06-02-2001

ECONOMICS: It's a Deep, Deep Furrow

The House Agriculture Committee hopes to have a draft of a new farm bill
completed before the August congressional recess. Three months later, the
World Trade Organization plans to launch a new round of talks that will
focus on easing farm trade and reducing domestic agricultural subsidies.
Although the former is a domestic legislative exercise and the latter is a
global initiative, both are efforts, in part, to deal with the frictions
created by differences in American and European Union agricultural
policies.


The frictions seem unavoidable. After all, many of the EU's 15 member
nations and the United States are major agricultural competitors. Their
farm policies were crafted, in part, to defend one against the other. So
it is little wonder that repeated trade disputes, most recently over
export subsidies and beef hormones, are the norm.


But these policies, although ostensibly antithetical to each other, are in
many ways merely separate responses to the same challenges: the ups and
downs of the agricultural economy, and ever-shifting rural concerns. From
that perspective, as EU Farm Minister Franz Fischler stressed during a
recent visit to Washington, more unites Europe and the United States than
divides them. This insight may yet prove useful in crafting a farm bill
and in international talks.


Farmers-and governments' farm policies-on both sides of the Atlantic are
often hostage to sharp shifts in weather patterns, the commodity markets,
and rapidly changing consumer tastes. The United States, with its
wide-open spaces, is a producer of bulk commodities, such as corn and
soybeans, where money is made by selling in volume. But when they produce
too much and prices fall, as they have in recent years, American farmers
suffer.


The European Union, with less land, produces more-labor-intensive farm
goods: milk, cheese, fruits, and vegetables. Its farmers are vulnerable to
food scares, such as mad cow disease, which has drastically reduced demand
for its beef. American and European farmers, each for their own reasons,
have come to rely on comprehensive (and expensive) governmental rescue
packages to cushion themselves against such unpredictable events.


But rescues can be dauntingly expensive. Although Brussels and Washington
each choose to bail out its farmers through a different mix of subsidies
and higher prices paid in the marketplace, the net effect is strikingly
similar. Last year, transfers to farmers by consumers and taxpayers
totaled $103 billion in Europe and $92 billion in the United States,
according


to the think tank in Paris run by the


Organization for Economic Cooperation and Development.


But neither government is likely to want-and to be able-to continue down
this path much longer. As early as 2003, the EU is scheduled to admit
Poland, Hungary, and the Czech Republic, with their 11 million farmers.
The EU budget would quickly go bust subsidizing them the way Brussels
currently props up German farmers.


With a budget surplus on their hands, Washington lawmakers ostensibly have
fewer such concerns. But members of the House and Senate Agricultural
Committees privately worry that the recent rise in U.S. farm subsidies is
simply unsustainable. Other demands on the surplus (a tax cut, for one),
the economic slowdown, and growing taxpayer resentment of subsidies will
soon dictate cutbacks. The question facing Brussels and Washington is not
whether to cut farm subsidies, but how.


Both sides of the Atlantic also face mounting rural equity problems. In
the EU, 20 percent of the farmers receive 80 percent of the government
agricultural benefits. In the United States, the imbalance is even worse:
10 percent of farmers get 60 percent of the support. New farm
programs-such as subsidies to protect the environment-could actually widen
this gap by rewarding those with the most land. At the same time, both the
EU and the United States face growing concentration at all levels of their
agribusiness sectors.


At the same time, as U.S. Agriculture Secretary Ann M. Veneman said
recently, "agricultural policy must look at the entire food
chain." Farm programs are no longer simply about writing checks to
growers; they are also about conservation, food safety, and animal
welfare. Fischler faces the same challenge. Brussels and Washington need
to begin finding comparable approaches to disputes over environmental
payments and rules for raising chickens if the current U.S.-EU fights over
export subsidies and credits are not to be eclipsed.


In the end, the EU and the United States will find it inordinately
difficult to deal with any of these shared problems, because both have
political systems that give disproportionate power to entrenched, overly
influential rural interests. But with so much at stake-billions in farm
subsidies, the launch of new trade talks-it's imperative that Veneman and
Fischler try to find common ground. For too long, the farm debate between
Washington and Brussels has been about defining trans-Atlantic
differences. It's time to end the finger-pointing and to focus on shared
problems.


Such an approach might not deliver a perfect solution. But it would be a
step in the right direction.


Bruce Stokes

National Journal