the poor.

    Source: Senator Dick Lugar (Republican, Indiana), The Farm-Bill Charade, New York Times, January 21, 2002.

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    RSA Note:
    Subsidies to farmers in highly developed countries have extremely detrimental consequences for developing countries such as South Africa. In the absence of such subsidies the U.S.A. would be buying cheaper farm products from farmers in developing countries. The subsidies negate the comparative advantage of lower-cost production, and as Senator Lugar has pointed out, there are also numerous losers in America. The subsidies even have negative consequences for young Americans wishing to farm as the subsidies drive up the price of agricultural land, increasing the cost of entry into the business of farming.

    Eustace Davie, Director, FMF.

    FMF Policy Bulletin\30 January 2002
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