Farm Policies and Poverty

Farm Policies and Poverty

Thompson’s second fundamental question about farm policy asks whether it should be based on production and decoupled from which crops farmers produce. Basing farm support payments on production is problematic for several reasons. When commodity prices are high, farmers still get government support to produce crops, even though the market is providing plenty of encouragement. When commodity prices are low, farmers get government support to produce—and overproduce—when there is no market signal to do so. These subsidies distort trade.

In fact, production subsidies violate World Trade Organization (WTO) rules that the United States agreed to follow. If the government fails to change these trade-distorting policies, U.S. exports—agricultural and non-agricultural—could face stiff penalties in international markets.¹ Production subsidies also benefit the largest farms disproportionately because of these farms’ tremendous economies of scale. Farm policies based on production should be eliminated. Conservation subsidies do not distort trade and could be distributed more equitably among farms of all sizes. Box 1.1 explains why farm policy should treat conservation as a top priority.

As the Doha Round, the current round of WTO negotiations, stumbles along with little progress in sight, it is important to remember what it was intended to achieve. When the round opened in 2001, in the wake of the 9/11 terrorist strikes in the United States, it was billed as a “development round.” In the world’s least developed countries, agriculture is how the vast majority of the population earns a living, and agricultural development is the most accessible path to wide-scale poverty reduction. Since the start of the round, we have witnessed the effects of highly volatile markets for agricultural commodities: they drive up hunger rates in poor countries around the world. A successful conclusion to the Doha Round has the potential to create a more stable environment and smooth out a portion of this volatility.{footnotePascal Lamy, World Trade Organization (January 31, 2011), “The Man-Made Causes of Price Volatility,” speech at the Global Commodities Forum, United Nations Conference on Trade and Development.{/footnote}

Past rounds of multilateral trade negotiations have helped developing countries get access to manufacturing and service markets that were once closed to them. But agricultural trade remains a sticking point. Developing countries will only see progress as a result of the Doha Round if developed countries commit to liberalizing markets for the products that are the developing countries’ comparative advantage: raw commodities. The round is likely to remain stalled as long as U.S. agricultural policies are in violation of WTO rules.

Turning to the United States, it’s clear that farm policies also affect Americans living in poverty. As health problems related to diet become more and more common, farm policies have come under much greater scrutiny.² Two-thirds of Americans are overweight or obese, and this condition is linked directly to dietary choices.³ If current trends continue, obesity and overweight will account for one-fifth of all healthcare expenses by 2020.⁴

Poor diets increase the risk of cardiovascular disease, cancer, diabetes, and hypertension. People living in poverty suffer disproportionately from all of these diet-related health conditions. While food prices in this country were falling throughout the 20th century, the prices of fruits and vegetables did not fall nearly as quickly as the prices of subsidized program crops. Hence, relative food prices have moved directly against a healthier diet, and consumption patterns clearly reflect this trend.⁵

In 2011, USDA issued new guidelines on the recommended daily allowances (RDAs) of vitamins and minerals in diets. People cannot meet most of the new RDAs without consuming more fruits and vegetables, yet the United States does not even produce enough fruits and vegetables to meet the RDAs.⁶ The number of acres devoted to production of fruits and vegetables is roughly 2.5 percent of the total U.S. cropland under production.⁷

Farmers’ choice of crops to grow is driven by what U.S. farm policies favor. Consider the Direct Payments program, a lump sum payment provided to owners of farmland with a history of raising program crops. Seventy percent (220 million acres) of all harvested cropland is eligible for the program.⁸ Farmers who receive direct payments are under no obligation to plant anything on this land. But if they do raise a crop, it must be a program crop. If they attempt to divert even a single acre to grow fruits and vegetables, they risk losing government support for all the acres they qualify for.

One way to increase production of healthy foods—and make them more affordable to low-income households—would be to allow farmers to diversify their farm operations. Diverting just 1 percent of program crop acres to grow fruits and vegetables would increase U.S. fruit and vegetable production by a third.⁹ A large farmer like Arlyn Schipper may not be interested in diversifying, but medium-sized farmers struggling to survive and dependent on government subsidies may well find this a compelling option.

The Direct Payments program has been costing taxpayers $5 billion every year—a figure that has made the program emblematic of government waste. At a time of record farm profits, it is difficult to understand why taxpayers should provide farmers with billions of dollars that come with no strings attached except a requirement not to grow fruits and vegetables (the healthy foods that USDA says Americans need to eat more of). The program became still more notorious once information became publically available showing that half of the payments go to landowners who are not farmers. Many are speculators who’ve never set foot on the farmland—thousands of residents of New York, Boston, Chicago, Miami, Los Angeles, Seattle, and other metropolitan areas. Together, they own a significant share of U.S. farmland.¹⁰

Past farm bills have considered changes to the restrictions in the Direct Payments program on planting other crops. The 2008 farm bill included a pilot program to incorporate “flex acres,” allowing farmers in six states to divert 75,000 acres from program crop production to raise vegetables for processing. A 2011 evaluation showed that only 13.6 percent of the flex acres were used to grow alternative crops.¹¹ A few factors that likely contributed to this low figure: one, unlike markets for fresh vegetables, the markets for processed vegetables have been stagnant for years; two, participating farmers found the rules of the program cumbersome; and, three, with record high grain prices, farmers have had less incentive to switch to other crops.

Fruit and vegetable growers have traditionally opposed easing the planting restrictions on program crops because it would create more competitors for them. They have argued that program crops already command a greater share of government support than fruits and vegetables, so it would be unfair to lift the planting restrictions.¹² They are certainly correct that program crops get a greater share of government support, but this is no reason to keep renewing a bad policy. Fruit and vegetable growers’ concerns can be addressed in other ways. For example, policymakers could expand the purchase of fruits and vegetables in federal nutrition programs to help offset a loss of market share. For more on this and other options, see Chapter 2.