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Domestic Agricultural Policies

United States

In 1996, the United States enacted the landmark Federal Agriculture Im- provement and Reform Act, also known as the Freedom to Farm Act. The Act attempted to gradually eliminate many traditional agricultural subsi- dies and decouple support payments from farm prices. Direct income payments were supposed to be phased out over seven years (1996–2002), and price supports and supply management programs were to be gradu- ally eliminated.11 The schedule for reduced income payments and price supports was based on optimistic predictions of future prices and ex- panded world markets. Not only were the price and market assumptions underlying the projections of the Freedom to Farm Act too rosy but also successive droughts and floods prompted Congress to pass a series of supplemental relief bills in the late 1990s that sharply increased US farm subsidies. Recent studies estimate that the Freedom to Farm Act programs and supplemental relief cost US consumers and taxpayers at least $19 bil- lion annually in the late 1990s (Gardner 2000).

After several years of “emergency aid,” the United States returned to a more permanent version of its erstwhile subsidy system. In May 2002, Congress enacted the Farm Security and Rural Investment Act (Farm Act of 2002), which will govern federal farm programs through 2007. The Farm Act provides income support for wheat, feed grains, upland cotton, rice, and oilseeds through three programs: direct payments, countercycli- cal payments, and marketing loans (table 5.2).12 The US government also supports domestic producers through generous “loan” rates at which stocks can be forfeited to the Commodity Credit Corporation.13 While

11. Under the Freedom to Farm Act, income support was given to eligible producers of wheat, feed grains, upland cotton, and rice during 1996–2002. The Act eliminated the Acreage Reduction Program, gradually reduced dairy price supports, and modified US peanut and sugar programs. However, the proposed Freedom to Farm Act budget, starting at $6 billion per year and then supposedly declining, frequently was supplemented due to falling agricultural commodity prices and aid after natural disasters. See Burfisher, Robin- son, and Thierfelder (1998); and presentation by Dale Hathaway at the North American Committee Conference on Agriculture, Washington, March 21, 2003.

12. The 2002 Farm Act capped individual farmer subsidies at $360,000, but this limit is widely abused as farmers create legal entities with interests in the same land, each entitled to a payment. See “Harvesting Poverty: Welfare Reform for Farmers,” New York Times, No- vember 10, 2003.

13. The Commodity Credit Corporation is a government-owned institution, established to promote US agriculture. See David Orden’s testimony before the US Committee on Agricul- ture, Nutrition, and Forestry, “Is It Time for Domestic Sugar Policy Reform?,” July 26, 2000. See also LMC International (2003).



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