Obama Budget Calls for Deep Cuts to Agribusiness Subsidies

4 March 2009

US President Barack Obama has called for cutting billions of dollars of farm subsidies over the next decade as part of efforts to rein in growing budget deficits in the face of increased government spending.
 
The new administration’s budget proposal, released last week, would phase out so-called direct payments, which are made on the basis of acreage irrespective of whether the land is under production, to farmers with annual sales of over US$ 500,000. It would also limit payments under commodity programmes to US$ 250,000, on the grounds that the cap would “help ensure that payments are made only to those that most need them.”
 
Also slated for cuts are government support for cotton storage and the marketing of branded products overseas. Funding would be increased for conservation efforts, food security, rural renewable energy projects and child nutrition schemes.
 
In his first address to Congress last week, Obama promised to “end direct payments to large agribusiness that don’t need them.”
 
While the president can present a blueprint for spending, Congress will determine the final budget. What emerges from lawmakers’ horse-trading may be unrecognisably different from the White House’s proposal.
 
Agriculture spending is notoriously hard to cut, since it faces stiff bipartisan resistance from farm-state members of Congress. A case in point is the current subsidy-laden farm bill: the Bush administration had sought to scrap subsidies for farms with an annual gross income of more than US$ 200,000. Under the bill that was ultimately passed, however, individual farmers with incomes of up to US$ 750,000, and married farmers with joint incomes twice that, remained eligible for certain subsidy payments.
 
Some senior Democrats and Republicans from farm states have already expressed opposition to changing the five-year farm bill that was approved last year. Bob Stallman, the president of the influential American Farm Bureau Federation, warned that “deeper cuts in agricultural supports would have drastic impacts at the farm level and would certainly curtail much-needed economic activity without yielding deficit reduction of any significant degree.”
 
According to The New York Times, some 116,000 out of 2.2 million farms had sales revenues of at least US$ 500,000 in 2007. Cutting direct payments to them would save US$ 9.8 billion in projected expenditures over ten years. The Obama administration’s budget projects some US$ 15 billion in savings.
 
Beyond getting tighter caps through Congress, a critical issue will be how the rules governing payment limits are structured. Michael Roberts, an agricultural economist at North Carolina State University, wrote on his blog that high-revenue farmers have circumvented payment limits through creative bookkeeping, for instance, by nominally breaking the farm up into multiple pieces.
 
“The devil is in the details, and we haven’t seen the details,” said Sandra Schubert, director of government relations for the Environmental Working Group, a Washington-based non-profit that monitors farm subsidy spending. She said that clear rules and regulations could reduce the ability of farms to ‘game the system’, but that the full details of what the White House intends to pursue have not yet been released.
 
US farm spending has long been an irritant in the troubled Doha Round of global trade negotiations at the WTO. Several of Washington’s trading partners have demanded steep cuts in US spending limits.
 
However, direct payments are not the most contentious kinds of subsidies in the talks. So long as they meet WTO requirements to be unlinked to the type or volume of production, they are deemed to fall into a ‘green box’ category of payments that are exempt from reduction. The most contentious types of subsidies vary with world market rates; they rise when prices go down, distorting production decisions and trade.
 
"A cut in direct payments would do little or nothing for the [Doha Round] talks," Dan Sumner, a farm and trade policy specialist at University of California-Davis told Reuters.
 
Nevertheless, other countries have welcomed a sign that the US is willing to cut any farm payments, even if motivated primarily by domestic budgetary concerns.
 
Speaking to reporters in Ottawa, Canadian Agriculture Minister Gerry Ritz described the call to end direct payments to US agribusiness “a good right step,” according to Reuters.
 
Ritz said that it would help move towards reviving the Doha Round talks, but that it would not suffice to do so. "It's one of the aspects. On the top 10 list, it's one of them," he said.
 
ICTSD reporting; “Canada cheers Obama remarks on U.S. farm subsidies,” REUTERS, 25 February 2009; “Drilling Down on the Budget: Agriculture,” NEW YORK TIMES, 26 February 2009; Obama farm subsidy cut won't revive Doha: experts,” REUTERS, 25 February 2009.

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