Photo: Scott Olson/Getty Images
This week’s print edition has an article discussing another reason for Americans to fear the end of the year: the “agriculture abyss.”Farm subsidies cost America’s government tens of billions of dollars each year, even though many farmers are earning more than ever thanks to high commodity prices. Little surprise, then, that with Congress desperate to avoid painful tax increases and spending cuts, both Republicans and Democrats are prepared to eliminate direct payments to growers.
Despite that bipartisan consensus, the last farm bill, passed in 2008, expired on September 30 with nothing to take its place. In June, the Senate passed a bill with bipartisan support that would eliminate direct payments to farmers and trim spending on conservation programmes and food stamps. These measures would save $23 billion over the next 10 years, according to the Congressional Budget Office. The House Agriculture committee’s version would save about $35 billion over the next 10 years.
While similar in most respects, the two bills differ in how they compensate farmers for the removal of direct payments. (There is also a slight difference in funding for food stamps.) The Senate version offers farmers a revenue protection scheme based on their recent earnings. If farm income falls below 89% of its baseline, the government will cover the next 10% of losses. (Beyond that, losses are covered by insurance paid for by farmers.) The House’s scheme is similar but kicks in when earnings dip below 85% of the baseline. More significantly, the House also offers farmers a price protection scheme in which they are paid whenever market prices dip below legally established reference rates.
Since the reference prices are all below, in some cases far below, current prices, this difference might not seem to matter much. But Southern peanut and rice farmers complain that the Senate’s bill would make them lose out relative to Midwestern wheat and soya growers. Ironically, the Southerners’ biggest opponent has been Pat Roberts from Kansas, the senior Republican in the Senate’s agricultural committee. That may be one reason that John Boehner, the Republican speaker of the House, has not brought the house bill up for a vote.
The failure to reach a deal could have significant consequences:
At the moment negotiations over the fiscal cliff are consuming all the political air. From soil conservation to price supports to trade, American farm policies are all on hold. The expiry of the latest bill means several conservation programmes have been frozen, as have export loan guarantees.
This year’s harvest is long in, so the effects so far have been muted. But if there is no farm bill by the start of the next agricultural year, the government’s price-support scheme will automatically revert to what it was in 1949. Most crops have until the spring or summer, but the deadline for milk and other dairy products comes at the end of December. Applying the old formulas today would require the federal government to buy up enough milk to establish a minimum wholesale price more than double its current level, and, later on, enough wheat to raise its price by 67%.
No one really expects Congress to plunge taxpayers into this “agriculture abyss”. When the previous farm bill was about to expire in 2007 the first of several temporary extensions was passed just days before the government would have had to intervene in the dairy market. Frank Lucas, the Republican chairman of the House agriculture committee, says that “reverting back to an antiquated system…is not responsible,” while Debbie Stabenow, the Democratic chairman of the Senate agriculture committee, is confident that a deal will be reached before the end of the year. But as with the rest of the fiscal cliff, the mere fact that both sides want a solution is no guarantee it will happen.
Just one more thing to worry about over the holidays, I suppose.
Click here to subscribe to The Economist