U.S. Farm Policy - At a Crossroads? The 2007 Farm Bill and the Doha Round

For only the second time in history a U.S. farm bill and a major trade negotiation are scheduled to conclude at essentially the same time, a little more than a year from now. American agriculture has much at stake in both, not only as to content but also as to how they mesh together. The fundamental purpose of farm legislation is to help producers manage risk, but our track record in doing that efficiently and effectively is at best mixed. Our traditional commodity programs have changed relatively little over the past 75 years, even though U.S. farm operations have changed dramatically. U.S. agriculture in 2005 hardly resembles production agriculture of the 1930s, when these programs began. And there are far more risk management mechanisms available from the private sector today than there were decades ago. Hence, it is time to consider updating our farm safety net, fitting it for 21st century agriculture, while gradually shifting the coverage of risk from the public sector (taxpayers) to the private sector. Our present safety net is complicated, costly to administer, and its benefits tilt heavily toward large producers and toward the producers of only five major commodities (wheat, corn, cotton, rice and soybeans). Those benefits are also rapidly capitalized into land values, often boosting the net worth of absentee landowners while also reducing our international competitiveness and making it extremely difficult for young people to start farming. In addition some aspects of our commodity programs may well be vulnerable to challenge under international rules. This suggests that a considered critique of our domestic policies is in order, and that we should re-design our policies to minimize or eliminate their shortcomings. Alternative risk management concepts, such as whole farm revenue insurance, clearly deserve consideration as this process unfolds. The Doha Round of trade negotiations can and should complement and support whatever domestic policy changes are in order. Domestic demand alone will never again support a vibrant, prosperous American agriculture. Our opportunities for market growth, particularly in commodities, lie outside the borders of the U.S. Those opportunities are primarily in developing countries whose per capita incomes are on the rise. Most of those countries are in Asia, and access to their markets should be our first priority in the Doha Round negotiations. If we succeed in that endeavor, adjustments in our domestic farm programs (many of which will be necessary no matter what happens in the Doha Round) will be much more palatable to U.S. farmers. There is one final piece to this policy puzzle, the opportunity to re-direct Federal financial resources to rural America in a way that can also ameliorate the adjustment in commodity programs that now seems inevitable. That can be done through a variety of programs that are not likely to run afoul of international rules, with benefits that can reach more rural residents than our present programs, and do so in a more equitable way. Included would be environmental programs that are already authorized and regularly oversubscribed; new environmental programs; a variety of energy generation possibilities; opportunities provided by biotechnology; tree planting for carbon fixation; industrial uses of farm products; and both hard and soft infrastructure investments. If we can skillfully couple this third grouping of activities with export market expansion we can have a healthy, viable American agricultural economy while simultaneously eliminating many, if not all, the shortcomings of our present agricultural policies. We will still have a safety net, but one that is re-designed to better serve U.S. farmers. Hopefully these new policies would be transitional in nature. Over time private sector risk management techniques should improve and become available to all farm enterprises in all areas of the country. Once that occurs our already sophisticated U.S. farmers should be able to handle their risk management challenges via private sector mechanisms rather than through taxpayer support.