State censorship as a non-tariff barrier to trade?!? Oh boy.

[HT: Muse]

Agricultural reform in the wrong direction:

Rep. Colin Peterson [D-MN], House Agriculture Committee chairman… has suggested increasing most of the price-linked subsidies, and paying for the increase out of the money currently allocated for direct subsidies that farmers receive regardless of production or market prices… While paying farmers “money for nothing” may be fiscally irresponsible, it is less market distorting than the types of subsidies that Chairman Peterson is proposing to increase.

Peterson’s proposal would cause the US to fall behind the EU in decoupling agricultural subsidies and expose the subsidy programs to further litigation at the WTO’s dispute settlement panel.

It seems that the labor and environmental standards appearing in the new bipartisan deal on trade also appear in a similar form in NAFTA, which suggests they won’t have much bite.

So how can the supermarket possibly sell a pair of these synthetic cream-filled pseudocakes for less than a bunch of roots?

For the answer, you need look no farther than the farm bill. This resolutely unglamorous and head-hurtingly complicated piece of legislation, which comes around roughly every five years and is about to do so again, sets the rules for the American food system — indeed, to a considerable extent, for the world’s food system. Among other things, it determines which crops will be subsidized and which will not, and in the case of the carrot and the Twinkie, the farm bill as currently written offers a lot more support to the cake than to the root. Like most processed foods, the Twinkie is basically a clever arrangement of carbohydrates and fats teased out of corn, soybeans and wheat — three of the five commodity crops that the farm bill supports, to the tune of some $25 billion a year. (Rice and cotton are the others.) For the last several decades — indeed, for about as long as the American waistline has been ballooning — U.S. agricultural policy has been designed in such a way as to promote the overproduction of these five commodities, especially corn and soy.

That’s because the current farm bill helps commodity farmers by cutting them a check based on how many bushels they can grow, rather than, say, by supporting prices and limiting production, as farm bills once did. The result? A food system awash in added sugars (derived from corn) and added fats (derived mainly from soy), as well as dirt-cheap meat and milk (derived from both). By comparison, the farm bill does almost nothing to support farmers growing fresh produce. A result of these policy choices is on stark display in your supermarket, where the real price of fruits and vegetables between 1985 and 2000 increased by nearly 40 percent while the real price of soft drinks (a k a liquid corn) declined by 23 percent. The reason the least healthful calories in the supermarket are the cheapest is that those are the ones the farm bill encourages farmers to grow.

Full NYT story (from April 22, oops) here.

[HT: My friend Aaron.]

John Bennett points to this short New Yorker piece by James Surowiecki criticizing the United States’ inclusion of intellectual property in its preferential trade agreements. If you have read Bhagwati or Panagariya (pdf) on this topic, you already know Surowiecki’s arguments, but it’s nice to see them receive more exposure.

Bryan Caplan: “In the sector closest to perfect competition, where economists truly have to think hard even to imagine a case against laissez-faire, Americans favor heavy intervention nevertheless.”

Cato’s Sallie James and Dan Griswold propose a farm bill:

Because the first-best solution of completely ending farm programs as of September 30, 2007—with no compensation or transition payments—is politically infeasible, we advocate that the government buy out the damaging and expensive support for farmers by paying them a fixed amount of money, which they would be free to spend as they wish. Although it would require large up-front outlays, a politically expedient buyout of agricultural subsidies and trade barriers, with concrete steps to ensure the changes are permanent, would be a worthwhile investment.

The EU pays non-farmers not to farm:

The loophole allows investors to become classified officially as farmers and then buy the right to receive annual EU subsidies to cut agricultural production. Because the subsidies are decoupled from the land they relate to, investors do not need actually to own the ground they are claiming for or even go anywhere near it.

The profits to be made are enormous, with investors potentially increasing their capital nearly fivefold in 5 years.

Auctioneers and brokers who used to sell cattle and farm-land are now focusing their attention on selling the rights to receive European taxpayers’ money — known as entitlement trading — in what one described as a “ferocious” market with the rights to subsidies “flying off the shelf”.

Demand is outstripping supply by five to one, because the profits from investing in subsidies are up to ten times higher than putting the money in a bank. After making a one-off payment, the investor is entitled to receive from the taxpayer every year a cheque that typically amounts to a third of the original investment.

While it’s unfortunate that this nonsensical redistribution scheme and its accompanying rent-seeking are wasting EU taxpayers’ money, it also has its merits: The payments are completely decoupled from production and exporting activities, so the subsidies are not market-distorting and the WTO will have no objections!

Reuters:

Speaking after a two-day World Trade Organization (WTO) meeting on cotton, representatives of cotton producers said they believed the 2007 farm bill — an umbrella law that will set most U.S. agriculture policy for five years — could boost aid to American cotton farmers by up to 66 percent…

African governments and farmers blame cotton subsidies to producers in rich nations for flooding the market, driving down global prices and causing poor farmers to run at a loss.

Of course, Congress hasn’t written the 2007 farm bill yet, so these comments must refer to the USDA’s proposal, which means criticism may be premature.

This next paragraph strikes me as odd:

Brazil has already successfully attacked the U.S. cotton program, winning a landmark 2004 verdict at the WTO’s Dispute Settlement Body that caused the United States to repeal certain export and import subsidies on cotton. But other U.S. assistance programs remain in place.

Where can I get more info about US cotton import subsidies? I had never heard of them before, and I’m slightly skeptical of their existence, given that most search results are copies of the Reuters piece.

Check out the blog dedicated to the 2007 Farm Bill, which has details of the Senate and House Agriculture Committees’ upcoming activities.

A report from France’s state statistical agency say that

French farmers, seen by many as the pampered beneficiaries of generous European subsidies, have been getting poorer since the late 1990s, despite the fact that they are increasingly taking second jobs outside farming to boost their income…

Earlier CAP reforms, slowing productivity improvements and sharp falls in agricultural prices have squeezed French farmers’ incomes in the last decade, according to Insee. It says farming revenues have fallen since 1998 and, in spite of a recovery last year, are still down about 10 per cent.

Dan Griswold reads that FT story and writes:

The decline of the French farm has occurred despite, or perhaps because of, the generous support of the CAP. France’s farmers receive the equivalent of $11.6 billion a year in handouts, more than one fifth of total European Union spending on agriculture. Those subsidies have arguably kept French farms from becoming more competitive and thus contributed to their long-term decline.

Subsidies hurt their recipients?!? Such a counterintuitive suggestion needs to be backed by an argument, but Griswold doesn’t make one.