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Farm Policy Developments: U.S. and EU

U.S.- Farm Bill

DTN writer Chris Clayton reported yesterday that, “A framework agreement on how to divvy up $10 billion in extra funding for the farm bill may be ‘dead on arrival’ because it would drastically cut proposed funds to create a permanent disaster plan for farmers.

“Demonstrating the inner-fighting going on with these talks, Senate Finance Committee Chairman Max Baucus, D-Mont., issued an angry statement Tuesday afternoon after learning the House and Senate Agriculture Committees would attempt to cut proposed funding for a permanent disaster program from $5.1 billion to $2.2 billion over a five-year span. Baucus said he opposes ‘slashing’ the disaster package.”

Mr. Clayton explained that, “Senate Agriculture Committee Chairman Tom Harkin, D-Iowa, had earlier announced that he had reached an agreement along with Sen. Saxby Chambliss, R-Ga., ranking member of his committee, as well as House Agriculture Committee Chairman Collin Peterson, D-Minn., and Rep. Bob Goodlatte, R-Va., ranking member of the House Agriculture Committee.

“The proposed deal would provide a base for allocations of the farm-bill spending, which would amount to $607 billion over 10 years if an agreement outside the committee can be reached to provide the legislation with another $10 billion in funding. Specific details on those program allocations were not released, but Harkin’s spokeswoman emphasized that the framework includes money for a ‘disaster component’ in the final bill. Harkin said the framework provided allocations for the full bill.”

Later, the DTN article pointed out that, “Sen. Charles Grassley, R-Iowa, a member of the Senate Agriculture Committee and ranking member of the Senate Finance Committee, said he thought there were agreements on about $5 billion in spending offsets as of now, narrowing the gap in what needs to be found. Grassley added that a final deal on the spending must be done by the time Congress returns to Washington on March 31 if there is any chance of completing a bill by the new April 18 deadline.

“Agriculture Secretary Ed Schafer, also attempting to push talks along, reiterated the administration’s positions Tuesday, complaining against increased spending in the farm bill and again questioning what offsets would be used to pay for this additional spending.

“Schafer said the administration has agreed to spend $6 billion above the baseline, but also has ‘outlined ways’ for Congress to go as high as $10 billion, Schafer said.”

Mary Clare Jalonick reported this morning that, “High Plains senators say a new farm bill proposal would shortchange farmers who have lost crops to bad weather.

“A dedicated fund designed to help those farmers continues to be a sticking point as farm-state members of Congress struggle to come up with money to pay for the legislation passed by the House and Senate last year.”

The AP article added that, “Lawmakers also have disagreed on who has control over the legislation. [Sen. Max Baucus, D-Mont., the chairman of the Senate Finance Committee] and Iowa Sen. Charles Grassley, the top Republican on the finance panel, want their committee to control some farm programs along with finding the money for it. But Harkin has said his committee should have total control over the bill.

“[Sen. Kent Conrad, D-N.D., the chairman of the Senate Budget Committee] said the Harkin-Peterson proposal could threaten Senate Finance Committee talks over funding the farm bill, since the disaster money is a priority for him and Baucus.

“‘One would have hoped that after all this time, they would have come up with something that wouldn’t have put at risk the financing package,’ Conrad said.

“Still, he said, ‘It’s very evident that these are negotiating numbers.’”

Meanwhile, Julie Harker of Brownfield reported yesterday that, “Some progress on funding of a new farm bill has been made, according to Senate Ag Committee member Chuck Grassley of Iowa. Senator Grassley says there’s some agreement with senior staff of the Ways and Means Committee that through spending reductions in non-ag areas about half of the 10 billion dollars over baseline goal could be met without having to come up with spending offsets for the other five billion dollars. Grassley says, ‘There are some savings that can come from social security income because of some ways that we save money there that we can apply money to Medicaid that would save the same amount of money.’”

And Brownfield’s Peter Shinn provided a more detailed look at executive branch perspective on the Farm Bill yesterday, and noted that, “Just because the President would accept a long-term extension of the current farm bill doesn’t mean he sees such an extension as a desirable outcome. That’s what U.S. Ag Secretary Ed Schafer told Brownfield Tuesday during a teleconference with reporters about the ongoing farm bill talks.

“Schafer pointed out both the House and Senate versions of the pending farm bill address important priorities not adequately covered by the 2002 farm bill. Schafer said an extension of current law wouldn’t help the specialty crops sector, provide any type of revenue-based counter-cyclical program for ag producers, boost the U.S. renewable fuels industry or increase nutrition spending.

“‘If we recommend the signing of an extension of the current farm bill, we leave too much on the table,’ Schafer added.”

To listen to an audio recap (MP3) of some of the recent Farm Bill developments, see this FarmPolicy.com audio podcast from yesterday (MP3- 8:18).

The FarmPolicy.com audio segment includes comments made by Secretary of Agriculture Schafer at yesterday’s USDA press briefing, a clip from Senator Charles Grassley (R-Iowa) regarding funding made in a press conference yesterday, and a short clip from Monday’s AgriTalk program which includes analysis from Mary Kay Thatcher of the American Farm Bureau Federation.

Also yesterday, the Congressional Budget Office (CBO) released a letter addressed to House Agriculture Committee Chairman Collin Peterson (D-Minn.), which stated that, “The Congressional Budget Office and the Joint Committee on Taxation (JCT) have estimated the effects on direct spending and revenues of H.R. 2419, the Farm, Nutrition, and Bioenergy Act of 2007, as passed by the House on July 27, 2007, relative to CBO’s March 2008 baseline projections. As requested by staff of the House Committee on Agriculture, this estimate assumes that certain modifications (described below) would be made to the legislation. CBO estimates that enacting the modified legislation would increase direct spending by $6.7 billion over the 2008-2018 period, relative to the baseline projections and assuming that the legislation would remain in effect throughout the period. JCT estimates that revenues would increase under the proposal by $8.2 billion over the same period. On balance, those changes would produce net savings (reductions in deficits or increases in surpluses) of about $1.5 billion over the 11-year period, relative to CBO’s baseline projections. The enclosed table provides more details on those estimates.”

The CBO item also included a table of projected spending levels by Farm Bill Title through 2017.

EU- Common Agricultural Policy

Stefan Theil, writing recently at Newsweek Online (International Edition), indicated that, “Remember Jose Bove, European agriculture’s old poster boy? The sheep farmer and antiglobalization activist who spent his time doing things like dismantling McDonald’s stores was a folk hero among Europe’s 13 million farmers for his fight against foreign food imports. Powerful farm lobbies—backed by the government of France—fought EU reforms designed to open up Europe’s coddled and regimented agricultural sector to greater market forces. Now, as Europe’s farmers see rising profits, many of the same agro activists are singing a very different tune. The German Farmers’ Union, a well-connected lobbying organization whose functionaries long beat the same drum as the French for protection and subsidies, now says its members are eagerly embracing ‘global market freedom.’ Its president, Bavarian pig farmer Gerd Sonnleitner, praises the new era of supply and demand as ‘a second emancipation of the serfs.’ Rather than protesting in the Pyrénées against global trade, European farmers these days are seeking out new international markets for their products.

“Not all that long ago, it was hard to use ‘European farmers’ and ‘markets’ in a single sentence, unless perhaps you included the words ‘dumping’ or ‘distorted.’ Now, thanks to the global surge in the price of food and farm products (buoyed by a new emerging-market middle class), plus a series of important reforms to Europe’s 50-year-old subsidy system, market forces that haven’t been felt in ages are stirring in the continent’s fields, barns and meadows.

“The subsidy system still exists, but its worst absurdities do not. Largely gone are the days when EU bureaucrats in cahoots with national farm ministries set prices and paid billions to buy up excess production to be stored in Europe’s legendary ‘wine lakes’ and ‘butter mountains,’ later to be dumped on world markets at a price far below the cost of production. The total Europe spends on subsidies each year has been more or less frozen at near €43 billion, even though the EU has expanded from 15 member states to 27. Export subsidies for sugar, milk and beef have been pared back from about €10 billion per year in the 1990s to €2.4 billion in 2006, and may be phased out altogether by 2013. Crucially, as of 2004, most subsidies are no longer tied directly to the production or export of specific crops. Now, farmers have an incentive to grow only what’s most profitable, not what will draw the biggest subsidy check.

“As a result, farmers and food producers are shifting into areas where they can get the highest returns on the world market. EU exports are dropping rapidly in sugar, poultry, cereals and other raw or nearly raw goods. But rising shipments of finished products like sausage and ham have helped Europe soar past the U.S. to become the biggest agricultural exporter.”

The Newsweek item added that, “Of all the major agricultural powers—including the U.S. and Brazil—the EU has become the least dependent on the sale of interchangeable bulk commodities, which can be grown more cheaply in the developing world. ‘It’s incredible,’ says Pierre Bascou, head of the EU’s farm trade unit. ‘You can just watch the markets kicking in.’”

The article went on to explain that, “To understand the new entrepreneurial spirit taking hold among European farmers, take a look at Co-Op Farms. At 30,000 hectares, it’s Britain’s biggest farming operation. A decade ago, says general manager Christine Tacon, Co-Op only grew subsidized grain to be sold to commodities traders. ‘We had no idea where our products ended up,’ she says, ‘it was all speculative.’ Now, she gets a fixed check, and can grow whatever she wants, and how much she wants. ‘The subsidy has gone out of the equation.’

“As a result, Tacon has radically changed the business model for the €50 million-a-year farm. Today, says Tacon, the farm’s entire production is grown to order; half of it now goes to supply the farm’s own chain of Co-Op stores with produce such as potatoes and strawberries. Tacon has added pumpkins, onions and broccoli to the offerings, and set up a packing operation. Riding a huge wave of demand for locally sourced food, Tacon is researching new, better-tasting spuds and berries. She plans to invest in equipment she says will cut water use and raise productivity by a factor of three. Already, revenue is up by 25 percent compared with the pre-reform era.

“Shifts like Co-Op’s are now taking place Europe-wide.”

“Of course, the shift is a culture shock to many. ‘I shouldn’t have to invest, I should be supported,’ says Samuel Maréchal, a 34-year-old mustard seed farmer, working his family’s 74-hectare farm near Dijon, France. He says it was all much easier in his father’s day, when prices were fixed and income was predictable,” the article said.

In conclusion, the Newsweek item stated that, “Will Europe keep up the pace of liberalization? Some of the most destructive policies, like the high tariffs that restrict imports from developing countries, are still in place. Much depends on France, which has always managed to block reform until now. And so it may be a modern-day French revolution that Sarkozy has become the first French president to call for a major reform of the subsidy system. Speaking earlier this month at the Paris Farm Fair, he told farmers they must become entrepreneurs and not just work for subsidies. But in the same breath, he also called for new ‘community preferences’ and ‘true market stabilization policies,’ which can only mean more regulation. This underscored how politicized agriculture still is. But the growing benefits that Europe’s farmers are reaping from markets and trade, now that they’re sowing their competitive oats, may be what keeps José Bové and his like on the fringe.”

Reuters writer Jeremy Smith reported on Monday that, “EU agriculture ministers gave a green light on Monday to broad principles for policy reform and drew battlelines over how the lavish farm budget should be spent, in particular on large farms and countryside development.

“Last year, European Union Agriculture Commissioner Mariann Fischer Boel unveiled her so-called ‘health check’ of the Common Agriculture Policy (CAP), a huge subsidy programme that eats up some 40 percent of the EU’s entire annual budget.

“Some of the more controversial elements of the plan, in effect a mini-reform, include diverting direct subsidies into projects designed to improve the countryside, and reducing handouts to larger farms according to their income bracket.”

Mr. Smith explained that, “EU farm ministers mostly welcomed the principles of many of those reform ideas on Monday and will be presented with Fischer Boel’s formal plan at an informal meeting in Slovenia in May.

“However, the real debate is only just beginning and no deal is likely until at least November when France, by far the largest beneficiary of CAP spending, will be EU president. ‘There were no big problems, just some smaller ones,’ one EU official said, speaking after ministers backed broad political conclusions aimed to start the farm reform negotiations.”

The Reuters article also noted that, “Latvia, backed by many of the mostly ex-communist countries that joined the EU in 2004, is unhappy about the phase-in system of farm subsidies that it agreed as part of its EU accession deal and is keen to see more equal distribution of payments.

“Diverting direct farm subsidies into rural development projects, a process as modulation, is certain to be a difficult area. Fischer Boel is keen to raise the degree of compulsory modulation, taking cash away from direct producer support.

“‘We insist on compulsory modulation and have long been clear that modulation should apply to everyone. We’d like to phase out voluntary modulation,’ the Commission official said.”

In addition, an AFP article from Monday reported that, “European Union governments on Monday rejected a proposal to sharply reduce the biggest agricultural subsidies, a measure that would have hit U.K. and German farmers in particular.

“‘Significantly lowering the upper payment threshold may have adverse effects on farming in some member states,’ the E.U. agriculture ministers agreed in a joint statement following talks in Brussels.

“The rejection of the proposal by the E.U.’s executive arm, the European Commission, came as no surprise after many of the 27 member states had voiced opposition in recent months to the move to bring down farm subsidies.”

The AFP article added that, “The proposal to cap the biggest subsidies had prompted warnings that it could lead farmers whose aid exceeds the limits to split their farms up.

“Under the proposal, farmers who receive the biggest hand-outs would see their subsidies progressively reduced.

“London and Berlin led opposition to the cap proposal, which would in particular hit aristocratic landowners in the U.K. and former communist cooperatives in eastern Germany.”

Also with respect to EU farm policy, the Associated Press reported yesterday that, “European Union farm ministers approved an urgent plan to boost milk production in order to stabilize prices and meet increased demand for dairy products in Europe and Asia.

“Officials said the ministers supported a 2% rise in yearly milk quota production or an extra 2.84 million tons, which comes into effect April 1.”


An update posted on Friday at the WTO webpage, indicated that, “Intensive consultations among a group of importing and exporting countries will be allowed to continue for a few more days in an effort to achieve a breakthrough that would also allow progress in the agriculture talks as a whole.

“By 31 March or earlier New Zealand Ambassador Crawford Falconer, who chairs the talks, will reconvene multilateral talks so that representatives of the full membership can negotiate the outcome and continue with other major issues, leading to a revised draft blueprint of the final deal. That is what he concluded after hearing members’ comments on 14 March 2008.”

Keith Good