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Two weeks ago, President Obama signed the Agriculture Act of 2014 into law. The Agriculture Act of 2014 is the first farm bill to be passed since 2008, when Congress overrode President George W. Bush’s veto and passed the Food, Conservation, and Energy Act of 2008. The last Congress failed to pass a farm bill, but Republicans and Democrats were able to compromise and made the Agriculture Act of 2014 a reality. The farm bill, which is passed every five years, is an interesting form of political theatre. Republicans and Democrats from farming states typically support higher agricultural subsidies and funding for research, while liberal, urban Democrats and Republicans support funding for food stamps in the bill. In fact, funding the food stamp program, also referred to as the Supplemental Nutrition Assistance Program (SNAP), is eighty percent of the Agriculture Act. Fiscal conservatives and free traders typically blast the agriculture bill as bloated, wasteful, and harmful for developing nations, but due to politics it is very rare to see the farm bill produce significant savings for the U.S. federal government.
This topic brief will break down the history of American farm policy and facts about the most recent farm bill, discuss cuts made in the bill to the food stamp program that have been opposed by liberal Democrats, and then discuss how agriculture subsidies impact American trade policy and the U.S. budget.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
History of American Farm Policy
As older extempers are aware, the American colonies developed around trade and agriculture was a pursuit for the majority of Americans until the end of the nineteenth century. The cash crop economies of the Southern states, which revolved around tobacco, rice, indigo, wheat, sugar, and cotton, created a demand for slave labor. Tensions over the expansion of slavery and federal tariff policies that created protectionist measures against American agricultural products by foreign governments produced the Nullification Crisis of 1832-1833 and the Civil War between 1861-1865. A problem for American farmers from the colonial period until the early twentieth century was overproduction. Farmers would plant their crop for the current season and many of them would take it to market at the same time. This produced too much supply for too few buyers and prices plummeted. When a farmer would receive less money for their crop during that season, they would come to the conclusion that they needed to plant more instead of less to make more money and the problem of overproduction accelerated. Wild swings in the price of crops produced by the boom and bust cycles in the U.S. economy (the U.S. averaged a depression every twenty years between 1819-1929 – these were called “panics”) made farmers very vulnerable to market forces that they could not control. Politically, this produced the Populist movement in the late nineteenth century and support for the New Deal in the 1930s.
The United States government began setting down a national farm policy in light of the Great Depression of the 1930s. Farmers were devastated by deflation in the economy, which reduced prices for their products, debt, and overproduction. The federal government began providing subsidies (a subsidy is a payment or form of financial aid meant to promote a certain economic activity) to farmers not to grow certain crops. The goal was to produce an artificial shortage of certain goods so that the prices of those goods would increase and farmers would make more money. This policy was codified in the Agriculture Adjustment Act (AAA) of 1933, which provided subsidies for farmers that were paid through a tax on companies that processed the crops farmers produced. The government also bought overproduced grain from farmers for storage and a nutrition program was included in the bill. The Supreme Court ruled that the AAA was unconstitutional in 1936 on the grounds that agricultural policy was not something that the federal government could regulate. However, the Supreme Court eventually changed its opinions about New Deal programs by 1937 and Congress passed the Agriculture Adjustment Act of 1938, which mandated that Congress renew it every five years. The law carried many of the same provisions as the original AAA law, but the federal government now took on the funding for subsidies and eliminated the processor tax of the original AAA. The Agriculture Adjustment Act of 1938 set in motion the five-year renewal period of American farm policy and began a constitutional period of federal regulation of agricultural affairs.
As the United States government increased its fight against poverty in the 1960s and 1970s, the farm bill became tied into urban concerns. The federal government in the 1970s tied the farm bill to the food stamp program (SNAP) and this was meant to increase support for the farm bill by urban constituencies, who began to feel that the subsidies in the farm bill were taking money out of the their more populated areas and redirecting them to the countryside. The Christian Science Monitor on February 4th writes that the farm bill is traditionally the most bipartisan piece of legislation that Congress handles because the divisions over the bill are not Democrat vs. Republican or even liberal vs. conservative, but farm regions vs. non-farm regions. Fights sometimes break out over where certain crops should be eligible for protections. For example, the Associated Press on February 8th reveals that staple crops like corn, soybeans (which are used for livestock feed), wheat, cotton, and rice receive the most subsidies, while fruits and vegetables like tomatoes, potatoes, blueberries, nuts, and honey typically receive less money.
It is important for extempers to remember that not all farmers receive subsidies from the federal government. Those who farm crops deemed of significant importance to the federal government receive the subsidies, as well as those who own large tracks of land. The Environmental Working Group in 2011 pointed out that nearly 60% of American farmers do not receive farm subsidies and those that receive them are typically absentee landlords (those who own large plots of land but are never around to operate them) and wealthy agricultural businesses. For example, in 2010 there were 486 residents of Phoenix, Arizona that made over $3.2 billion in farm subsidies. The Huffington Post on November 11th also points out some famous people that are making money from farm subsidies. These include Paul Allen, the co-founder of Microsoft and owner of the Seattle Seahawks, who received $14,429 in barley subsidies between 1996-2006, and Charles Schwab, founder of the brokerage firm Charles Schwab Corporation, who received $525,593 in rice and other farm subsidies between 1995-2003. Both men have a net worth of more than $5 billion. Other famous people that have received farm subsidies include former President Jimmy Carter and music artist (and former New Jersey state extemporaneous speaking champion) Bruce Springsteen.
Tenets of the 2014 Farm Bill
The 2014 farm bill makes some adjustments to American agricultural policy. The National Center for Policy Analysis on February 12th breaks down some of the core elements of the bill and I highly recommend that extempers clip this source, which is a list of the farm bill’s components for their files. It is an easy piece of material that you can reference to save time in prep. The farm bill is worth $950 billion and one of the changes it makes is to eliminate direct payments to farmers. These payments were made to select farmers regardless of whether they planted a crop or not, and were worth $5 billion a year. The Heritage Foundation on December 5th explained that under the direct payments system, farmers were paid by “base acres,” which measured a farm’s crop production history based on how much of a certain crop it planted over an average of selected years. Heritage estimates that 25% of direct payments between 2003-2011 went to farmers that did not grow the crop affiliated with those base acres, which is why the farmer was receiving a subsidy in the first place, and that this cost American taxpayers more than $10 billion. The White House argued that these direct payments only benefitted wealthier farmers, so those subsidies ended in the final bill. The Economist of February 8th explains that the direct payment system is being replaced by a crop insurance program where farmers are paid if their crops fail or if prices for those crops fall too far. The problem, though, is that the American agriculture sector is doing quite well right now. The Washington Post on February 4th reveals that net farm income in the United States is set to increase by 13.6% to $128.2 billion in 2013, which would be the highest inflation-adjusted amount since 1973. Although this is great for farmers, who now constitute one out of every fifth Americans, it could create complications in reducing federal costs relating to agriculture over the five year life of the bill. This is because the farm bill is meant to prevent farmers from seeing their revenue fall to below 86% of their earnings from the high prices they are enjoying right now. Therefore, farmers are being insured against current prices, which are very favorable right now, instead of being insured against a more average price level. Politico on February 13th points this out through the example of corn prices. In 2014-2015, the Department of Agriculture is estimating that the price of a bushel of corn will fall from $4.50 to $3.65, which is well below the department’s estimates. The insurance will not kick in unless corn faces a steep decline, but the fact that prices are high at the moment means that the insured asset (in this case corn) is worth more money, so that makes the insurance price tag higher. The Detroit Free Press on February 16th writes that the farm bill expands the current crop insurance program outside of the usual crops like wheat and rice and into more specialty crops like apples, cherries, and sugar beets and The New York Times points out on February 4th that this expansion of crop insurance carries a $7 billion price tag over the next decade. The big winners of this insurance scheme are insurance companies moreso than farmers. Farmers get the benefit of having their crops insured, but eighteen companies are paid $1.4 billion each year by the federal government to sell insurance policies to farmers and federal funds constitute 62% of the premiums farmers need to pay for the insurance. Chances of saving money through the insurance scheme are also limited under the bill since the Department of Agriculture cannot renegotiate with insurers for lower rates. Finally, the crop insurance scheme was criticized by watchdog groups like the Environmental Working Group. The Washington Post notes on February 7th that the farm bill does not demand that the federal government disclose whether lawmakers receive payments from the crop insurance system. This is important because the Environmental Working Group found last year that fifteen lawmakers or their spouses collected more than $237,000 in subsidies. This was a bipartisan collection of lawmakers that included Senator Michael Bennett (D-CO) and Senator Orrin Hatch (R-UT).
The Denver Post on February 14th discusses some of the economic benefits to local communities under the new farm bill. The bill funds the United States Department of Agriculture’s (USDA) Rural Development Program, which provides capital investments for rural communities. These investments go towards fire stations, libraries, and medical clinics in rural America. Colorado received $400 million in these funds in 2013. Also, the bill provides funding for small businesses in rural areas that have a hard time acquiring credit through conventional means. The bill also has a Market Access Program (MAP) whereby companies and industries are given funds to advertise their agricultural products. The National Center for Policy Analysis points out that Welch received $1 million of these funds in the past to advertise grape juice overseas. The Los Angeles Times of February 7th adds that President Obama used the signing of the farm bill, which took place at Michigan State University, the nation’s first land-grant college, to promote a new export initiative that will use “Made in Rural America” forums to local governments on increasing their exports. The Department of Agriculture will also train its employees to better advertise products abroad under the initiative.
Those who favor industrial hemp were considered winners of the most recent farm bill. The Washington Times of February 10th explains that hemp, a cousin of marijuana that is nonintoxicating, has faced a seventy-five year federal restriction on its planting, growth, and research. Supporters of industrial hemp argue that it can be used for paper, clothing, and other consumer items and that it could eventually become a $500 million industry. China is the world’s leader in hemp production. Al-Jazeera on February 5th notes that the farm bill allows for ten states to begin pilot programs in cultivating hemp. Democrats who hail from marijuana-friendly states supported the inclusion of the hemp provision and Republicans like Senate Majority Leader Mitch McConnell (R-KY) support it on the grounds that it might help their state. Kentucky’s tobacco farmers have been devastated by decades of decline in the tobacco industry, due in part to anti-smoking efforts, and switching to industrial hemp might be a way for them to preserve their livelihoods. Nevertheless, opponents of industrial hemp are skeptical that it will ever become a prominent economic vehicle for farmers.
The farm bill also provides for disaster assistance for ranchers. Politico on February 8th explains that ranchers have been at the mercy of drought and blizzards, which have killed tens of thousands of their cattle and other livestock. These ranchers will receive $7 billion under the current bill. The bill also provides support for the nation’s 50,000 dairy farmers, who have suffered from declining market share. The Associated Press in its article previously cited explains that the new farm bill will provide subsidies to these dairy farmers and provides them with insurance to cover the gap in prices they earn for their milk and what it costs them to buy feed for their livestock. Skeptics, though, say that this system is untested and may not work.
Food Stamp Cuts
Another controversial tenet of the farm bill is that food stamps (SNAP) are being cut by one percent, which amounts to an $800 million annual cut ($8 billion total over the next ten years). Eighty percent of the farm bill’s price tag was composed of SNAP funding and while extempers may wonder why food stamps are included in the farm bill, the answer is that it makes it easier to pass. The National Center for Policy Analysis points out that if food stamps were not included in the bill that lawmakers would have a tougher time justifying the large amount of subsidies that farmers receive in the bill to their constituents. Fiscal conservatives tried to divorce SNAP and farm-related funding and initiatives in the latest farm bill and for future years, but they failed to do so. The Economist previously cited explains that food stamp spending has exploded since 2000 as the number of Americans receiving benefits has risen from seventeen million in 2000 to forty-eight million in 2013, which is an increase of 177%. Part of this is due to the Great Recession, but James Ziliak of the University of Kentucky recently pointed out that changing demographics in the United States and a determined effort by the Obama administration to make more people eligible is also driving the growth. The Washington Informer of February 19th explains that the Children’s Defense Fund (CDF), an advocacy group that looks into youth issues in the United States, is outraged by the food stamp cuts. The CDF argues that one in nine American children lack access to adequate food, which is a ratio that is 23% higher than prior to the Great Recession. The CDF also argues that 75% of families on food stamps have children and that food stamps lifted 2.2 million children out of poverty in 2012. Black and Latino households are also twice as likely as whites to lack access to adequate food according to the CDF. The PEW Charitable Trusts on February 4th adds that the Great Recession left 15% of Americans “food insecure,” which makes SNAP benefits very important.
The food stamp cuts are one of the issues that extempers may have to deal with in regards to the farm bill in a round, but it is important to clarify that the farm bill does not constitute a massive cut of the food stamp program (only 1% of its total funding) and that the farm bill presents fewer cuts that Republican lawmakers initially sought. For example, Republicans were seeking $40 billion in food stamp cuts and had to settle for the $8 billion over ten years that is contained in the farm bill. Also, the food stamp cut is not causing those on food stamps to lose benefits, which advocacy groups concede would have happened if the Republicans had managed to win the cuts they initially sought. The Brookings Institution on February 6th concludes that if the House Republican farm plan succeeded, with its $40 billion in SNAP cuts, it would have caused 3.8 million Americans to lose their benefits. In fact, only people in one-third of the states will even face cuts in their food stamp levels. This is because the farm bill closes a heating assistance loophole that existed within fifteen states and Washington D.C. This loophole allowed people to get higher SNAP benefits if they were receiving heating and cooling assistance for their residence through a Low Income Home Energy Assistance Program (LIHEAP). This was not a problem in theory, but some states started to provide additional SNAP benefits for those who were receiving minimal levels of LIHEAP (as low as $1 in some cases) and this led to some households getting more credits in SNAP benefits than they should have received. Closing this loophole means that some SNAP recipients will lose about $90 a month in SNAP benefits. Granted, this still means low-income families will be affected, but the cuts will center in fifteen states – California, Connecticut, Delaware, Maine, Massachusetts, Michigan, Montana, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, Vermont, Washington, and Wisconsin – and Washington D.C. instead of it being nationwide.
Despite saving the food stamp program from higher cuts, President Obama has still come under criticism from left-wing lawmakers that are not happy about his concessions in the farm bill, which is something that extempers should pay attention to as the 2014 midterms approach and the 2016 presidential primaries begin rolling in future seasons. The Tea Party takeover of the Republican Party gets a lot of media attention, but left-wing ideologues are also a part of the Democratic coalition and can create problems for more moderate lawmakers. In fact, before there was a Tea Party it appeared that the Democratic Party prior to 2006 was on the ropes and was coming apart at the seams between its moderate faction (led by the Clintons) and more liberal/progressive activists. In 2006, the more liberal Ned Lamont successfully defeated sitting Democratic Senator Joseph Lieberman in the Connecticut Democratic Senate primary election due to Lieberman’s support of the Iraq War. Lieberman would go on to beat Lamont and a token Republican challenger in the general election after he decided to run as an independent. The Hill on February 7th writes that progressives on Capitol Hill like Senator Elizabeth Warren (D-MA) blasted the food stamp cuts in the farm bill and voted against its passage. For elements of the political left, President Obama has not done enough while in office to help the middle and lower class. They want him to pursue more executive orders on climate change and immigration and they think he could have secured a more expensive stimulus bill and a more comprehensive healthcare reform law (preferably one that included a single-payer structure or at the very least a “public option” to compete with private insurers). The fact that Senator Kirsten Gillibrand (D-NY) and other liberals are asking President Obama to delay the food stamp cuts until next fall, as The New York Daily News discusses on February 16th, illustrates President Obama’s dilemma with his liberal base. Having delayed elements of the Affordable Care Act and threatened wider use of executive actions, President Obama risks incurring anger from his liberal base for not using more powers to satisfy their agenda. It is unlikely that President Obama would delay the food stamp cuts, but if he did it could trigger an even more acrimonious relationship with Republicans (if that’s possible) who would use a delay as an excuse for not passing any type of immigration reform. As I pointed out in the immigration reform topic brief a few weeks ago, Speaker of the House John Boehner and Republican officials have already signaled that they are unwilling to pass immediate immigration reform because they cannot trust the White House to fully enforce the legislation. The lack of communication between the White House and Republicans became more pronounced when President Obama failed to consult the House Agricultural Committee on signing the farm bill at Michigan State instead of in Washington D.C. Politico on February 6th writes that this led to no Republicans appearing at the signing ceremony, although two of the most prominent Republican backers of the bill, Representative Frank Lucas of Oklahoma, who is the House Agriculture Committee Chairman, and Mississippi Senator Thad Cochran, face Tea Party challengers this year so they do not want to suffer former Florida Governor (and Republican) Charlie Crist’s electoral fate by appearing close to the President (Note: Crist hugging President Obama in 2009 was used by Tea Party supporters of Marco Rubio to derail Crist’s 2010 Senate bid. Crist has since become a Democrat). Therefore, President Obama’s team did a good job securing a compromise on the farm bill that preserved most of the food stamp program and kept people on their benefits, but taking any steps to undermine the cuts Republicans have secured for the program could further poison President Obama’s relationship with the opposition.
Agricultural Subsidies & Trade
In an era of globalization, the U.S. farm bill typically comes under attack from free market forces and fiscal conservatives. Fiscal conservatives point out that the farm bill’s benefits usually go to wealthier farmers, do little to benefit the small farmer that is the best embodiment of the Jeffersonian ideal of an American as an independent farmer, produce waste and corruption due to the rich lobbyist firms connected to agribusiness, and that they make food costs higher for the average Americans because the government’s policies aim to produce artificial shortages to drive up prices. Other conservatives liken the government’s farm policy to a command economy and argue that it is a form of socialism. Still, these positions typically come from conservatives that do not live in rural or farming areas that depend on federal subsidies and assistance. Doing so would almost mean certain political death.
Although global trade topics are not as popular in extemp as they were under the Bush presidency, due in part to President Obama’s reluctance to pursue a wide range of free trade deals and the unwillingness of the Democratic Party to sign such deals unless they include labor and environmental protections, extempers need to be aware of how America’s farm policy is received by other parts of the world. They should also be mindful that American agriculture policy is one of the stumbling blocks behind achieving a more comprehensive global trade deal like the Doha Development Round (although the success of the Bali Package holds out hope that things may change). The reason that farm subsidies are so contentious in the global trade arena is that they can also serve to lower the prices of American products abroad. For example, a farmer that receives payments from the U.S. government can intentionally underbid a competitor because the government’s funding makes up the difference. This can have a debilitating effect on developing nations that lack assistance and farmers in those countries cannot compete because the playing field is not equal. The Canadian Broadcasting Corporation on February 11th reports that in 2002, Brazil filed a complaint at the World Trade Organization (WTO) against the United States for unfairly subsidizing its cotton farmers because American cotton farmers received subsidies whether they grew crops or not. The United States is the world’s largest cotton exporter and from 1995-2012 the United States paid cotton producers $32.9 billion in subsidies. The WTO found that the United States did not have grounds for its subsidy policy and to avoid a trade war with Brazil, who is allowed under WTO rules to create retaliatory tariffs (taxes on imports) on a nation found in violation of WTO rules, the United States has been paying Brazil $147 million a year to keep the subsidies rolling to cotton farmers. Brazil has already criticized the recent farm bill as a violation of WTO rules and has pledged to reopen its case before the WTO, according to Voice of America on February 20th. Therefore, extempers should pay careful attention to other nation’s reactions to shifts in American farm policy and how countries like Brazil and India use it as an excuse to protect segments of their economy in WTO negotiations.
Free traders also point out that the recent farm bill does nothing to reduce restrictions on sugar production. Reason on February 13th writes that the U.S. federal government restricts imports of sugar, limits how much sugar farmers can plant, and guarantees them a certain price for their crop, which makes American sugar three times more expensive than the rest of the world and costs the nation three jobs in candy manufacturing for each sugar production job saved. Free traders would prefer an elimination of all forms of subsidies and only insurance for very debilitating harvests for farmers. They would prefer America to compete equally with other countries on a global scale, which would lower prices for American consumers. However, this policy may come at the risk of reducing some of the higher incomes American farmers are currently enjoying and for that reason it is unlikely that there will be significant changes in the next farm bill to reduce the protectionism embedded in the American agricultural market.