Thursday, September 5, 2013

U.S. politics may hurt Canadian farmers


The political gridlock over farm policy in the United States threatens to hit Canadian farmers in the pocketbook.

In a podcast from the University of Guelph, Dr. David Schweikhardt of Michigan State University outlines the history of the U.S. Farm Bills, why there is an impasse that has lasted more than a year and explains how and why Canadians might be upset.

Both the Senate and House of Representatives have drafted legislation governing farmer subsidies, but the House has yet to deal with the more costly nutrition subsidies for lower-income Americans.

The House has also been stalling on sending its farmer-related bill to a Conference Committee to hammer out compromises between what has been passed by the House and the Senate.

But Schweikhardt notes that both bills would move U.S. farm policy away from safety-net commodity price supports towards a new formula that supports farmers’ revenues based on average prices for the previous two years and average yields for the previous five years.

He says that change will lift price supports for commodities such as corn higher than under the existing legislation. And that, he says, is what is likely to draw criticism from Canadian farmers and those in other nations.

They will see that the new U.S. policy is stimulating increased corn production which, in turn, drives down global prices.

The current World Trade Organization agreement tries to eliminate farm policies that stimulate production, so Canada and others would be likely to file a WTO challenge, just as Brazil has filed a challenge to the U.S. cotton policy.

Even though Brazil has won, the U.S. has still not totally eliminated the cotton subsidies that frustrate many other countries and their farmers, including some of the poorest in the world in Africa.

Schweikhardt explains that the Senate has passed a proposal that builds on the long-standing coalition between politicians whose voters are primarily urban or rural.

The rural ones want a farmer-friendly set of subsidies. The urban ones asked “what’s in it for me?” so Schweikhardt says nutrition subsidies were added in 1973.

Those nutrition subsidies, such as the food stamp program, account for 80 per cent of the farm-bill budgets now.

The House of Representatives, prompted by Republicans who consider many subsidies such as medicare and food stamps an unjustifiable free ride, failed to pass a bill that combined the urban and rural subsidies.

It has, however, passed a bill for the farm programs and says that until it gets around to passing another bill for nutrition programs, it’s not going to approve a bill to set up a Conference committee.

Schweikhardt figures the House will relent and soon send its farm bill to a Conference Committee. He doubts it will pass a nutrition bill.

Once it gets to a Conference Committee, Schweikhardt expects the compromise bill will cover both rural and urban programs. Then it will be up to the Republicans in the House of Representatives to either hold their noses and pass the bill that includes nutrition programs, or refuse.

A refusal could throw the entire U.S. farm policy into chaos because all of the Farm Bills since 1948 have been amendments to that “foundation legislation”. 

A failure to pass an amendment when the current one expires later this month will bring back the 1948 bill which set price supports and included inflation.

That would put price supports much higher than current market prices, especially for milk, and would be a huge stimulus to over-production. 

What’s more, imports might flood into the U.S. market. The government would be on the hook to buy up the surpluses to keep prices up to the support levels.

Schweikhardt says that scenario has been so scary that it has prompted politicians to support Farm Bill amendments.

The current Farm Bill is an extension of the previous one passed in 2008, and was extended only because it was rolled into a bigger package to deal with the “fiscal cliff” of December.

Another economic cliff is looming – the need to increase the borrowing limit, else the government will run out of money to pay for programs – but Schweikhardt says he doubts another extension to the current Farm Bill could be rolled into that package.

The podcast is an interview with Dr. B. James Deaton of the Department of Food, Agriculture and Resource Development (FARE at the University of Guelph.

It can be accessed on the internet at http://www.uoguelph.ca/fare/FARE-talk/index.html#bill.
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