US set to end direct payments to farmers

2014-02-04 19:14
Larry Hasheider walks along one of his corn fields on his farm in Okawville, Illinois. (Jeff Roberson, AP/File)

Larry Hasheider walks along one of his corn fields on his farm in Okawville, Illinois. (Jeff Roberson, AP/File)

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Washington - Congress is poised to send a massive farm bill to President Barack Obama that would end $4.5bn in yearly direct farm payments, widely criticised government subsidies paid to farmers whether they farm or not.

After years of negotiations, the Senate was finally expected to pass the almost $100 billion-a-year compromise bill on Tuesday; the House of Representatives passed it last week.

It replaces direct payments with a more politically defensible financial cushion for farmers who face losses because of unpredictable weather and market conditions, while also continuing to subsidize services for rural residents and communities who have hit hard times in recent years.

Much of cost of the old direct payments was redirected into the new insurance-style subsidies. Farmers would now be able to choose between subsidies that pay out when revenue drops or when prices drop.

Cotton and dairy supports were overhauled to similarly pay out when farmers have losses. Those programs may kick in sooner than expected as some crop prices have started to drop in recent months. The bill also includes higher subsidies for Southern rice and peanut farmers.

Direct subsidies to US farmers and other contentious agricultural issues have long bedevilled attempts to expand free trade across the Atlantic, leading the United States and European Union to file complaints against the other before the World Trade Organisation, an arbitrator in trade disputes.

While the US protests EU restrictions that keep American farm products out of Europe, Europeans have long wanted the US to reduce agricultural subsidies. Despite the disputes, the US and EU have been working on creating the world's largest free trade agreement.

The bill that could soon reach Obama's desk would save around $1.65bn annually overall. But critics said that under the new subsidies, those savings could disappear if the weather or the market doesn't co-operate.

Craig Cox of the Environmental Working Group, an organisation that has fought for subsidy reform for several years, said replacing the direct payments with the new subsidies is simply a "bait and switch".

"The potential for really big pay-offs" is huge, he said.

Country of origin

Meat and livestock groups, meanwhile, are upset that Congress opted not to back off from mandatory country of origin labelling requirements and are worried the issue could start a trade war with Canada and Mexico.

Previous labelling rules required only the country of origin to be noted, such as "Product of US" or "Product of US and Canada." New rules that took effect last year require that labels for steaks, ribs and other cuts of meat include clear information about where the animals were born, raised and slaughtered. Labels must specify, for example, "Born in Mexico, raised and slaughtered in the United States."

Congress' decision not to address the issue has drawn criticism from Canadian officials. They say America's biggest trading partner may retaliate by imposing tariffs on a wide range of US products because the detailed origin labels drive up the price of Canadian exports and undermine competitiveness, causing about $1bn a year in losses. A public hearing before the World Trade Organization is set for 18 February in Geneva.

The majority of the bill's cost is not farm subsidies but food vouchers, which supplement meal costs for 1 in 7 Americans. The food stamp program was cut about 1 percent; the Republican-controlled House had pushed for five times that much.

House Republicans, saying the now $80 billion-a-year food stamp voucher has spiralled out of control, had stalled the bill for more than two years. Conservatives were eventually outnumbered as the Democratic-held Senate, the White House and a still-powerful bipartisan coalition of farm-state lawmakers pushed to get the bill done.

Leaders in both parties have hoped to bolster rural candidates in this year's midterm congressional elections.

Some Democrats objected to the cuts to food vouchers, even though they are much lower than what the House had sought.

Some Republicans took to the Senate floor on Monday to say the bill doesn't do enough to trim spending. They include Charles Grassley of Iowa, who said he would vote against the bill because it does not do enough to lower farm subsidies to the wealthiest farmers.

The bill does have a stricter cap on the overall amount of money an individual farmer can receive - $125 000 in a year, while some programs were previously unrestricted. But the legislation otherwise continues a generous level of subsidies for farmers.

Read more on:    barack obama  |  us  |  agriculture

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