How US Agricultural Policy Hurts the Developing World
Daniel A. Sumner
US agricultural policy influences global supply and demand. Many of those adversely affected by current US trade and domestic agricultural policies are among the poorest on the planet. This paper examines how US agricultural policy can be changed to benefit the world’s poor. The findings include:
1) US agricultural policies distort world market prices: These programs encourage production when market signals indicate otherwise, thus exacerbating global price fluctuations. Subsidy programs tend to reduce worldwide commodity prices, hurting farmers in the developing world. A typical small cotton farm in Africa would have gained more than $100 per year, about 5 percent of its annual income, in the absence of US subsidy programs.
2) Export credit programs contribute to more variable prices in the world market: International buyers and exporters benefit from government-subsidized sales at above-market prices. The net effect, however, is more production and exports from the United States, lower world market prices, fewer exports by international competitors, and increased costs to US taxpayers who fund these subsidies.
3) To protect farm subsidies, the United States has refused to comply with obligations in past international trade agreements: As a result, US taxpayers pay Brazilian farmers $147.3 million annually because of the negative impacts of US cotton subsidies on the Brazilian cotton industry. US allegiance to farm programs reduces its credibility in international negotiations and denies the world the benefits of freer trade.
4) Agricultural import regulations limit access to US food and agriculture markets: Food-safety regulations and mandatory country of origin labeling (MCOOL) create excessive costs for small farmers. Many poor countries do not have the infrastructure to trace produce from farm to exporter, so MCOOL may indirectly create a protectionist barrier to trade. A better approach is for the United States to maintain open market access because it is simply good policy.
5) Food aid policies are expensive, wasteful and outdated: The original “export dumping” rationale for food aid no longer exists, and the use of food aid for development assistance has proved inefficient. Less than half the US food aid budget goes toward food; most goes to shipping costs to send US food aid overseas. Food aid as a part of agricultural policy should be eliminated from the Farm Bill.
6) US agricultural R&D policy is vital for the world’s poor: It has improved farm productivity in the United States and globally and lowers food and other commodity prices in the long run, with benefit-cost ratios in the double digits.