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Subsidies Still Under Scrutiny

posted on July 21, 2006

What to do about trade? It's painfully clear no one seems to know. Talks held by the nations of the World Trade Organization stalled nearly three years ago … and despite numerous attempts to restart them, little progress has been made. That makes the recent recommendation by the leaders of the world's industrialized nations for a two-week extension to break the deadlock seem almost laughable. A breakthrough is important to U.S. farm interests because future domestic farm support programs most likely will need to adhere to global trade rules. So the delays at WTO have to some extent frozen debate on the next farm bill. Even so, the subsidies paid to grain farmers remain the focus of both WTO talks and farm bill discussions.

Subsidies Still Under Scrutiny

For the most part, federal agricultural payment programs are used to support farmers when either the market is depressed or a natural disaster occurs. The current subsidies are an outgrowth of the U.S. government's efforts to assist farmers during the Great Depression of the 1930s.

One of the many complaints from farm program critics focuses on the Loan Deficiency Payment, or LDP, program. Begun in 1985, it replaced the price supports started in the 30s, helped farmers stay afloat, and eliminated the need for the federal government to purchase huge amounts of surplus grain.

The LDP is a special government subsidy that is offered to farmers once local market prices, also known as the Posted County Price, fall below the USDA crop loan rate. But, as with many government plans, the LDP program contains a loophole. Farmers can lock-in a price on a day when the market is below the Posted County Price, sell their crop when the market is higher, and still receive a payment for the day when the market was low. In a recent analysis of USDA data by The Washington Post, $29 billion has been paid to farmers since 1998 under the LDP program. Since 2005, $4.8 billion has been doled out and, according to Washington Post estimates, $3.8 billion of that was paid to farmers who took the LDP payment and sold at higher prices.

For their part, farmers receiving what critics call "over compensation" are saying the extra amount allows them to stay on the land and continue to produce food.

Last year, President Bush shocked some American farm organizations by calling for drastic reductions in U.S. farm subsidies to try and jump start talks at the World Trade Organization. Former U.S. Trade Representative Robert Portman proposed a 60 percent cut in U.S. subsidies to farmers if other countries were willing to make the same kind of reductions. So far, none of the other trade ambassadors has stepped forward to meet the offer. With trade talks in disarray, U.S. farmers are forced to wait and see what path Congress takes with the upcoming Farm Bill.


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