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July 2002, Volume 8, Number 3

Farm Subsidies: US, EU

The 421-page Farm Security and Rural Investment Act of 2002 was approved in May 2002. The new law, which governs federal agricultural policy for the next six years, will add $83 billion in new spending, on top of about $100 billion expected to be spent under existing farm programs. Individual farms can receive as much as $360,000 a year through direct-payment and target-price programs. The 2002 law marks a retreat from the 1996 Freedom to Farm law, which sought to lessen farmers' dependence on federal payments.

The 2002 farm bill restores Food Stamp benefits for 360,000 legal immigrants and their children; a third of them are estimated to be in California. Since 1998, California has provided Food Stamp benefits to legal immigrants, so the new farm bill will reduce state government costs.

According to one estimate, 88 percent of the government payments would go to farms in the top 20 percent in terms of size. The European Union's agriculture commissioner, Franz Fischler, said the new farm law "totally contradicts what the United States has been saying" in world trade talks about freeing up trade in farm commodities.

European Union leaders and agricultural exporters such as Australia and Brazil expressed severe disappointment with the new farm bill, arguing that US subsidies encourage overproduction, and thus "drive down prices paid to local farmers, reduce rural family income around the world and push farmers off the land and into overcrowded cities." Many critics of farm subsidies in rich countries argue that, if there were freer trade in farm products, there would be less migration into the rich countries.

Relatively small trade disputes can result in large price changes for US farmers. Meat and poultry prices fell sharply in spring 2002 in response to a Russian decision to ban most US chicken imports- Russia normally imports about eight percent of US chicken, more by volume than all the beef the US exports to the rest of the world. Wholesale prices for frozen leg quarters, the cut typically bound for Russia, fell from $0.40 to $0.20 a pound.

EU. About half of the EU's budget is spent on agriculture, some E45 billion of the EU's E98 billion a year budget. In June 2002, the EU Commission proposed that the 7.1 million EU farmers, who are 4.3 percent of European workers, should receive a maximum E300,000 a year, which would reduce payments to East German and British farmers, who tend to have large farms. Instead of basing payments on production, as in the US, the EU Commission proposed that proposed that farmers receive a flat payment based on past payments; the payments would decline over time, and the money saved would be used for rural development.

EU food prices are 44 percent higher than they would be without the Common Agricultural Policy, while US food prices are 11 percent higher because of US farm subsidies.

In the EU-15 countries, about 17 percent of consumer spending is for food; in the 10 new countries, the average is 35 percent. The price of butter, for example, is about 2.5 times higher in the EU than in New Zealand, which has eliminated most farm subsidies.

In one summary report, "farm spending virtually defines the financial relationships among EU countries. The battle over farm subsidies is in many ways a proxy war between Germany and France to determine whether the EU will continue to be financed as it has since its earliest days, with Germany shouldering the greatest burden, partly as a tacit recognition of its belligerent past."

The amount of EU CAP payments in 2000 were: France, E9 billion; Germany, E5.6 billion; Spain, E5.5 billion; Italy, E5 billion; and UK, E4 billion.

French President Jacques Chirac says: "Only a Common Agricultural Policy allows us to maintain farm incomes. France has led a permanent fight to maintain a certain idea of the CAP, while others want only to suppress it because they think it is too expensive and serves only our interests." France, partly because it receives so much farm money, pays less into the EU budget on a net basis than a relatively small country like the Netherlands.

The EU 15 countries have 139 million hectares or 321 million acres of farm land (France and Spain have 55 million hectares or 40 percent of the total); the 10 new members expected to enter the EU in 2004 have 39 million acres or 95 million acres (Poland has 18 million hectares or almost half of the total for the new entrants). Agricultural employment in the EU-15 is 7.1 million, including 1.1 million in Italy and one million each in France and Spain. Agricultural employment is 3.7 million in the new 10 members, including 2.7 million in Poland.

Adding 10 more countries would increase the number of farmers in the EU by 50 percent, and raise the cost of EU farm subsidies by E5 to E10 billion a year; Poland, with 20 percent of the labor force dependent on agriculture, has more farmers than France and Germany combined. The EU wants to provide them with lower guaranteed prices, only 25 percent of current EU levels when they join, and rising to 100 percent over 10 years, in order to save money, but this risks the development of a two-tiered EU.

New Zealand, which supplies a third of world's dairy exports and more than half of lamb exports, dropped farm subsidies in 1984, and Federated Farmers, in a report "Life After Subsidies," concluded that farmers and the environment benefited: productivity rose, profits remained strong and agriculture increased its share of New Zealand's gross domestic product. The report concludes that New Zealand's experience "thoroughly debunked the myth that the farming sector cannot prosper without government subsidies."

Ending subsidies was expected to drive 10 percent of farmers out of business. However, in the end only 800 farms, one percent, were sold in forced sales. Most farmers adapted by getting off farm jobs, or diversifying into rural tourism.

California Subsidies. California farmers have traditionally not relied on federal subsidies: about three percent of the $20 billion in annual farm subsidies came to the state, most to rice and cotton growers. However, in 2002, fruit and vegetable farmers are asking for federal subsidies, citing competition from China (garlic and apples) as well as Canada (tomatoes).

Between 1996 and 2000, the top California recipients of federal subsidy payments were: Farmers Rice Coop, Sacramento; $38.2 million; Dublin Farms, Corcoran; $5.4 million; R. Gorrill Ranch Enterprises, Durham; $3.9 million; Buttonwillow Land and Cattle Co., Buttonwillow; $3.8 million; Boeger Land Co., Gridley; $3.5 million; Canal Farms, Maxwell; $3.0 million; Hansen Ranches, Corcoran; $2.6 million; and SJV Enterprises, Nicolaus E.F. Larrabee & Associates, Butte City; and Lester Neufeld & Son, Wasco, $2.5 million each.

Food Safety. In Fall 2001, legislation was rushed through Congress to improve food safety by increasing inspections of imported foods, requiring food manufacturers and processors to register with the government and authorizing the government to detain food products without a court order. However, the bill has been mired for months in a House-Senate conference committee, and seems to have lost its urgency in the face of opposition from the US food industry.

The National Food Processors Association and the Food Marketing Institute, representing grocery stores, have worked to slow the bill. The US Public Health Service estimates that foodborne diseases cause 76 million illnesses, 325,000 hospitalizations and 5,000 deaths in the United States each year, and many public interest groups want to expand federal authority over the food supply.

A 21-year Swiss study of organic and conventional farming systems, published in Science on May 31, 2002, concluded that large-scale organic farming is economically viable and environmentally sustainable over the long haul, although crop yields are about 20 percent lower than with conventional farming. On 21 plots near Basel, potatoes and wheat were planted in seven-year cycles since 1978.

Catfish. Catfish are a $500 million-a-year business in the US, with production concentrated in the Mississippi Delta (Mississippi, Alabama, Arkansas and Louisiana). About 13,000 US workers are employed on US catfish farms, earning about $8 an hour. US farmers receive about $0.70 a pound for catfish, which is a flat-headed, scaleless bottom-feeder once called a river rat, while the Vietnamese sell their fish for $0.50 a pound.

Imports from Vietnam account for 17 percent of US consumption, 20 million of the 120 million pounds sold in 2001. US catfish farmers charge that the Vietnamese are selling catfish in the US below their cost of production. They want restaurants required to label catfish by its origin, and they persuaded Congress to enact a law that said that, of the 2,500 species scientists refer to as "catfish," only those raised on U.S. farms could be sold under that label. The "tra" fish that Vietnamese call catfish is really basa fish, although it looks and tastes likes catfish.

In July 2002, US catfish farmers filed an anti-dumping petition against Vietnam, seeking 190 percent duties. Senator John McCain (R-AZ) argued that US catfish farmers are protectionists trying to limit competition. Catfish consumption has been rising-it was 1.1 pounds per person in 2001-but it trails tuna, 3.4 pounds, shrimp, 2.8 pounds, Alaska pollock, 1.6 pounds, and salmon, 1.4 pounds.

Jeffrey Gettleman, "U.S. Catfish Is in Troubled Water as Asian Catch Seizes the Market," Los Angeles Times, July 16, 2002. Thomas Fuller, "EU pays the price for farm subsidies," International Herald Tribune, June 26, 2002. Elizabeth Becker, "Raising Farm Subsidies, U.S. Widens International Rift," New York Times, June 15, 2002. Robert Pear, "Industry's Resistance Stalls Bill to Protect Food," New York Times, April 16, 2002.

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