On Dec. 20, President Donald Trump signed the 2018 U.S. Farm Bill into law. Meanwhile, European Union lawmakers have been debating a Common Agriculture Policy (CAP) for 2020. Both of these policies will have strong implications for global trade and for the agricultural economies of both developed and developing countries. Two IFPRI events in December examined what these new U.S. and European policies could mean for the rest of the world.
“The challenge of agriculture in the developed economy is a very real one, both for our agricultural communities and our economies but also for the impact we have … on the developing world, for whom agriculture is a key means of actually moving from poverty to greater prosperity,” EU Ambassador to the U.S. David O’Sullivan said at the first event, “The Future Direction of U.S. and EU Agricultural Policy”, co-hosted on Dec. 10 with the EU Delegation to the U.S.
The event brought together experts from IFPRI, the U.S. Department of Agriculture, the EU, and the European Commission Directorate-General for Agriculture and Rural Development.
EU policies are beginning to move away from a heavy reliance on subsidies and other market-distorting measures toward more market-oriented solutions to the agricultural and food security challenges facing both urban and rural populations, O’Sullivan said.
No EU member country has applied agricultural export subsidies since June 2013, said EC Director General of Agriculture and Rural Development Jerzy Plewa. Meanwhile, he said, under previous CAPs support for domestic farmers has already mostly been decoupled—i.e., it does not distort production or trade (so-called “Green Box” support under WTO rules).
The 2020 CAP must address environmental challenges, particularly greenhouse gas emissions and overuse of fertilizers, Plewa said, and should encourage more research and innovation to boost agricultural productivity. Plewa also emphasized the important role that agricultural policies, both in the EU and elsewhere, will play in meeting the targets of the Paris Climate Agreement and the SDGs. Accordingly, the EC has made several proposals for the new CAP, including moving to a performance-based model that will focus on assessment of producers’ real needs, strengthening risk management tools for farmers, and enhancing commitment to environmental sustainability.
The 2018 Farm Bill stresses policy continuity with previous measures, according to USDA Undersecretary of Farm Production and Conservation Bill Northey. It continues strong support for subsidized crop insurance, he said, and strengthens the risk management system to help farmers better guard against natural disasters and economic shocks.
The U.S. and European agricultural economies complement each other in various ways, said Jesus Zorrilla, Minister Counselor for Agriculture with the EU Delegation to Washington. U.S. farms tend to be larger than their European counterparts; the crops typically planted differ (soybeans, cotton, and peanuts in the U.S.; wheat, barley, olives, and grapevines in the EU). This is good for trade, with the U.S. importing European crops and vice versa. However, different approaches to food safety and human health have hampered trade and require increased cooperation, Zorrilla said. Farmers in both regions also face concerns about farm and food price volatility and increasing bureaucratic red tape that could undermine the level of government support they receive.
U.S. and EU agricultural policies have evolved significantly over the past 20 years, IFPRI Senior Research Fellow Joseph Glauber said—from heavy support via export subsidies in the 1980s to more decoupled forms of payment and public goods such as environmental services today. Crop insurance remains a key difference between the two regions, he said. It now forms the largest single safety net program in the U.S. and accounts for about 40 percent of Farm Bill support; but it plays a more marginal role in the EU, particularly in livestock insurance and revenue insurance. Glauber also noted that the 2018 Farm Bill did not include any budget cuts, despite anticipated future U.S. budget deficits.
The Farm Bill took center stage again on Dec. 12, when IFPRI and the American Enterprise Institute (AEI) co-hosted the launch of a new book, Agricultural Policy in Disarray, co-edited by Vince Smith of Montana State University, Barry Goodwin of North Carolina State University, and IFPRI’s Glauber.
U.S. Farm Bills are extraordinarily complex and have huge economic effects. According to the book, rent-seeking by small, well-organized interest groups results in inefficient and even contradictory government policies. The 2018 Farm Bill governs a wide range of programs, including food nutrition programs, research and development, biofuels, trade programs, credit, forestry, horticultural crops, and rural development. The event discussion focused on how it could affect price and income support programs, conservation programs, and crop insurance.
In addition to the book’s editors, the event featured University of Maryland Professor Erik Lichtenberg, Center for Global Development Visiting Fellow Kim Elliott, and Virginia Tech Institute for Society, Culture and Environment Professor David Orden.
Panelists agreed that much progress had been made in reforming U.S. agricultural policy over the past 25 years. However, agricultural spending remains high (more than $21 billion annually for price and income support programs, crop insurance, and conservation programs) and continues to distort markets.
Smith noted that U.S. crop insurance is often cited as an example of good policy because almost 90 percent of eligible land is insured.
“But,” he said, “the real question is . . . who benefits from the program?”
Smith explained that this high rate of participation is largely due to the fact that the government subsidizes, on average, over 60 percent of the premium costs. Meanwhile, the beneficiaries of this support are hardly suffering. Goodwin challenged the notion that the farm sector is facing a crisis requiring ongoing, significant financial support from taxpayers; in fact, median farm household income is higher than that of non-farm families.
Conservation programs, in contrast, provide some public good in the form of environmental benefits, Lichtenberg said. But overall, Elliott said—and panelists agreed—the new Farm Bill represents a step backward: Support prices for some commodities were raised, payment restrictions on larger farmers were eased, and new programs for dairy and cotton will likely attract increased WTO scrutiny.
Still, Orden said, over the last 25 years, “At the helicopter level, there has been an imperfect but positive arc in the evolution of U.S. farm policies toward less intrusive forms of support … I think that reform advocates need to take more ownership of this evolution as something that we should claim pride in and something to build upon.”
Sara Gustafson is a Communications Specialist with IFPRI’s Markets, Trade and Institutions Division.
