Latest Cato Research on Agriculture https://www.cato.org/ en Trump Is Robbing the Rust Belt to Buy Farm State Votes https://www.cato.org/publications/commentary/trump-robbing-rust-belt-buy-farm-state-votes Daniel J. Ikenson <div class="lead text-default"> <p>In an ALL CAPS tweet last week, President Trump reassured America’s farmers that their service in the trade war continues to entitle them to federal subsidies “UNTIL SUCH TIME AS THE TRADE DEALS WITH CHINA, MEXICO, CANADA AND OTHERS FULLY KICK IN…” According to Trump, that assistance—provided to help farmers cope with tanking export revenues thanks to foreign retaliation for Trump’s tariffs—will be “PAID FOR OUT OF THE MASSIVE TARIFF MONEY COMING INTO THE USA!”</p> </div> , <div class="text-default"> <p>Well, in one sense, Trump is right. U.S. tariff coffers&nbsp;<em>are</em>&nbsp;overflowing with record amounts of duties collected on imports. However, the money isn’t “coming into” the country. It’s already here. It’s just being transferred from U.S. businesses—mostly manufacturers—to the U.S. government. The implication that the “money coming into the USA” is some windfall courtesy of foreign producers and governments is utterly false. Trump is playing a&nbsp;shell game here, hoping the public will lose sight of the ball. He’s eager to conceal that he is stealing from the manufacturing sector to buy farm state votes.</p> <p>For many decades, annual U.S. tariff “revenues” (to be clear, they’re revenues to the government, but costs to the private sector) as a&nbsp;percentage of annual U.S. import value was remarkably consistent. Between 2001 and 2016, for example, annual tariff collections amounted to between 1.2 percent and 1.7 percent of the value of total imports. In 2017, the last year unaffected by Trump’s trade policies (tariffs didn’t start until 2018), U.S. import value totaled $2.33 trillion and the $33 billion of duties collected on those imports amounted to a&nbsp;trade‐​weighted average tariff of 1.4 percent—precisely, the average over the previous 16&nbsp;years.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Trump is playing a&nbsp;shell game here, hoping the public will lose sight of the ball.</p> </div> </div> </aside> , <div class="text-default"> <p>In 2018, Trump’s tariffs began to take effect at different points in the year. The duties collected for the year surged from $33 billion to $48 billion, or to 1.9 percent of a&nbsp;still‐​growing pool of imports. Then, in 2019, it all hit the fan. Tariffs on steel and aluminum from nearly everywhere, and large swaths of products from China were in effect for the whole year. Year‐​end data show that total import value declined, but duties collected skyrocketed to a&nbsp;whopping $71 billion—a 123 percent increase over 2017.</p> <p>The trade‐​weighted average tariff of 1.4 percent that had prevailed from 2001 to 2017 doubled to 2.8 percent in 2019. If the historical rate of 1.4 percent had applied to 2018 and 2019 imports, U.S. Customs would have collected duties of $71 billion&nbsp;<em>over two years</em>. Instead, over those two years, Customs collected $129 billion in tariffs for a “windfall” of $58 billion.&nbsp;Except it’s not a&nbsp;windfall. Those tariffs were paid to U.S. Customs by U.S. importers and those importers aren’t volunteering to dive on grenades to save the rest of us from this massive tax burden. The $58 billion is a&nbsp;tax that has been imposed on U.S. producers, logistics providers, wholesalers, retailers, and consumers.</p> <p>A closer look at the import statistics provides a&nbsp;better picture of exactly whom is bearing the burden of Trump’s tariffs or—to be honest—who is financing Trump’s effort to placate farmers with lump sums that are nothing more than efforts to buy their votes.</p> <p>Between 2017 (pre‐​tariff base year) and 2019 (tariffs fully implemented), duty collections increased from $33 billion to $71 billion. That $38 billion increase was generated from new taxes imposed on U.S. importers of a&nbsp;broad array of goods. Most (almost three‐​quarters) of that $38 billion increase was generated from taxes imposed on the material inputs and finished goods of eight manufacturing industries listed in the table below.&nbsp;(These “industries” correspond to what is known as the “Chapter” level or the “2‑digit” level of the Harmonized Tariff Schedule, which really captures multiple industries within the broad category descriptions in the table below.)</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img width="700" height="378" alt="dcusi-1.jpg" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-1.jpg?itok=W1bT4-MB 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-02/dcusi-1.jpg?itok=NQ57W6cE 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-1.jpg?itok=W1bT4-MB" typeof="Image" /> </div> </figure> , <div class="text-default"> <p>So, among the facts and trends the table reveals is that duties collected on imports of electrical machinery and equipment, etc. (HTS Chapter 85) exceeded $10.2 billion in 2019, which was an $8.3 billion increase over the duties collected on them in 2017. That increase accounts for 21.7 percent of the increase in all duties collected between 2017 and 2019, which renders producers of “electrical machinery and equipment parts thereof” the U.S. industry most burdened by the tariff increases. More than one in every five dollars of that $38 billion “windfall,” which Trump plans to wire to the bank accounts of farmers in Iowa, Illinois, and Nebraska, will come from the wallets of producers and consumers (and retailers, distributors, etc.) of electrical machinery, equipment, and their parts.</p> <p>The following table provides a&nbsp;clearer idea of exactly which kinds of firms in the electrical machinery industries are flipping the bill for farmers. Importers of this list of 6‑digit HTS products, which include manufacturers who rely on these inputs to produce their machinery, are paying a&nbsp;sizable chunk of Trump’s tariffs (almost 22% of the increase in all tariffs, as noted in the table above). They include firms that use electrical plugs, sockets, processors, printed circuits, motors, semiconductors, and other parts. They paid $8.3 billion more tariffs in 2019 than they did in 2017.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img width="700" height="378" alt="dcusi-2" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-2.jpg?itok=fejDQoqp 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-02/dcusi-2.jpg?itok=SxA-f9Wo 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-2.jpg?itok=fejDQoqp" typeof="Image" /> </div> </figure> , <div class="text-default"> <p>The second most burdened set of industries import components and final goods that fall under Chapter 84. As noted in the first table, importers of these products paid $6.6 billion more in tariffs in 2019 than they did in 2017. The most tariffed products in Chapter 84 are listed in the table below.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption"> <div class="figure__media"> <img width="700" height="378" alt="dcusi-3" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-3.jpg?itok=-zWosK3K 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-02/dcusi-3.jpg?itok=mE38lA8_ 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/2020-02/dcusi-3.jpg?itok=-zWosK3K" typeof="Image" /> </div> </figure> , <div class="text-default"> <p>The bottom line is that Trump’s tariffs have raised the costs of production for goods throughout the manufacturing sector. That has had adverse effects across the manufacturing spectrum with particularly acute problems in industries that have also seen their revenues squeezed by foreign competitors who now have access to cheaper inputs and can offer their products at lower prices than can U.S. firms. Meanwhile, U.S. farmers have been the primary targets of retaliatory tariffs because agriculture is presumed to carry disproportionate political weight in Washington, which might be leveraged to end the madness of the trade war. Instead, Trump is doubling down on his plan to buy their quiescence. But the tab is falling on manufacturing. And their disquiet could spell big trouble for Trump’s reelection bid.</p> <p>The answer is to rescind all the tariffs imposed since 2018 and begin the process of digging industry and agriculture out of holes that never should have been dug.</p> </div> Sun, 23 Feb 2020 14:56:22 -0500 Daniel J. Ikenson https://www.cato.org/publications/commentary/trump-robbing-rust-belt-buy-farm-state-votes Losing Ground to the EU on Trade with China https://www.cato.org/blog/losing-ground-eu-trade-china Simon Lester <p>Politico <a href="https://www.politico.eu/article/eu-and-china-strike-deal-on-protected-food-names/">reports</a> the following on a&nbsp;new EU‐​China trade agreement:</p> <blockquote><p>Beijing and Brussels have struck a&nbsp;deal to protect regional food names such as Gorgonzola, Champagne, Nanjing salted duck and Lapsang Souchong tea.</p> <p>The agreement protects <a href="https://ec.europa.eu/agriculture/sites/agriculture/files/newsroom/2017-06-02-gis.pdf" rel="noopener" target="_blank">a&nbsp;list of 100 European regional food specialties </a>in China and<a href="https://ec.europa.eu/agriculture/sites/agriculture/files/newsroom/2017-06-02-notice-pub.pdf" rel="noopener" target="_blank"> 100 Chinese delicacies in the EU</a>.</p> <p>…</p> <p>The deal is set to anger U.S. agriculture producers who say the EU is boxing them out of their main growing markets, as its system of geographical indications builds <a href="https://www.politico.eu/article/europe-eats-trumps-lunch/">an increasingly strong foothold</a> worldwide.</p> <p>Indeed, the agreement means that a&nbsp;cheese, for example, can only be labeled and sold as “Roquefort” in China if it was made in the French commune of Roquefort‐​sur‐​Soulzon. American blue cheese producers will have to find a&nbsp;different — lesser‐​known — name for their product.</p> <p>…</p> <p>People following the accord said that the EU’s goal is to expand the list to another 175 geographical indications, four years after entry into force of this agreement.</p> </blockquote> <p>Let me note a&nbsp;couple things here. First, I&nbsp;have a&nbsp;great deal of skepticism about geographical indications. To me, they mostly seem like a&nbsp;way to protect your products from competition. When the EU promotes these principles in trade deals, it spreads this protectionist idea to other countries.&nbsp;My former colleague Bill Watson wrote about these issues <a href="https://www.cato.org/publications/policy-analysis/reign-terroir-how-resist-europes-efforts-control-common-food-names">here</a>.</p> <p>Second, the U.S. government should actively push back against these EU policies. In general, the United States&nbsp;has done so, although I&nbsp;have not heard anything about this issue in relation to the U.S.-China talks of the past couple years. It should be a&nbsp;focus of U.S. trade talks, and if the Trump administration is ignoring it, they are making a&nbsp;big mistake.</p> <p>Finally, I&nbsp;will also point out that the EU was able to achieve this result without threatening China with tariffs. Perhaps there is a&nbsp;lesson there.</p> Tue, 05 Nov 2019 09:46:11 -0500 Simon Lester https://www.cato.org/blog/losing-ground-eu-trade-china Daniel J. Ikenson discusses whether Trump saved the steel industry on NPR’s All Things Considered https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-whether-trump-saved-steel-industry-nprs Mon, 07 Jan 2019 10:14:00 -0500 Daniel J. Ikenson https://www.cato.org/multimedia/media-highlights-radio/daniel-j-ikenson-discusses-whether-trump-saved-steel-industry-nprs Trump Spends Billions in Taxpayer Dollars to Fix a Problem He Created: Taxpayer Subsidies Thrown at U.S. Agriculture Are a Huge Waste https://www.cato.org/publications/commentary/trump-spends-billions-taxpayer-dollars-fix-problem-he-created-taxpayer Simon Lester <div class="lead text-default"> <p>President Trump has been imposing tariffs left and right, on close allies and on budding rivals, and on steel and aluminum from everywhere and on everything but the kitchen sink from China. The predictable response from U.S. trading partners was to impose retaliatory tariffs on U.S. exports. Now, in response to that retaliation, the Trump administration is&nbsp;<a href="https://www.politico.com/story/2018/07/24/trump-trade-aid-for-farmers-737108" target="_blank">proposing to counter the retaliatory tariffs with subsidies</a>&nbsp;to the agriculture sector, which has been particularly hurt by these tariffs. Next up, presumably, is more subsidies by other governments, as the market distortions escalate and proliferate.</p> </div> , <div class="text-default"> <p>Agriculture subsidies are nothing new. The U.S. agriculture sector is already heavily subsidized, which has long been an irritant for many U.S. trade partners. When Trump complains about high Canadian tariffs on dairy products, Canada responds with complaints about U.S. dairy subsidies. These new subsidies just add to the problem. The Trump administration’s proposed agriculture subsidies will be carried out through the Commodity Credit Corporation Charter Act, a&nbsp;Depression‐​era funding program. That is appropriate somehow, as the Trump administration’s trade war harkens back to the Smoot‐​Hawley tariffs of the same era.</p> <p>The question many people are asking is, where does this end? Will we reach a&nbsp;new status quo in which all tariffs on goods imported and exported from the United States are subject to significantly higher taxes? And what will that do to the economy? The economy has stayed strong so far, but the amount of trade subject to tariffs is still small.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Trade policy is going in the wrong direction, and the pace is picking up.</p> </div> </div> </aside> , <div class="text-default"> <p>As the amount of trade covered grows, the impact on the economy will become more apparent. We are already seeing&nbsp;<a href="https://www.washingtonpost.com/news/wonk/wp/2018/06/25/the-first-layoffs-from-trumps-tariffs-are-here/" target="_blank">reports of lost jobs</a>, and as publicly listed companies feel the pain, the effects are likely to spread to the stock market. Perhaps that will be enough to sway Trump?</p> <p>One way to put an end to this destructive trade policy is for Congress to step in. Congress has the Constitutional power over trade, and all of these tariffs are taken pursuant to authority Congress had delegated by statute. Congress can and should revisit the statutes, and rein in Trump’s actions on tariffs.</p> <p>It should also step in to stop the agriculture subsidies. Back in the 1990s, a&nbsp;Republican‐​led Congress passed the&nbsp;<a href="https://en.wikipedia.org/wiki/Federal_Agriculture_Improvement_and_Reform_Act_of_1996" target="_blank">Freedom to Farm Act</a>, in order to reform and reduce farm subsidies. If the Republicans want to be the party of free markets and limited government, they should act like it.</p> <p>At the same time U.S. trade policy is mired in protectionism, the rest of the world is pressing forward with trade liberalization. The&nbsp;<a href="https://www.nytimes.com/2018/07/17/business/trade-europe-japan-china.html" target="_blank">EU and Japan recently signed</a>&nbsp;a&nbsp;far‐​reaching trade agreement, cutting tariffs on trade in both directions, and liberalizing in other ways as well. Trump has been complaining about high EU tariffs on cars. Japanese producers will now see those tariffs phased out, but American producers will still be subject to them.</p> <p>Trump could also negotiate such trade agreements, but he has chosen not to. We are now a&nbsp;year and a&nbsp;half into the Trump presidency, and no new trade negotiations have started. According to press reports about the agriculture subsidies, “[t]he plan’s third element would put resources toward finding new markets for U.S. farmers to sell their products abroad.” The best way to open new markets is to negotiate lower tariffs through trade agreements.</p> <p>But instead of negotiating lower tariffs, the Trump administration has been imposing higher tariffs, which, of course, led to the retaliatory tariffs, and now to the new agriculture subsidies. Trade policy is going in the wrong direction, and the pace is picking up.</p> </div> Tue, 24 Jul 2018 11:05:00 -0400 Simon Lester https://www.cato.org/publications/commentary/trump-spends-billions-taxpayer-dollars-fix-problem-he-created-taxpayer Costly Crops: Opportunities to Reform the Farm Bill https://www.cato.org/multimedia/events/costly-crops-opportunities-reform-farm-bill Scott Faber, Daren Bakst, Chris Edwards, Matt Weibel <p>Congress is considering a&nbsp;major farm bill this year to extend the current multi‐​billion‐​dollar array of subsidies. The last farm bill—in 2014—created two new crop subsidy programs that have cost more than promised. Meanwhile, the crop insurance program has soared in cost and provides handouts to millionaire farm households. There is also concern that crop subsidies harm the environment and undermine America’s international trade relationships. In the wake of the bloated omnibus bill and rising deficits, will Republicans support more giveaways to well‐​off farmers? And will the Trump administration defend its proposed agricultural reforms and push back against subsidy advocates in Congress?</p> Fri, 11 May 2018 09:26:00 -0400 Scott Faber, Daren Bakst, Chris Edwards, Matt Weibel https://www.cato.org/multimedia/events/costly-crops-opportunities-reform-farm-bill Reforming Federal Farm Policies https://www.cato.org/publications/tax-budget-bulletin/reforming-federal-farm-policies Chris Edwards <div class="lead text-default"> <p>The federal government spends more than $20 billion a&nbsp;year on subsidies for farm businesses. About 39 percent of the nation’s 2.1 million farms receive direct subsidies, with the lion’s share of the handouts going to the largest producers of corn, soybeans, wheat, cotton, and rice.<a href="#_idTextAnchor001"><sup>1</sup></a></p> </div> , <div class="text-default"> <p>The current farm law — enacted in 2014 — added new crop programs that have turned out to be more costly than promised. The law expires this year, and subsidy proponents are eager for Congress to pass another expensive bill. But farm subsidies impose a&nbsp;burden on federal taxpayers, and they harm the economy. President Donald Trump proposed cuts to farm programs in the 2019 federal budget, but the longer‐​term goal should be to fully repeal all farm subsidies.</p> <p>This report provides background for the upcoming farm bill debate. It suggests that agriculture is no riskier than other industries and that it does not need an array of federal subsidies. The government protects farmers against fluctuations in prices, revenues, and yields. It subsidizes their conservation efforts, insurance coverage, marketing, export sales, research, and other activities. Federal coddling of the agriculture industry is deep and comprehensive.</p> <p>Farm subsidies are costly to taxpayers, but they also harm the economy and the environment. Subsidies distort the decisions made by farm businesses. They encourage overproduction, which pushes down prices and creates political demands for more subsidies. Subsidies discourage farmers from innovating, cutting costs, diversifying their land use, and taking other actions needed to prosper in the competitive economy.</p> </div> , <div class="text-default"> <h2>A Brief History of Farm Policy</h2> <p>Agriculture has long attracted federal support. The Morrill Act of 1862 established the land‐​grant colleges to teach agriculture and other subjects. The Hatch Act of 1887 funded agricultural research, and the Smith‐​Lever Act of 1914 funded agricultural education. The Federal Farm Loan Act of 1916 created cooperative banks to provide loans to farmers. That developed into today’s Farm Credit System, which is a&nbsp;government‐​sponsored financial system with more than $280 billion in assets.</p> <p>The Agricultural Marketing Act of 1929 created the Federal Farm Board, which tried to raise crop prices by buying up and stockpiling production.<a target="_blank" href="#_idTextAnchor002"><sup>2</sup></a> That did not work, and after spending $500 million this early agricultural boondoggle was abolished in 1933.</p> <p>Congress enacted many farm programs during the 1930s, including commodity price supports, supply regulations, import barriers, and crop insurance. These programs have been expanded, modified, and added to over the decades, but the central planning philosophy behind farm programs has not changed. U.S. farm policies remain stuck in the past, despite the ongoing economic harm and taxpayer costs.</p> <p>Between the 1940s and the 1980s, Congress considered farm policy reforms occasionally, usually when commodity prices were high, but then reverted to subsidy expansions when prices were lower.<a target="_blank" href="#_idTextAnchor003"><sup>3</sup></a> In the 1980s the Reagan administration proposed cuts to farm subsidies, but farm finances took a&nbsp;bad turn, and that prompted Congress to increase farm aid, not reduce it.</p> <p>Farm subsidies have never made economic sense, but farm interests have held sway in Congress. While farmers are a&nbsp;small share of the U.S. population today, the farm lobby is still strong. One reason is that farm‐​state legislators have co‐​opted the support of urban legislators by including food‐​stamp subsidies in farm bills. Other legislators support farm bills because of the inclusion of conservation subsidies.</p> <p>In 1996 Congress enacted reforms under the “Freedom to Farm” law, which allowed farmers greater flexibility in planting and increased reliance on market supply and demand. But Congress reversed course in the late 1990s, and it passed a&nbsp;series of supplemental farm subsidy bills. As a&nbsp;result, subsidies over the seven years of the 1996 farm bill ended up costing more than double what had been promised.<a target="_blank" href="#_idTextAnchor004"><sup>4</sup></a></p> <p>In 2002 Congress enacted a&nbsp;farm bill that further reversed the 1996 reforms. The law increased projected subsidy payments, added new crops to the subsidy rolls, and created a&nbsp;new price guarantee scheme called the countercyclical program. The 2002 law increased projected farm subsidy payments by 74 percent over 10&nbsp;years.<a target="_blank" href="#_idTextAnchor005"><sup>5</sup></a></p> <p>In 2008 Congress overrode a&nbsp;presidential veto to enact farm legislation that added further subsidies. The law created a&nbsp;permanent disaster aid program and added a&nbsp;revenue protection program for farmers to lock in profits from high commodity prices. It added a&nbsp;sugar‐​to‐​ethanol program to keep sugar prices artificially high, and it added new subsidies for “specialty crops” such as fruits and vegetables.</p> <p>In 2014 Congress passed another huge farm bill. The bill changed the structure of subsidies, but it did not cut the overall level of benefits. The law ended the direct payment program, the countercyclical program, and a&nbsp;couple of other smaller programs. But it expanded the largest farm subsidy program — crop insurance — and it added two new subsidy programs, the Agriculture Risk Coverage (ARC) program and the Price Loss Coverage (PLC) program.</p> <p>When the 2014 farm bill was passed, supporters claimed that it would save money, but the opposite has happened. The ARC and PLC programs have cost almost double what the Congressional Budget Office <a id="_idTextAnchor000"></a>originally estimated.<a target="_blank" href="#_idTextAnchor006"><sup>6</sup></a> Meanwhile, the cost of crop insurance has soared over the past 15&nbsp;years.</p> <p>All of these subsidies ensure that farm incomes are much higher than the incomes of most Americans. Farm programs are welfare for the well‐​to‐​do, and they induce overproduction, inflate land prices, and harm the environment. They should be repealed, and farmers should support themselves in the marketplace.</p> <h2>Eight Types of Farm Subsidy</h2> <p>The U.S. Department of Agriculture (USDA) runs more than 60 direct and indirect aid programs for farmers. This section summarizes the major ones.</p> <p>Most of the direct aid goes to producers of a&nbsp;handful of field crops, not to livestock producers or fruit and vegetable growers. In the three largest farm subsidy programs — insurance, ARC, and PLC — more than 70 percent of the handouts go to farmers of just three crops — corn, soybeans, and wheat.<a target="_blank" href="#_idTextAnchor007"><sup>7</sup></a></p> <ol><li><strong>Insurance.</strong> The largest farm subsidy program is crop insurance run by the USDA’s Risk Management Agency. Spending on the program has averaged more than $8 billion a&nbsp;year over the past five years, up from around $3 billion in the early 2000s.<a target="_blank" href="#_idTextAnchor008"><sup>8</sup></a><br><br>The program subsidizes both the insurance premiums of farmers and the administrative costs of the 16 private insurance companies that offer the policies. Over the past five years, spending has averaged $6.7 billion a&nbsp;year in premium subsidies, $1.5 billion for insurance company subsidies, $0.3 billion for underwriting losses, and $0.2 billion for federal administrative costs.<a target="_blank" href="#_idTextAnchor009"><sup>9</sup></a><br><br>Subsidized insurance is available for more than 100 crops, but corn, cotton, soybeans, and wheat are the main ones. About 80 percent of current policies in force protect against revenue shortfalls, while the other 20 percent protect against yield shortfalls.<a target="_blank" href="#_idTextAnchor010"><sup>10</sup></a><br><br>The insurance companies receive direct subsidies for administration, but they also earn inflated profits from the high premiums they charge. The Government Accountability Office has found that crop insurance firms earn high rates of return.<a target="_blank" href="#_idTextAnchor011"><sup>11</sup></a> Agricultural economist Bruce Babcock has found that commissions made by crop insurance agents have increased substantially over the years.<a target="_blank" href="#_idTextAnchor012"><sup>12</sup></a><br><br>As for farmers, the USDA pays 62 percent of their premiums, on average.<a target="_blank" href="#_idTextAnchor013"><sup>13</sup></a> Most farmers actually make money on this so‐​called insurance, receiving more in claims than they pay in premiums. The Congressional Budget Office found that farmers have received $65 billion more in claims than they have paid in premiums since 2000.<a target="_blank" href="#_idTextAnchor014"><sup>14</sup></a> As Babcock noted, this program is not “insurance” at all, but a&nbsp;lottery that is a&nbsp;sure bet.<a target="_blank" href="#_idTextAnchor015"><sup>15</sup></a><br><br>Congress has expanded crop insurance to become the largest farm program for a&nbsp;reason. For other farm programs, the identities of the wealthy subsidy recipients are public information, which can be politically embarrassing for farm program supporters. But with insurance subsidies, Congress essentially launders the cash through the insurance firms, which hides the identities of the recipients.<br><br>Also, unlike other farm programs, there are no income limits on insurance, so millionaires and billionaires receive subsidies. There are about 20 farm businesses that receive more than $1 million a&nbsp;year from the program.<a target="_blank" href="#_idTextAnchor016"><sup>16</sup></a><br>&nbsp;</li> <li><strong>Agriculture Risk Coverage (ARC).</strong> This program pays subsidies to farmers if their revenue per acre, or alternately their county’s revenue per acre, falls below a&nbsp;benchmark or guaranteed level. Generally, the lower the prices and revenues, the larger the subsidies. The program covers more than 20 crops, from wheat and corn to chickpeas and mustard seed. ARC subsidies fluctuate, but they were $3.7 billion in 2017.<a target="_blank" href="#_idTextAnchor017"><sup>17</sup></a><br>&nbsp;</li> <li><strong>Price Loss Coverage (PLC).</strong> This program pays subsidies to farmers on the basis of the national average price of a&nbsp;crop compared to the crop’s reference price set by Congress. The larger the fall in a&nbsp;crop’s national price below its reference price, the larger the payout to farmers. Since reference prices are set high, payouts are likely. The program covers more than 20 crops, and payments were $3.2 billion in 2017.<a target="_blank" href="#_idTextAnchor018"><sup>18</sup></a><br><br>Farmers choose to participate in either ARC or PLC. At the same time, they can enroll in crop insurance, which has the same general function of keeping farm incomes high. So farmers can double dip from at least two subsidy programs should their crop revenues come up short.<a target="_blank" href="#_idTextAnchor019"><sup>19</sup></a><br>&nbsp;</li> <li><strong>Conservation Programs.</strong> The USDA runs numerous farm conservation programs, which cost taxpayers more than $5 billion a&nbsp;year. Some of the programs pay farmers to improve lands that are in production, such as the Conservation Stewardship Program. Other programs pay farmers to take land out of production, such as the Conservation Reserve Program. Like other farm programs, these subsidies are tilted upward, providing the great bulk of benefits to the largest farms.<a target="_blank" href="#_idTextAnchor020"><sup>20</sup></a><br><br>Rather than handing out taxpayer cash to farmers, a&nbsp;better way to conserve marginal lands would be to repeal farm subsidies, which encourage excessive cultivation. </li> <li><strong>Marketing Loans.</strong> This is a&nbsp;price‐​guarantee program that began during the New Deal. The original idea was to give farmers a&nbsp;loan at harvest time so that they could hold their crops to sell at a&nbsp;higher price later. But today the program is just another unneeded subsidy that boosts farm incomes. The cost of this program dropped to near zero in 2017, but it was about $160 million in each of the previous two years.<a target="_blank" href="#_idTextAnchor021"><sup>21</sup></a><br>&nbsp;</li> <li><strong>Disaster Aid.</strong> The government operates disaster aid programs for various types of farmers, from wheat growers, to livestock producers, to orchard operators. In addition to disaster programs already in law, Congress often distributes more aid after adverse events. Disaster aid amounts fluctuate, but such aid has averaged $1.9 billion a&nbsp;year since 2010.<a target="_blank" href="#_idTextAnchor022"><sup>22</sup></a><br>&nbsp;</li> <li><strong>Marketing and Export Promotion.</strong> The Agricultural Marketing Service spends $1.2 billion a&nbsp;year on farm and food promotion activities. The Foreign Agricultural Service spends about $300 million a&nbsp;year on marketing activities for U.S. farm and food products, including operating more than 90 foreign offices.<br>&nbsp;</li> <li><strong>Research and Other Support.</strong> Most American industries fund their own research and development, but the government employs thousands of scientists and other experts to aid the agriculture industry. The USDA spends about $3 billion a&nbsp;year on agriculture and food research at more than 100 locations. The department also provides an array of other support services to farmers, such as statistical data and economic studies.</li> </ol><h2>Reasons to Repeal Farm Subsidies</h2> <p>The Trump administration’s budget for 2019 proposes to cut farm subsidies by tightening limits on the maximum payments to each farmer and ending subsidies for farmers with incomes above $500,000 a&nbsp;year.<a target="_blank" href="#_idTextAnchor023"><sup>23</sup></a> The budget would also cut insurance subsidies and conservation subsidies. The reforms would save about $6 billion a&nbsp;year when phased in.</p> <p>Studies from various think tanks have also proposed reforms. Heritage Foundation experts propose repealing the ARC and PLC programs and trimming crop insurance.<a target="_blank" href="#_idTextAnchor024"><sup>24</sup></a> American Enterprise Institute (AEI) experts have found that modest limits on payments to large farms would produce major savings.<a target="_blank" href="#_idTextAnchor025"><sup>25</sup></a> For example, a&nbsp;cap on insurance subsidies of $40,000 per farm would affect only 5&nbsp;percent of farmers but save $2 billion a&nbsp;year.</p> <p>Ultimately, Congress should end all farm subsidies. Businesses in other industries face many risks and market fluctuations, yet they prosper or fail depending on their own skill and planning without a&nbsp;federal subsidy cushion. Farm businesses face some unique risks, but so do other businesses. Consider, for example, the fast pace of change in technology industries, or the large price fluctuations in the mining and energy industries.</p> <p>The following sections discuss why farm subsidies make little sense.</p> <ol><li><strong>Subsidies Redistribute Wealth Upward.</strong> Farm subsidies go mainly to high‐​earning households. The average income of all farm households was $117,918&nbsp;in 2016, which was 42 percent higher than the $83,143 average of all U.S. households.<a target="_blank" href="#_idTextAnchor026"><sup>26</sup></a> The same year, the median income of farm households was $76,250, which was 29 percent higher than the U.S. median of $59,039.<br><br>Farming incomes are down somewhat in recent years as crop prices have dipped from unusually high levels between 2011 and 2013. But the ratio of average farm household income to the average income of all U.S. households has been trending upward since at least 1960.<a target="_blank" href="#_idTextAnchor027"><sup>27</sup></a><br><br>Those income measures are for all farm households, but Congress delivers the bulk of subsidies to the largest and wealthiest farm households. A&nbsp;recent analysis by AEI scholars found that 60 percent of subsidies from the three largest programs (insurance, ARC, and PLC) go to the largest 10 percent (by sales) of farms.<a target="_blank" href="#_idTextAnchor028"><sup>28</sup></a><br><br>The AEI scholars found that the largest farms were more intensely subsidized than smaller farms. Looking at the crop insurance program, for example, they found that the top 10 percent of farms received subsidies of $29 per acre, compared to an average of $12 per acre for all crop farmers.<br><br>The high‐​end concentration of farm payments has increased over time. A&nbsp;recent USDA study found that “in 1991, half of commodity program payments went to farms operated by households with incomes over $60,717 (in constant 2015 dollars); however, in 2015, half went to households with incomes over $146,126.”<a target="_blank" href="#_idTextAnchor029"><sup>29</sup></a> The study found similar increases in the high‐​end concentration of crop insurance subsidies and conservation subsidies.<br><br>Politicians often claim that farm aid helps alleviate rural poverty. But farm aid goes to farm owners, and they have relatively high incomes. Just 2&nbsp;percent of farm households fall below the poverty line, compared to 14 percent of all U.S. households.<a target="_blank" href="#_idTextAnchor030"><sup>30</sup></a> Also, USDA data show that while less than one‐​third of farms with revenues of less than $100,000 received federal subsidies, three‐​quarters of farms above that threshold did.<a target="_blank" href="#_idTextAnchor031"><sup>31</sup></a><br><br>At the top end, many billionaires have received farm subsidies over the years. Looking at the period from 1995 to 2014, the Environmental Working Group (EWG) found that 50 people on the Forbes 400 list of the wealthiest Americans received farm subsidies.<a target="_blank" href="#_idTextAnchor032"><sup>32</sup></a> Today, the largest pot of subsidies is channeled through insurance companies, which hides the identities of recipients, as noted.<a target="_blank" href="#_idTextAnchor033"><sup>33</sup></a> However, the Government Accountability Office found that at least four recipients of crop insurance subsidies have a&nbsp;net worth of more than $1.5 billion.<a target="_blank" href="#_idTextAnchor034"><sup>34</sup></a><br>&nbsp;</li> <li><strong>Subsidies Harm the Economy.</strong> In most industries, market signals steer investment, businesses balance risks and rewards, and entrepreneurs innovate to reduce costs. Federal programs blunt those market mechanisms in agriculture, causing a&nbsp;range of economic harms, including overproduction, distorted land use, distorted choice of crops, and inadequate cost control.<br><br>Subsidized crop insurance, for example, creates “moral hazard” for farmers, meaning it induces them to make decisions that maximize their subsidies, not market efficiencies. Subsidies induce farmers to take unwise risks since taxpayers pick up the tab upon failure.<a target="_blank" href="#_idTextAnchor035"><sup>35</sup></a><br><br>Agricultural economist Vincent Smith notes: “When farmers buy subsidized crop insurance coverage based on their farms’ crop yields, they use fewer inputs that reduce the risk of crop losses. In plain language, farmers change their production practices — and on average produce less output — when they have crop insurance coverage.”<a target="_blank" href="#_idTextAnchor036"><sup>36</sup></a> Thus, he says, “by subsidizing crop insurance, taxpayers are encouraging farmers to work less efficiently, produce fewer crops, and make smaller contributions to the overall productivity of the U.S. economy.”<a target="_blank" href="#_idTextAnchor037"><sup>37</sup></a><br><br>Farm subsidies inflate land prices and land rental costs because — to an extent — the expected future stream of subsidies is capitalized. As a&nbsp;result, subsidies probably benefit landowners more than farmers, and those are often different people because more than half (54 percent) of U.S. cropland is rented.<a target="_blank" href="#_idTextAnchor038"><sup>38</sup></a> As subsidies have pushed up sales prices and rental costs for land, it has become harder for young farmers to break into the business.<br><br>Farm program supporters claim that an economic benefit of aid is that it helps consumers. But crop subsidies do not reduce food prices much, if at all. One reason is that commodity costs make up just 10 percent of the retail prices of domestic food, on average.<a target="_blank" href="#_idTextAnchor039"><sup>39</sup></a> Also, some farm programs raise consumer prices. Dairy and sugar market restrictions raise prices for those products, for example, and the federal ethanol mandate raises corn prices.<a target="_blank" href="#_idTextAnchor040"><sup>40</sup></a><br><br>Some policymakers claim that subsidies support rural workers. But the vast majority of aid goes to the capital‐​intensive production of field crops such as corn, soybeans, and wheat.<a target="_blank" href="#_idTextAnchor041"><sup>41</sup></a> By contrast, the agricultural industries that are more dependent on low‐​skill labor — such as fruits and vegetables — receive virtually no federal subsidies. </li> <li><strong>Subsidies Are Prone to Scandal.</strong> Like most federal subsidy programs, farm programs are subject to bureaucratic waste and recipient fraud. One problem is that the government distributes disaster payments in a&nbsp;careless manner, with payments often going to farmers who do not need them.<br><br>Another problem is that some farmers claim excess benefits — for example, by creating business structures to get around legal subsidy limits. The inspector general of the USDA recently found that more than 30 percent of the applicants for the Conservation Stewardship Program were either ineligible or receiving excess payments.<a target="_blank" href="#_idTextAnchor042"><sup>42</sup></a><br><br>Another ongoing boondoggle is the “prevented planting” program, which covers farmers for losses if conditions during a&nbsp;season prevent them from planting some areas. EWG found that billions of dollars have been paid to farmers who probably would not have planted the areas they received subsidies for.<a target="_blank" href="#_idTextAnchor043"><sup>43</sup></a> AEI scholars concurred, noting that payments under the program “may significantly exceed the actual losses” experienced by farmers.<a target="_blank" href="#_idTextAnchor044"><sup>44</sup></a> The losses claimed by farmers under the program are difficult to verify, which has encouraged cheating.<br><br>Perhaps the biggest scandal with regard to farm subsidies is that agricultural committees in Congress include members who are active farmers and farmland owners. Those members have an obvious conflict of interest whenever there is a&nbsp;vote on subsidies. There are 32 current members of Congress who have received federal farm subsidies.<a target="_blank" href="#_idTextAnchor045"><sup>45</sup></a><br>&nbsp;</li> <li><strong>Subsidies Undermine U.S. Trade Relations.</strong> When countries subsidize farm production and doing so boosts commodity exports, it undermines foreign producers and distorts global trade patterns. Most high‐​income nations subsidize their farmers, yet those nations often complain about subsidies in other countries undermining their own farmers. The solution is for all nations to slash farm subsidies, which would save taxpayers money and allow the most efficient producers to supply global markets.<br><br>One particular concern is that farm subsidies and trade protections in high‐​income countries — such as the United States — harm lower‐​income countries and undermine their efforts at economic reform. Global stability is enhanced when poor countries adopt markets and achieve growth through trading. But U.S. and European farm subsidies and agricultural import barriers undermine progress on free trade. U.S. sugar protections, for example, block freer trade within the Americas, while harming U.S. consumers and food companies.<br><br>The Congressional Budget Office reviewed studies examining the repeal of U.S. and foreign farm subsidies and trade barriers.<a target="_blank" href="#_idTextAnchor046"><sup>46</sup></a> It concluded that all major studies found that the U.S. and the global economy would gain from such reforms. Trade liberalization would boost the exports of U.S. goods that are competitive on world markets, including many agricultural products, but U.S. farm subsidies and protections stand in the way of that goal. </li> <li><strong>Subsidies Harm the Environment.</strong> Federal farm policies damage the natural environment in a&nbsp;number of ways. Subsidies cause overproduction, which draws lower‐​quality farmlands into active production. Areas that might have been used for parks, forests, grasslands, and wetlands get locked into agricultural use. AEI scholars note that subsidizing crop insurance encourages farmers “to expand crop production on highly erodible land.”<a target="_blank" href="#_idTextAnchor047"><sup>47</sup></a> Lands that would have been used for pasture or grazing have been shifted into crop production.<br><br>Subsidies may induce excessive use of fertilizers and pesticides. Producers on marginal lands that have poorer soils and climates tend to use more fertilizers and pesticides, which can cause water contamination problems. Sugar cane production has expanded in Florida because of the federal sugar program, for example, and the phosphorous in fertilizers used by the growers causes damage to the Everglades.<br><br>Finally, subsidies may discourage crop rotation in favor of planting only a&nbsp;subsidized crop, which in turn can lead to increased use of fertilizers. The boom in corn production driven by subsidies and the ethanol mandate is apparently generating pollution problems in the Mississippi River and Gulf of Mexico.<a target="_blank" href="#_idTextAnchor048"><sup>48</sup></a><br>&nbsp;</li> <li><strong>Subsidies Are in Addition to Favorable </strong><strong>Taxation.</strong> If farmers were large payers of federal income tax, they might argue that they were covering the costs of the spending subsidies they are receiving. But that is often not the case. Income tax data over recent decades show that, in general, farm businesses are lightly taxed.<br><br>About 87 percent of farms are structured as sole proprietorships and file under the individual income tax with a&nbsp;Schedule F.<a target="_blank" href="#_idTextAnchor049"><sup>49</sup></a> These farms account for half of U.S. agricultural sales. Farms structured as partnerships and S&nbsp;corporations also pass through their business income to their individual returns. A&nbsp;small share of farms are structured as C&nbsp;corporations and pay the corporate income tax. Overall, farm entities taxed under the individual income tax account for 97 percent of farms and 85 percent of agricultural production.<a target="_blank" href="#_idTextAnchor050"><sup>50</sup></a><br><br>The USDA examined farm taxation in 2001 and found that “in general, income from farming is taxed more favorably than income from many other businesses.”<a target="_blank" href="#_idTextAnchor051"><sup>51</sup></a> The USDA also noted: “This favorable tax treatment is reflected in the size of farm profits and losses reported for income tax purposes. Since 1980, aggregate farm losses have exceeded farm profits and are used to offset taxes on off‐​farm income.”<a target="_blank" href="#_idTextAnchor052"><sup>52</sup></a><br><br>More recent USDA studies show that farm tax returns continue to show net losses overall.<a target="_blank" href="#_idTextAnchor053"><sup>53</sup></a> Only about one third of Schedule Fs report farm profits in a&nbsp;typical year. Losses on tax returns do not necessarily mean that farms are losing money, but rather that tax rules for farms are very favorable.<a target="_blank" href="#_idTextAnchor054"><sup>54</sup></a><br><br>Internal Revenue Service (IRS) data show that aggregate farm losses reported on Schedule Fs are often roughly twice the size of aggregate farm income.<a target="_blank" href="#_idTextAnchor055"><sup>55</sup></a> Those net losses can be used almost without limit to offset nonfarm income.<a target="_blank" href="#_idTextAnchor056"><sup>56</sup></a><br><br>Larger farms may have substantial capital gains and rental income from the farm, which can move their farm‐​related income into positive territory. But even including that income, about half of farms report an overall loss from farm activities on their tax returns.<a target="_blank" href="#_idTextAnchor057"><sup>57</sup></a><br><br>IRS data for 2015 show 1.26 million Schedule F&nbsp;farms with net losses of $26 billion, and 0.54 million farm returns with net income of $15 billion.<a target="_blank" href="#_idTextAnchor058"><sup>58</sup></a> Farm households use the net losses to reduce taxes on their nonfarm incomes.<br><br>The USDA reports that “about half of all farm partnerships and small business corporations also report losses” on their tax returns in a&nbsp;typical year.<a target="_blank" href="#_idTextAnchor059"><sup>59</sup></a> Recent IRS data show that farm S&nbsp;corporations do report aggregate net income on their tax returns, but the ratio of net income to revenues for farms is a&nbsp;bit less than that for all S&nbsp;corporations.<a target="_blank" href="#_idTextAnchor060"><sup>60</sup></a> C&nbsp;corporations in agriculture have a&nbsp;similar burden of taxes to that of all C&nbsp;corporations.<a target="_blank" href="#_idTextAnchor061"><sup>61</sup></a><br><br>Larger farms are more likely to pay income taxes than smaller farms.<a target="_blank" href="#_idTextAnchor062"><sup>62</sup></a> The USDA found that “while many commercial‐​size farmers pay taxes on their farm income, farm sole proprietors in the aggregate pay little in federal income tax on farm income.”<a target="_blank" href="#_idTextAnchor063"><sup>63</sup></a><br><br>Why is that? In testimony to the House Committee on Agriculture last year, accountant Christopher Hesse, who specializes in farm taxation, described more than a&nbsp;dozen tax provisions that provide favorable treatment to farms.<a target="_blank" href="#_idTextAnchor064"><sup>64</sup></a> Many provisions allow farmers flexibility over the timing of income and deductions, allowing them to push income forward and prepay expenses, which reduces taxable income.<br><br>The 2017 Tax Cuts and Jobs Act provided a&nbsp;new tax benefit for farmers who sell their crops to cooperatives. The <em>Wall Street Journal</em> said it would allow “more farmers to lower their taxable income to zero and cost the U.S. government significant revenue.”<a target="_blank" href="#_idTextAnchor065"><sup>65</sup></a> The inclusion of the break illustrated the power of the farm lobby, but in this case Congress realized it went too far and subsequently repealed the break in the omnibus spending bill passed in March 2018.<br><br>In sum, farmers have done well for themselves in Washington, not just on the spending side of the federal budget but also on the tax side. It is true, however, that the largest farms that receive the bulk of subsidies are also more likely to be payers of income tax. </li> <li><strong>Farmers Can Provide Their Own Safety Nets.</strong> The Trump administration’s 2019 budget proposes cuts to farm subsidies, but it also promises to “maintain a&nbsp;strong safety‐​net for farmers.” But why can’t farmers create their own safety nets?<br><br>Farmers deal with fluctuations in crop prices and yields, which causes variations in their incomes. But those risks are well known, and farmers can plan for them. For one thing, they can save. When corn prices are high, the corn farmer can save the excess profits, and when corn prices fall he or she can withdraw from savings.<br><br>Borrowing is another way to smooth finances over time. In good times, farmers can pay down debt so that they have more room to borrow during leaner times. Farm program supporters claim that farmers would not be able to access bank credit without the federal aid they currently receive. But Vincent Smith notes that banks routinely lend to unsubsidized farm businesses. Banks “are happy to make loans to ranchers who raise cattle (not crops) and hog and poultry producers, without a&nbsp;guaranteed government backstop. All those businesses manage farm operations with highly volatile incomes and costs.”<a target="_blank" href="#_idTextAnchor066"><sup>66</sup></a><br><br>Saving and borrowing are basic financial tools available to all businesses. There are other market‐​based tools that farmers can use, including insurance and various price hedging products such as futures and options. The existence of farm subsidy programs has replaced, or crowded out, greater use of such market‐​based financial tools.<a target="_blank" href="#_idTextAnchor067"><sup>67</sup></a><br><br>Diversification is another strategy farmers can use to reduce risks. They can diversify their crop plantings to reduce risks from fluctuating yields and prices. They can diversify their planting locations to reduce risks from adverse weather.<br><br>Farm households can diversify their sources of income to include both farm and off‐​farm income. Indeed, USDA data show that about three‐​quarters of farm household income today comes from off‐​farm sources.<a target="_blank" href="#_idTextAnchor068"><sup>68</sup></a> Back in 1960, farm households had roughly equal amounts of farm and off‐​farm income, but since then the latter has soared.<a target="_blank" href="#_idTextAnchor069"><sup>69</sup></a><br><br>Farm households have greater financial stability today than in the past. Farm debt levels have been low in recent decades.<a target="_blank" href="#_idTextAnchor070"><sup>70</sup></a> And the bankruptcy rate in agriculture has been consistently lower than that in other industries. With the exception of the mid‐​1980s, the annual rate has been 2&nbsp;to 3&nbsp;per 10,000 farms since the 1950s, and it was 2.4&nbsp;in 2017.<a target="_blank" href="#_idTextAnchor071"><sup>71</sup></a> By contrast, the bankruptcy rate for all U.S. businesses has been about 8&nbsp;per 10,000&nbsp;in recent years.<a target="_blank" href="#_idTextAnchor072"><sup>72</sup></a> So the farm bankruptcy rate is one‐​third the rate of U.S. businesses overall. </li> <li><strong>Farmers Would Thrive without Subsidies.</strong> If U.S. farm subsidies were ended and agricultural markets deregulated, farming would change. Different crops might be planted, land use might change, and some farm businesses might contract while others expanded. Farm businesses would rely on market‐​based risk‐​reduction methods, such as saving and diversification. A&nbsp;stronger and more innovative industry would emerge that had greater resilience to market fluctuations.<br><br>An interesting example of farmers prospering without subsidies is New Zealand. In 1984 that nation ended its farm subsidies, which was a&nbsp;bold stroke because New Zealand is four times more dependent on farming than is the United States. The changes were initially met with resistance, but New Zealand farm productivity, earnings, and output rose in the years after reform. New Zealand farmers cut costs, diversified land use, sought nonfarm income, and developed niche markets such as kiwi fruit.<br><br>The Federated Farmers of New Zealand argues that New Zealand’s experience “thoroughly debunked the myth that the farming sector cannot prosper without government subsidies.”<a target="_blank" href="#_idTextAnchor073"><sup>73</sup></a> That myth needs to be debunked in the United States as well. </li> </ol><h2>Conclusions</h2> <p>A number of major farm programs expire at the end of September 2018, which provides Congress a&nbsp;chance to rethink its costly farm policies. Policymakers should look to the Trump administration’s 2019 budget, which includes a&nbsp;number of sensible reforms to farm programs.</p> <p>For Republicans in Congress, farm subsidy cuts would signal that the party is concerned about fiscal responsibility at a&nbsp;time of rising budget deficits. The GOP has sought cuts to low‐​income welfare programs, and it makes sense to combine those with cuts to farm subsidies, which are welfare for the well‐​to‐​do.</p> <p>As the Heritage Foundation has argued, Congress this year should at least repeal the crop subsidy programs added in the last farm bill, ARC and PLC.<a target="_blank" href="#_idTextAnchor074"><sup>74</sup></a> Over the longer term, all farm subsidies should be ended. American farmers should stand on their own two feet in the marketplace, as do businesses in nearly all other industries.</p> <h2>Notes</h2> <ol><li><a id="_idTextAnchor001"></a>U.S. Department of Agriculture, “2012 Census Highlights: Farm Economics,” ACH12‑2, May 2014. See also Environmental Working Group, Farm Subsidy Database, <a target="_blank" href="https://farm.ewg.org">https://​farm​.ewg​.org</a>.</li> <li><a id="_idTextAnchor002"></a>James Bovard, “Hoover’s Second Wrecking of American Agriculture,” Future of Freedom Foundation, December 1, 2005.</li> <li><a id="_idTextAnchor003"></a>David Orden, Robert Paarlberg, and Terry Roe, <em>Policy Reform in American Agriculture</em> (Chicago: University of Chicago Press, 1999).</li> <li><a id="_idTextAnchor004"></a>David Orden, Robert Paarlberg, and Terry Roe, <em>Policy Reform in American Agriculture</em> (Chicago: University of Chicago Press, 1999), pp. 152, 164.</li> <li><a id="_idTextAnchor005"></a>Office of Management and Budget, <em>Budget of the United States Government: Fiscal Year 2006</em> (Washington: Government Printing Office, 2005), p. 61.</li> <li><a id="_idTextAnchor006"></a>Vincent H. Smith, “The Farm Bill Remains a&nbsp;Case Study in Corporate Welfare,” American Enterprise Institute, July 28, 2017.</li> <li><a id="_idTextAnchor007"></a>Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Where the Money Goes: The Distribution of Crop Insurance and Other Farm Subsidy Payments,” American Enterprise Institute, January 2018, p. 3.</li> <li><a id="_idTextAnchor008"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 6.</li> <li><a id="_idTextAnchor009"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 7. In 2016 constant dollars.</li> <li><a id="_idTextAnchor010"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 4.</li> <li><a id="_idTextAnchor011"></a>U.S. Government Accountability Office, “Crop Insurance: Opportunities Exist to Improve Program Delivery and Reduce Costs,” GAO-17–501, July 2017.</li> <li><a id="_idTextAnchor012"></a>Bruce Babcock, “Cutting the Fat: It Won’t Kill Crop Insurance,” Environmental Working Group, December 2015.</li> <li><a id="_idTextAnchor013"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 5.</li> <li><a id="_idTextAnchor014"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 2.</li> <li><a id="_idTextAnchor015"></a>Bruce A. Babcock, “Crop Insurance: A&nbsp;Lottery That’s a&nbsp;Sure Bet,” Environmental Working Group, February 2016.</li> <li><a id="_idTextAnchor016"></a>Vincent H. Smith, “What the Proposed 20% Cut in Farm Subsidies Mean for Your Grocery Bill,” <a target="_blank" href="http://MarketWatch.com">Mar​ket​Watch​.com</a>, July 29, 2017.</li> <li><a id="_idTextAnchor017"></a>U.S. Department of Agriculture, Farm Income and Wealth Statistics, Government Payments by Program,” February 7, 2018, <a target="_blank" href="http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>.</li> <li><a id="_idTextAnchor018"></a>U.S. Department of Agriculture, “Farm Income and Wealth Statistics: Government Payments by Program,” February 7, 2018, <a target="_blank" href="http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>.</li> <li><a id="_idTextAnchor019"></a>Anne Weir Schechinger and Craig Cox, “Double Dipping: How Taxpayers Subsidize Farmers Twice for Crop Losses,” Environmental Working Group, November 14, 2017.</li> <li><a id="_idTextAnchor020"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 5.</li> <li><a id="_idTextAnchor021"></a>U.S. Department of Agriculture, Farm Income and Wealth Statistics, “Government Payments by Program,” February 7, 2018, <a target="_blank" href="http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>.</li> <li><a id="_idTextAnchor022"></a>U.S. Department of Agriculture, Farm Income and Wealth Statistics, “Government Payments by Program,” February 7, 2018, <a target="_blank" href="http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>.</li> <li><a id="_idTextAnchor023"></a>Office of Management and Budget, <em>Budget of the U.S. Government, Fiscal Year 2019, Major Savings and Reforms</em> (Washington: Government Printing Office, 2018), p. 126. Income is measured as adjusted gross income.</li> <li><a id="_idTextAnchor024"></a>Daren Bakst, ed., “Farms and Free Enterprise: A&nbsp;Blueprint for Agricultural Policy,” Heritage Foundation, 2016.</li> <li><a id="_idTextAnchor025"></a>Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Where the Money Goes: The Distribution of Crop Insurance and Other Farm Subsidy Payments,” American Enterprise Institute, January 2018, p. 3.</li> <li><a id="_idTextAnchor026"></a>U.S. Department of Agriculture, “Farm Household Income and Characteristics,” <a target="_blank" href="http://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>. See spreadsheet for “Mean and Median Farm Operator Household Income and Ratio of Farm Household to U.S. Household Income, 1960–2016.”</li> <li><a id="_idTextAnchor027"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 16.</li> <li><a id="_idTextAnchor028"></a>Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Where the Money Goes: The Distribution of Crop Insurance and Other Farm Subsidy Payments,” American Enterprise Institute, January 2018, p. 3.</li> <li><a id="_idTextAnchor029"></a>Jonathan R. McFadden and Robert A. Hoppe, “The Evolving Distribution of Payments from Commodity, Conservation, and Federal Crop Insurance Programs,” U.S. Department of Agriculture, November 2017, p. iv.</li> <li><a id="_idTextAnchor030"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 16.</li> <li><a id="_idTextAnchor031"></a>U.S. Department of Agriculture, “2012 Census of Agriculture,” AC-12-A-51, May 2014, Chapter 1, Table 3. The revenue measure is the sum of agricultural products sold and government payments received.</li> <li><a id="_idTextAnchor032"></a>Robert Coleman, “The Rich Get Richer: 50 Billionaires Got Federal Farm Subsidies,” Environmental Working Group, April 18, 2016.</li> <li><a id="_idTextAnchor033"></a>Colin O’Neil, “Are Billionaires Getting Crop Insurance Subsidies? We Still Don’t Know,” Environmental Working Group, April 28, 2016.</li> <li><a id="_idTextAnchor034"></a>U.S. Government Accountability Office, “Crop Insurance: Reducing Subsidies for Highest Income Participants Could Save Federal Dollars with Minimal Effect on the Program,” GAO-15–356, March 2015, p. 12.</li> <li><a id="_idTextAnchor035"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 20.</li> <li><a id="_idTextAnchor036"></a>Vincent H. Smith, “Trump’s Budget Gets One Thing Right: Crop Insurance Reform,” Real Clear Policy, May 24, 2017.</li> <li><a id="_idTextAnchor037"></a>Vincent H. Smith, “Trump’s Budget Gets One Thing Right: Crop Insurance Reform,” Real Clear Policy, May 24, 2017.</li> <li><a id="_idTextAnchor038"></a>U.S. Department of Agriculture, “Farmland Ownership and Tenure,” April 10, 2017.</li> <li><a id="_idTextAnchor039"></a>Congressional Budget Office, “Options to Reduce the Budgetary Costs of the Federal Crop Insurance Program,” December 2017, p. 14.</li> <li><a id="_idTextAnchor040"></a>Nicolas Loris, “Ethanol and Biofuel Policies,” Down​siz​ing​Gov​ern​ment​.org, Cato Institute, February 9, 2017.</li> <li><a id="_idTextAnchor041"></a>Vincent H. Smith and Ryan Nabil, “Agricultural Subsidies Aid the Wealthy, Not Those in Rural Poverty,” American Enterprise Institute, November 11, 2017. And see Daniel A. Sumner, Joseph W. Glauber, and Parke E. Wilde, “Poverty, Hunger, and US Agricultural Policy: Do Farm Programs Affect the Nutrition of Poor Americans?,” American Enterprise Institute, January 9, 2017.</li> <li><a id="_idTextAnchor042"></a>Cited in Office of Management and Budget, <em>Budget of the U.S. Government, Fiscal Year 2019, Major Savings and Reforms</em> (Washington: Government Printing Office, 2018), p. 127.</li> <li><a id="_idTextAnchor043"></a>Craig Cox, Soren Rundquist, and Anne Weir, “Boondoggle: Prevented Planting Insurance Plows Up Wetlands, Wastes $ Billions,” Environmental Working Group, April 28, 2015.</li> <li><a id="_idTextAnchor044"></a>Vincent H. Smith, Joseph W. Glauber, and Barry K. Goodwin, “Time to Reform the US Federal Agricultural Insurance Program,” American Enterprise Institute, October 2017, p. 15.</li> <li><a id="_idTextAnchor045"></a>Jared Hayes, “Federal Lawmakers Harvest $15 Million in Farm Subsidies,” Environmental Working Group, December 7, 2017.</li> <li><a id="_idTextAnchor046"></a>Congressional Budget Office, “Agricultural Trade Liberalization,” November 20, 2006.</li> <li><a id="_idTextAnchor047"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 1.</li> <li><a id="_idTextAnchor048"></a>Josh Sewell, “Subsidies to Address Risk Are Harmful,” in “Farms and Free Enterprise: A&nbsp;Blueprint for Agricultural Policy,” ed. Daren Bakst, Heritage Foundation, 2016.</li> <li><a id="_idTextAnchor049"></a>James M. Williamson, Ron Durst, and Tracey Farrigan, “The Potential Impact of Tax Reform on Farm Businesses and Rural Households,” U.S. Department of Agriculture, February 2013, p. 8.</li> <li><a id="_idTextAnchor050"></a>James M. Williamson, U.S. Department of Agriculture, Testimony to the House Committee on Agriculture, April 5, 2017.</li> <li><a id="_idTextAnchor051"></a>Ron Durst and James Monke, “Effects of Federal Tax Policy on Agriculture,” U.S. Department of Agriculture, April 2001, p. 6.</li> <li><a id="_idTextAnchor052"></a>Ron Durst and James Monke, “How Would Fundamental Tax Reform Affect Farmers?,” U.S. Department of Agriculture, April 1999.</li> <li><a id="_idTextAnchor053"></a>James M. Williamson, Ron Durst, and Tracey Farrigan, “The Potential Impact of Tax Reform on Farm Businesses and Rural Households,” U.S. Department of Agriculture, February 2013, p. 9. And see Ron Durst, “Federal Tax Policies and Farm Households,” U.S. Department of Agriculture, May 2009, p. 4.</li> <li><a id="_idTextAnchor054"></a>Indeed, farms consistently earn income, on net, on the basis of a&nbsp;USDA measure of income, while reporting net losses overall on tax returns. Ron Durst and James Monke, “Effects of Federal Tax Policy on Agriculture,” U.S. Department of Agriculture, April 2001, Figure 2.</li> <li><a id="_idTextAnchor055"></a>Kevin Pierce and Mary E. Jezek, “Farm Proprietorship Returns, 1998–2004,” <em>Statistics of Income Bulletin</em>, Internal Revenue Service, Spring 2007.</li> <li><a id="_idTextAnchor056"></a>Ron Durst, “Federal Tax Policies and Farm Households,” U.S. Department of Agriculture, May 2009, p. 5.</li> <li><a id="_idTextAnchor057"></a>Ron Durst and James Monke, “Effects of Federal Tax Policy on Agriculture,” U.S. Department of Agriculture, April 2001, Table 8. This was a&nbsp;consistent pattern over a&nbsp;nine‐​year period.</li> <li><a id="_idTextAnchor058"></a>Michael Parisi, “Individual Income Tax Returns, Preliminary Data, Tax Year 2015,” <em>Statistics of Income Bulletin</em>, Internal Revenue Service, Spring 2017.</li> <li><a id="_idTextAnchor059"></a>James M. Williamson, Ron Durst, and Tracey Farrigan, “The Potential Impact of Tax Reform on Farm Businesses and Rural Households,” U.S. Department of Agriculture, February 2013, p. 9.</li> <li><a id="_idTextAnchor060"></a>Internal Revenue Service, Statistics of Income Division, “Corporate Income Tax Returns,” 2013, Table 7. Data for 2012 are similar to 2013.</li> <li><a id="_idTextAnchor061"></a>Internal Revenue Service, Statistics of Income Division, “Corporate Income Tax Returns,” 2013, Table 16. Data for 2012 are similar to 2013. The ratio of taxes to revenues is similar for farm and nonfarm corporations.</li> <li><a id="_idTextAnchor062"></a>Kevin Pierce and Mary E. Jezek, “Farm Proprietorship Returns, 1998–2004,” <em>Statistics of Income Bulletin</em>, Internal Revenue Service, Spring 2007.</li> <li><a id="_idTextAnchor063"></a>Ron Durst and James Monke, “Effects of Federal Tax Policy on Agriculture,” U.S. Department of Agriculture, April 2001, p. 9.</li> <li><a id="_idTextAnchor064"></a>Christopher W. Hesse, CliftonLarsonAllen LLP, Testimony to the House Committee on Agriculture, April 5, 2017.</li> <li><a id="_idTextAnchor065"></a>Jacob Bunge and Richard Rubin, “Tax Law Puts Grain Companies on Defensive,” <em>Wall Street Journal</em>, February 16, 2018.</li> <li><a id="_idTextAnchor066"></a>Vincent H. Smith, “The Farm Bill Remains a&nbsp;Case Study in Corporate Welfare,” American Enterprise Institute, July 28, 2017.</li> <li><a id="_idTextAnchor067"></a>Agricultural economist Brian Wright discusses farm risks in Brian Wright, “The Ability of Agricultural Producers to Manage Risk” in “Farms and Free Enterprise: A&nbsp;Blueprint for Agricultural Policy,” ed. Daren Bakst, Heritage Foundation, 2016.</li> <li><a id="_idTextAnchor068"></a>U.S. Department of Agriculture, “Farm Household Income and Characteristics,” <a target="_blank" href="https://www.ers.usda.gov/data-products/farm-household-income-and-characteristics.aspx">https://​www​.ers​.usda​.gov/​d​a​t​a​-​p​r​o​d​u​c​t​s​/​f​a​r​m​-​h​o​u​s​e​h​o​l​d​-​i​n​c​o​m​e​-​a​n​d​-​c​h​a​r​a​c​t​e​r​i​s​t​i​c​s​.aspx</a>. See “Principal Farm Operator Household Finances, 2013–18F.”</li> <li><a id="_idTextAnchor069"></a>Vincent H. Smith, Joseph W. Glauber, Barry K. Goodwin, and Daniel A. Sumner, “Agricultural Policy in Disarray: Reforming the Farm Bill—An Overview,” American Enterprise Institute, October 2017, p. 11.</li> <li><a id="_idTextAnchor070"></a>Brian Wright, “The Ability of Agricultural Producers to Manage Risk,” in “Farms and Free Enterprise: A&nbsp;Blueprint for Agricultural Policy,” ed. Daren Bakst, Heritage Foundation, 2016, p. 28.</li> <li><a id="_idTextAnchor071"></a>Robert Dinterman and Ani Katchova, “Farm Bankruptcies in the United States,” Ohio State University, Department of Agricultural, Environmental, and Development Economics, April 2017.</li> <li><a id="_idTextAnchor072"></a>Calculated on the basis of bankruptcy data in United States Courts, “Bankruptcy Filings Fall 0.7%—Smallest 12‐​Month Decline since 2010,” press release, January 24, 2018, <a target="_blank" href="http://www.uscourts.gov/">www​.uscourts​.gov</a>. Historical data are also available from the site.</li> <li><a id="_idTextAnchor073"></a>Quoted in Chris Edwards and Tad DeHaven, “Save the Farms—End the Subsidies,” op‐​ed, <em>Washington Post</em>, March 3, 2002.</li> <li><a id="_idTextAnchor074"></a>Daren Bakst, ed., “Farms and Free Enterprise: A&nbsp;Blueprint for Agricultural Policy,” Heritage Foundation, 2016.</li> </ol> </div> Thu, 12 Apr 2018 03:00:00 -0400 Chris Edwards https://www.cato.org/publications/tax-budget-bulletin/reforming-federal-farm-policies Where’s the Beef? Finding a Better Way to Resolve U.S.-China Trade Conflicts https://www.cato.org/publications/free-trade-bulletin/wheres-beef-finding-better-way-resolve-us-china-trade-conflicts Simon Lester, Huan Zhu <div class="lead text-default"> <p>On November 8, President Trump will visit China for the first time. In conjunction with the trip, Secretary of Commerce Wilbur Ross is leading a&nbsp;trade mission designed to “promote U.S. exports” and “address trade policy issues with high‐​level Chinese officials.”<a href="#_ftn1"><sup>1</sup></a></p> </div> , <div class="text-default"> <p>This visit could have an important impact on the U.S.-China trade relationship over the rest of President Trump's time in office. Past efforts by the Trump administration to deal with trade tensions have mainly focused on smaller trade irritants. Trump's visit to China is an opportunity to begin to address many of the larger U.S.-China trade conflicts.</p> <p>Just prior to President Trump's meeting with China's President Xi in April 2017, which led to a “100-Day Action Plan” on trade under the framework of the U.S.-China Comprehensive Economic Dialogue, we published a Free Trade Bulletin making the case for a comprehensive Free Trade Agreement (FTA) as a way to address U.S.-China trade issues.<a href="#_ftn2"><sup>2</sup></a></p> <p>We recognize that there is little political support for such an initiative at the moment. However, the alternative approaches that the Trump administration has tried so far are all insufficient. Unilateral threats from the United States are unlikely to accomplish much because domestic political constraints will prevent China from granting concessions for which it gets nothing in exchange. And the dialogue that led to the action plan has not produced significant results.</p> <p>In our view, the failure of the action plan supports our earlier argument that a comprehensive FTA is the best approach to achieving a broad market opening in China. A number of the more difficult trade issues — intellectual property protection and technology transfer requirements, for example — require detailed rules and effective oversight of implementation. Only a binding set of rules, with an enforcement mechanism, can create the predictable and stable framework that U.S. businesses need.</p> <p>In this paper, we explore in depth one particular issue covered by the action plan — access to the Chinese beef market — and use it to illustrate the need for an FTA. Removing the Chinese ban on U.S. beef was touted as a major achievement of the plan, but the reality is that there are many remaining obstacles facing U.S. beef exports. We describe below the high tariffs and regulatory barriers that remain and show that they can be addressed most effectively through a comprehensive FTA. If the United States really wants to address Chinese tariffs, nontariff barriers to trade in goods and services, and investment restrictions, it needs to push for the same kind of comprehensive FTA it has negotiated with other key trading partners. The upcoming visit by President Trump and Secretary Ross to China is the perfect opportunity to begin this process.</p> <p><strong>THE 100-DAY ACTION PLAN</strong><br />The 100-Day Action Plan was instituted in April 2017, and in May treasury secretary Steve Mnuchin, commerce secretary Wilbur Ross, and Chinese vice premier Wang Yang announced an agreement on the initial list of items to be covered by the plan. President Trump touted the agreement by tweeting, “China just agreed that the U.S. will be allowed to sell beef, and other major products, into China once again. It is REAL news!” Secretary Ross called the deal “a new high” in the U.S.-China relationship, “pretty much a Herculean accomplishment,” and “more than has been done in the whole history of U.S.-China relations on trade.”<a href="#_ftn3"><sup>3</sup></a></p> <p>The plan makes progress in a few areas, but the above statements exaggerate its impact. The plan covers 10 items, which address particular concerns of either the United States or China. Of the 10 items, 5 were concerns raised by the United States and 5 by China, ranging from trade in goods (beef, poultry, biotechnology products, liquid natural gas exports), to financial services, to symbolic gestures (America's recognition of China's “One Belt, One Road Initiative”). All the issues described in the plan have been addressed to some extent, but the plan's obligations were so vague and general that nominal fulfillment was easy and the actual impact on the market is difficult to assess.<a href="#_ftn4"><sup>4</sup></a></p> <p>And the attempt to discuss larger and deeper issues at the follow-up meeting in July yielded no more than a phytosanitary protocol on trade in rice. The item on the list that seemed the most promising was opening China's market to U.S. beef. This development was touted by Secretary Ross as a great win, as he celebrated “a $2.5 billion market . . . being opened up for U.S. beef.”<a href="#_ftn5"><sup>5</sup></a></p> <p>China fulfilled its commitment by signing a protocol with the U.S. Department of Agriculture, and the first shipment of beef was sent to China in June.<a href="#_ftn6"><sup>6</sup></a></p> <p>The reality of U.S. beef exports to China is complicated, however, and the market may not be as open as some people hope. In the next section, we offer some background on the Chinese beef market, and the barriers U.S. producers still face there, in order to illustrate the limited impact of these kinds of narrow efforts at addressing U.S.-China trade conflicts.</p> <p><strong>CHINA'S BEEF MARKET</strong><br />Traditionally, China has not been a big consumer of beef — pork and chicken were more common choices. However, due in part to strong economic growth, China's beef consumption has grown in recent decades; beef consumption has risen from 0.652 kilograms per capita in 1990 to 3.817 kilograms in 2015.<a href="#_ftn7"><sup>7</sup></a></p> <p>Over time, domestic production could no longer meet demand, and beef imports began to increase. Table 1 shows beef imports into China since 1998, by country. As shown in the table, China imported just $16 million worth of beef from all trading partners in 1998. That number jumped to $61 million in 2003, but imports declined in 2004 after an outbreak of bovine spongiform encephalopathy (BSE), also known as mad cow disease, in 2003. Imports increased again in 2009 and have continued to grow. In 2016, China's total beef imports exceeded $2.5 billion.</p> <p>Figure 1 shows the share of imports into the Chinese market held by the major beef-exporting countries since 1998. U.S. exports dominated the market at the beginning of the period but almost completely disappeared after 2004 because of a Chinese ban on U.S. beef after the BSE outbreak. Since then, other countries have controlled the import market.</p> <p>Figure 2 shows the early U.S. dominance of the Chinese import market (which was relatively small in terms of value at the time) and its quick decline after the BSE outbreak. Figure 3 shows the recent surge of beef imports into China from other countries as Chinese demand for beef increased.</p> <p>What these figures show is the United States losing its market share over the years and other countries stepping in to take advantage of the increased Chinese demand. In 2003, U.S. beef had 75 percent of the Chinese import market (Australia was a distant second, at around 13 percent). However, as noted, the United States lost this market dominance when China banned U.S. beef due to the BSE outbreak in 2003. (Many other countries, including Australia, Japan, Russia, and South Korea, also banned or restricted some or all U.S. beef imports.<a href="#_ftn8"><sup>8</sup></a>) The BSE outbreak had a more long-term impact on U.S. beef exports to China than it did on exports to other markets. While many countries halted U.S. beef imports at the start of the outbreak, China was particularly slow to reopen its market to U.S. beef.<a href="#_ftn9"><sup>9</sup></a> Instead, it turned to other major beef producers, including Australia, Brazil, New Zealand, and Uruguay, and these countries became China's main suppliers.</p> <p>By 2016, China's largest import source for beef was Brazil, which quickly rose to being the number-one exporter to China (a 29 percent market share for imports) after China lifted a three-year ban on Brazilian beef in 2015.<a href="#_ftn10"><sup>10</sup></a> (This situation is likely to change due to a Brazilian beef scandal in March 2017.) Following Brazil are Australia and Uruguay, each holding 22 percent of the beef market; New Zealand and Argentina hold 13 percent and 9 percent, respectively; and Canada follows with 3 percent.</p> <p align="center"> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="e266713e-538e-4e85-a3d9-531ac91c78c3" data-langcode="en" class="embedded-entity"> <img width="700" height="871" alt="Media Name: ftb-71-table-1.jpg" class="lozad component-image lozad" data-srcset="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-table-1.jpg?itok=nc7mvsPm 1x, /sites/cato.org/files/styles/pubs_2x/public/images/pubs/ftb/ftb-71-table-1.jpg?itok=1BbWrHEQ 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-table-1.jpg?itok=nc7mvsPm" typeof="Image" /></div> <p align="center"> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="78c81f1f-e63b-4e4d-bb24-1ff66789f21d" data-langcode="en" class="embedded-entity"> <img width="700" height="401" alt="Media Name: ftb-71-figure-1.jpg" class="lozad component-image lozad" data-srcset="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-1.jpg?itok=mA7x0u_C 1x, /sites/cato.org/files/styles/pubs_2x/public/images/pubs/ftb/ftb-71-figure-1.jpg?itok=D88AUzmT 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-1.jpg?itok=mA7x0u_C" typeof="Image" /></div> <p align="center"> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="e7cd8fb0-84ad-46cf-ae8f-2c67ffba3f8c" data-langcode="en" class="embedded-entity"> <img width="700" height="450" alt="Media Name: ftb-71-figure-2.jpg" class="lozad component-image lozad" data-srcset="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-2.jpg?itok=oRJUpYJq 1x, /sites/cato.org/files/styles/pubs_2x/public/images/pubs/ftb/ftb-71-figure-2.jpg?itok=EvpQ7OVv 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-2.jpg?itok=oRJUpYJq" typeof="Image" /></div> <p align="center"> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="a9c7e895-3142-4c82-bb16-2ac0f44c029f" data-langcode="en" class="embedded-entity"> <img width="700" height="458" alt="Media Name: ftb-71-figure-3.jpg" class="lozad component-image lozad" data-srcset="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-3.jpg?itok=DqNzbg-v 1x, /sites/cato.org/files/styles/pubs_2x/public/images/pubs/ftb/ftb-71-figure-3.jpg?itok=RZnEZsiL 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/images/pubs/ftb/ftb-71-figure-3.jpg?itok=DqNzbg-v" typeof="Image" /></div> <p><strong>THE LIMITED IMPACT OF THE BEEF DEAL</strong><br />There is little doubt the U.S.-China beef deal will boost U.S. exports to some extent. The U.S. has gained market access for all beef products, including chilled and frozen beef products, as well as scalded, heat-treated, and smoked beef. Many nations have more limited access. For instance, for various reasons Uruguay can only export frozen beef to China; Canada and Brazil can only export frozen deboned beef; and Argentina can only export cooked beef meat and offal and frozen deboned beef.<a href="#_ftn11"><sup>11</sup></a></p> <p>Nevertheless, even with the ban lifted, it will take some time for the U.S.-China beef agreement to have an impact, and the effect on U.S. exports may be smaller than some have predicted. One reason is that Chinese consumers have been buying U.S. beef through a gray market despite the official ban, using Hong Kong as a transshipment point. The new legal U.S. beef exports to China may simply substitute for some of the current sales to Hong Kong.<a href="#_ftn12"><sup>12</sup></a></p> <p>But more important, even with China's market now open, U.S. beef is at a competitive disadvantage compared to beef from other countries. Because there is no FTA between the United States and China, Chinese beef tariffs are applied to U.S. products at the World Trade Organization's mostfavored-nation rate. As a result, American beef faces a 12 percent to 25 percent tariff rate (depending on the specific product).<a href="#_ftn13"><sup>13</sup></a> In comparison, Australian beef currently faces a 4.8 percent to 17.5 percent tariff rate as a result of the China-Australia FTA. That tariff will be phased out sometime between 2019 and 2024 (depending on the product in question).<a href="#_ftn14"><sup>14</sup></a> New Zealand exporters already face zero tariffs because of the China-New Zealand FTA.<a href="#_ftn15"><sup>15</sup></a></p> <p>In addition, Uruguay began negotiations on an FTA with China in 2016, and there is some potential for a broader Mercosur-China trade negotiation.<a href="#_ftn16"><sup>16</sup></a> Canada has also announced that it will launch an FTA negotiation with China.<a href="#_ftn17"><sup>17</sup></a> These FTAs, once concluded and implemented, will make it even more difficult for U.S. beef to compete with products from its main competitors.</p> <p>U.S. beef exporters face nontariff obstacles as well, including restrictions on hormone-treated beef products. Some growth hormones are widely used in American feedlots.<a href="#_ftn18"><sup>18</sup></a> However, China adopted a regulation in 2002 that banned the synthetic hormones that are legal in the United States and also tightened the rules for beef treated with natural hormones.<a href="#_ftn19"><sup>19</sup></a> These restrictions limit the amount of U.S. beef eligible to be sold in China. (The U.S. Meat Export Federation estimates that roughly 3 percent of current production would meet China's requirements.)<a href="#_ftn20"><sup>20</sup></a> In contrast, South American countries do not use hormone treatments for their cattle.<a href="#_ftn21"><sup>21</sup></a></p> <p>Finally, in order to be sold in China, U.S. beef must meet certain traceability requirements: beef products must be uniquely identified and controlled, and cattle must be traceable at each stage of production that has occurred within the United States.<a href="#_ftn22"><sup>22</sup></a> Right now, only 15 percent of U.S. producers meet these traceability requirements.<a href="#_ftn23"><sup>23</sup></a> In comparison, Australia, New Zealand, Uruguay, and Argentina all have mandatory traceability systems. Brazil does not have a nationwide traceability system but makes traceability mandatory for beef-export production.<a href="#_ftn24"><sup>24</sup></a></p> <p>In sum, the U.S. beef industry will see some increased export sales to China as a result of the 100-Day Action Plan. But it will also face an uphill battle for market share due to the remaining barriers.</p> <p><strong>NEGOTIATING AN FTA</strong><br />After the 100-Day Action Plan, the United States and China were supposed to start the negotiation of a one-year plan during the first Comprehensive Economic Dialogue on July 19, 2017. Unfortunately, that meeting did not yield any breakthroughs. The visit by President Trump and Secretary Ross to China in November will provide another opportunity for progress.</p> <p>While it is helpful to address smaller lingering issues, such as those in the 100-Day Action Plan, putting these unconnected issues in simple and short declarations within a brief, unenforceable document does not constitute a broader trade strategy. Instead, the United States should consider negotiating a deep and comprehensive FTA with China.</p> <p>An FTA negotiation will be an opportunity to address Chinese tariffs on beef and other products and to take on nontariff barriers as well. An FTA provides a stable and predictable legal framework, including an enforcement mechanism. It also offers a forum for future discussion of trade issues, including sensitive conversations about regulatory differences. For example, in the FTA negotiations (or subsequent discussions after completion of an FTA), the United States could try to convince China to drop its ban on hormone-treated beef.</p> <p>Aside from beef, an FTA negotiation would create a starting point for the United States to bring China's laws and regulatory practices more in line with international norms on other issues, such as intellectual property protection, stateowned enterprises, technology transfer, cybersecurity, and cross-border data transfers. Intellectual property and technology transfer have been particular areas of concern, and in September, the Office of the U.S. Trade Representative initiated an investigation under Section 301 of the Trade Act of 1974 into these issues. There is no doubt that negotiations here would be difficult. However, just sitting down to talk in a serious manner could help each side better understand the other's perspective. And if an agreement could be reached in this area, it would pave the way for more trade and investment and lead to greatly improved relations between the two countries.</p> <p><strong>CONCLUSION</strong><br />While the 100-Day Action Plan did constitute progress, China and the United States appear to be at an impasse again on trade, making the next steps unclear. The Trump administration needs to develop a more comprehensive approach to trade liberalization with China in order to accomplish something more substantial. The beef deal offers an illustration of the limited market impact of small deals. More fundamental and systemic issues, such as tariffs and the wide range of nontariff barriers, play a large role in international trade and cannot be resolved with quick meetings and dialogues.</p> <p>In beef and other sectors, if the United States wants to achieve liberalization of the Chinese market, it needs to consider deeper engagement, and it must be willing to negotiate. An FTA negotiation presents an opportunity for the two nations to sit down and discuss tariffs and nontariff issues, exchange views, and make compromises. Some countries have already done this with China, and more are following their lead. When the rest of the world is negotiating trade agreements, American businesses will be better off if the United States is in the game rather than sitting on the sidelines.</p> <p><strong>NOTES</strong></p> <p><a name="_ftn1" id="_ftn1"></a>1. Department of Commerce Trade Mission to China, Export. gov, <a href="https://www.export.gov/Chinamission2017">https://www.export.gov/Chinamission2017</a>.</p> <p><a name="_ftn2" id="_ftn2"></a>2. Simon Lester and Huan Zhu, “It's Time to Negotiate a New Economic Relationship with China,” Cato Institute Free Trade Bulletin no. 70, April 4, 2017, <a href="https://www.cato.org/publications/free-tradebulletin/its-time-negotiate-new-economic-relationship-china">https://www.cato.org/publications/free-tradebulletin/its-time-negotiate…</a>.</p> <p><a name="_ftn3" id="_ftn3"></a>3. Damian Paletta and Simon Denyer, “Trump, China Reach Preliminary Trade Agreements on Beef, Poultry,” <em>Washington Post</em>, May 11, 2017, <a href="https://www.washingtonpost.com/news/wonk/wp/2017/05/11/trump-china-reach-preliminary-trade-agreements-on-beef-poultry/">https://www.washingtonpost.com/news/wonk/wp/2017/05/11/trump-china-reac…</a>.</p> <p><a name="_ftn4" id="_ftn4"></a>4. Aaron Kruse, “100-Day Deal Deadline Scorecard,” <em>AmCham China</em>, July 13, 2017, <a href="https://www.amchamchina.org/news/100-day-deal-deadline-scorecard">https://www.amchamchina.org/news/100-day-deal-deadline-scorecard</a>.</p> <p><a name="_ftn5" id="_ftn5"></a>5. Paletta and Denyer, “Trump, China Reach Preliminary Trade Agreements on Beef, Poultry.”</p> <p><a name="_ftn6" id="_ftn6"></a>6. “China Takes Delivery of First Shipments of American Beef in 14 Years,” Reuters, June 23, 2017, <a href="https://www.reuters.com/article/us-china-usa-beef/china-takes-delivery-of-first-shipments-ofamerican-beef-in-14-years-idUSKBN19E15G">https://www.reuters.com/article/us-china-usa-beef/china-takes-delivery-…</a>.</p> <p><a name="_ftn7" id="_ftn7"></a>7. Data are derived from the Organisation for Economic Cooperation and Development Database, “Meat Consumption,” <a href="https://data.oecd.org/agroutput/meat-consumption.htm">https://data.oecd.org/agroutput/meat-consumption.htm</a>.</p> <p><a name="_ftn8" id="_ftn8"></a>8. “Countries Move to Ban U.S. Beef,” CNN, December 23, 2006, <a href="http://www.cnn.com/2003/BUSINESS/12/23/japan.madcow.reax/">http://www.cnn.com/2003/BUSINESS/12/23/japan.madcow.reax/</a>; “US Beef Imports Banned in BSE Alert,” <em>Daily Mail</em>, <a href="http://www.dailymail.co.uk/news/article-204628/US-beef-imports-bannedBSE-alert.html">http://www.dailymail.co.uk/news/article-204628/US-beef-imports-bannedBS…</a>.</p> <p><a name="_ftn9" id="_ftn9"></a>9. Mexico allowed these imports within the year; beef exports to Japan and South Korea resumed in 2006 and 2007, respectively, and Brazil, Israel, and Saudi Arabia lifted their beef bans in 2016. See United States Department of Agriculture, “Trade,” April 26, 2017, <a href="https://www.ers.usda.gov/topics/animal-products/cattlebeef/trade/">https://www.ers.usda.gov/topics/animal-products/cattlebeef/trade/</a>; United States Trade Representative, “USTR Success Stories: Opening Markets for U.S. Agricultural Exports,” March, 2017, <a href="https://ustr.gov/about-us/policy-offices/press-office/factsheets/2017/march/ustr-success-stories-opening-markets-us">https://ustr.gov/about-us/policy-offices/press-office/factsheets/2017/m…</a>.</p> <p><a name="_ftn10" id="_ftn10"></a>10. “China-People's Republic of, Livestock and Products SemiAnnual, Chinese Consumers Substitute Burgers for Bacon in 2017,” U.S. Department of Agriculture, February 27, 2017, <a href="https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Livestock%20and%20Products%20Semi-annual_Beijing_China%20-%20Peoples%20Republic%20of_2-27-2017.pdf">https://gain.fas.usda.gov/Recent%20GAIN%20Publications/Livestock%20and%…</a>.</p> <p><a name="_ftn11" id="_ftn11"></a>11. “List of Countries or Regions that Meet the Requirements of the Assessment Review,” General Administration of Quality Supervision, Inspection, and Quarantine of the People's Republic of China, updated August 23, 2017, <a href="http://jckspaqj.aqsiq.gov.cn/xz/spxz/201303/t20130329_349307.htm">http://jckspaqj.aqsiq.gov.cn/xz/spxz/201303/t20130329_349307.htm</a>.</p> <p><a name="_ftn12" id="_ftn12"></a>12. Tom Hancock, “Trade Deal Whets China's Appetite for US Beef,” <em>Financial Times</em>, May 31, 2017, <a href="https://www.ft.com/content/acd521ae-404d-11e7-9d56-25f963e998b2">https://www.ft.com/content/acd521ae-404d-11e7-9d56-25f963e998b2</a>.</p> <p><a name="_ftn13" id="_ftn13"></a>13. “Duties by Country 2017,” U.S. Meat Export Federation, <a href="https://www.usmef.org/downloads/Duties-by-Country-2017.pdf">https://www.usmef.org/downloads/Duties-by-Country-2017.pdf</a>.</p> <p><a name="_ftn14" id="_ftn14"></a>14. Australian Department of Foreign Affairs and Trade, China-Australia Free Trade Agreement, <a href="http://dfat.gov.au/trade/agreements/chafta/official-documents/pages/official-documents.aspx">http://dfat.gov.au/trade/agreements/chafta/official-documents/pages/off…</a>.</p> <p><a name="_ftn15" id="_ftn15"></a>15. New Zealand Ministry of Foreign Affairs &amp; Trade, New Zealand-China FTA Agreement, <a href="https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agreements-in-force/nz-chinafree-trade-agreement/text-of-the-new-zealand-china-fta-agreement/">https://www.mfat.govt.nz/en/trade/free-trade-agreements/free-trade-agre…</a>.</p> <p><a name="_ftn16" id="_ftn16"></a>16. “Uruguay Seeks to Advance FTA Talks with China,” <em>China Daily</em>, February 3, 2017, <a href="http://www.chinadaily.com.cn/business/2017-02/03/content_28092515.htm">http://www.chinadaily.com.cn/business/2017-02/03/content_28092515.htm</a>.</p> <p><a name="_ftn1" id="_ftn1"></a>17. Marie-Danielle Smith, “Free Trade with China to Be Decided This Fall,” <em>National Post</em>, September 7, 2017, <a href="https://www.pressreader.com/canada/national-post-nationaledition/20170907/281642485324206">https://www.pressreader.com/canada/national-post-nationaledition/201709…</a>.</p> <p><a name="_ftn18" id="_ftn18"></a>18. The FDA allows two types of synthetic hormones, trenbolone acetate and zeranol, as well as the naturally occurring hormones estradiol, progesterone, and testosterone, to be used in cattle. See U.S. Food &amp; Drug Administration, “Steroid Hormone Implants Used for Growth in Food-Producing Animals,” <a href="https://www.fda.gov/animalveterinary/safetyhealth/productsafetyinformation/ucm055436.htm">https://www.fda.gov/animalveterinary/safetyhealth/productsafetyinformat…</a>.</p> <p><a name="_ftn19" id="_ftn19"></a>19. “Veterinary Drug Maximum Residue Limits in Food of Animal Origin,” China Department of Agriculture, no. 235 Notice, December 24, 2002, <a href="http://www.lnciq.gov.cn/nsjg/sjch/ywcs/201202/P020120202420005927252.doc">http://www.lnciq.gov.cn/nsjg/sjch/ywcs/201202/P020120202420005927252.doc</a>.</p> <p><a name="_ftn20" id="_ftn20"></a>20. The information is from personal email exchanges between the authors and analysts with the U.S. Meat Export Federation, based on USMEF trade hearings and various industry estimates.</p> <p><a name="_ftn21" id="_ftn21"></a>21. Michael J. McConnell and Kenneth Mathews, “Global Market Opportunities Drive Beef Production Decisions in Argentina and Uruguay,” April 1, 2008, U.S. Department of Agriculture Economic Research Service, <a href="https://www.ers.usda.gov/amber-waves/2008/april/global-market-opportunities-drive-beef-productiondecisions-in-argentina-and-uruguay/">https://www.ers.usda.gov/amber-waves/2008/april/global-market-opportuni…</a>; “Growth-promoting implants, fed antibiotics and beta-agonists are not being embraced in South America as a result of widespread consumer concern.” Jason Ahola, “What U.S. Should Know about South American Beef Production,” <em>Progressive Cattleman</em>, February 24, 2014, <a href="http://www.progressivecattle.com/topics/management/6095-what-usshould-know-about-south-american-beef-production">http://www.progressivecattle.com/topics/management/6095-what-usshould-k…</a>.</p> <p><a name="_ftn22" id="_ftn22"></a>22. Cattle born in the United States must be identified before leaving the place of birth. If imported from Canada or Mexico, they must be traceable to the first place of residence. If imported from Canada or Mexico directly for slaughter, they must be traceable to the port of entry to the United States. “Export Verification (EV) Program: Specified Product Requirements for Bovine — People's Republic of China,” U.S. Department of Agriculture, <a href="https://www.ams.usda.gov/sites/default/files/media/QAD1030AAEVProgramforthePeoplesRepublicofChina.pdf">https://www.ams.usda.gov/sites/default/files/media/QAD1030AAEVProgramfo…</a>.</p> <p><a name="_ftn23" id="_ftn23"></a>23. Megan Durisin and Jeff Wilson, “U.S. Beef Exports to China Closer to Restarting,” <em>Bloomberg</em>, June 12, 2017, <a href="https://www.bloomberg.com/news/articles/2017-06-12/u-s-beef-exports-tochina-closer-to-restart-as-rules-published">https://www.bloomberg.com/news/articles/2017-06-12/u-s-beef-exports-toc…</a>; “Economics and Trade Bulletin, Highlights of This Month's Edition,” U.S.-China Economic and Security Review Commission, June 2, 2017, <a href="https://www.uscc.gov/sites/default/files/trade_bulletins/June%202017%20Trade%20Bulletin.pdf">https://www.uscc.gov/sites/default/files/trade_bulletins/June%202017%20…</a>.</p> <p><a name="_ftn24" id="_ftn24"></a>24. “Beef Traceability: A Look at Programs around the World,” <em>Cattle Business Weekly</em>, September 21, 2016, <a href="https://cattlebusinessweekly.com/Content/Headlines/-Headlines/Article/Beef-TraceabilityA-look-at-programs-around-the-world/1/1/8350">https://cattlebusinessweekly.com/Content/Headlines/-Headlines/Article/B…</a>.</p> </div> Wed, 08 Nov 2017 09:09:00 -0500 Simon Lester, Huan Zhu https://www.cato.org/publications/free-trade-bulletin/wheres-beef-finding-better-way-resolve-us-china-trade-conflicts Europe’s Anti‐​GMO Stance Is Killing Africans https://www.cato.org/publications/commentary/europes-anti-gmo-stance-killing-africans Marian L. Tupy <div class="lead text-default"> <p>Fifteen years ago,&nbsp;<em>The Economist</em>&nbsp;ran an&nbsp;<a href="http://www.economist.com/node/1337197" target="_blank">article</a>&nbsp;headlined “Better dead than GM‐​fed?” It focused on the refusal of some African countries to allow imports of American food aid, because it contained genetically modified organisms (GMOs). This was when extreme hunger threatened some 15 million people, before Africa’s decade of economic growth spurred by high commodity prices as well as some economic reforms.</p> </div> , <div class="text-default"> <p>Some of the reasons for the refusal of U.S. food aid, such as Zambia’s then‐​president Levy Mwanawasa’s statement that GMOs were “poison,” were just silly. American’s have been eating GMO foods for decades and there is not an iota of evidence that GMOs are detrimental to health. Other reasons were more serious.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The cost of Africa’s refusal to grow GMO crops are incredible in human health and economic terms.</p> </div> </div> </aside> , <div class="text-default"> <p>Much of Africa’s agricultural produce is still destined for Europe and the European Union has been waging a&nbsp;war on GMO foods for decades. The reasons for the EU’s anti‐​GMO stance, ostensibly, are health concerns. In reality, the EU is trying to protect its farmers against their more productive American competitors. Thus, were the U.S. food aid inadvertently to “contaminate” Africa’s crops, Africans would be in trouble.</p> <p>While imports of GMOs are not barred from Europe by law, the EU food labelling system obliges companies to indicate if the food or feed they produce contains GMOs. This labelling applies when GMOs account for at least 0.9 percent of the food or the feed. Since Europeans have been brainwashed into believing that GMO foods are unsafe, scary labelling could dampen European demand for African agricultural produce. As such, much of Africa has not only refused to grow GMOs, but also refused U.S. food aid.</p> <p>Today, scholars can estimate the cost of Africa’s refusal to grow GMO crops. According to a&nbsp;recent&nbsp;<a href="http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0181353">study</a>&nbsp;in the journal&nbsp;<em>PLoS One</em>, delays in the introduction of disease‐​resistant cooking banana (matoke), insect‐​resistant cow pea, and corn (maize) “have resulted in significant economic and human health costs, including malnutrition and stunting.”</p> <p>“If Kenya had adopted GE [genetically engineered] corn in 2006,” the study estimates, “between 440 and 4,000 lives could theoretically have been saved. Similarly, Uganda had the possibility in 2007 to introduce the black sigatoka resistant banana, thereby potentially saving between 500 and 5,500 lives over the past decade.”</p> <p>Each year of delay in the introduction of GMO crops to Africa increases the death count as well as revenue loss for African farmers. For example, insect‐​resistant Bt cowpea was supposed to become available to farmers in Benin, Niger and Nigeria this year. The authors of the study worry that anti‐​biotech activists could delay its introduction or postpone it indefinitely.</p> <p>“A one‐​year delay in approval [of the insect‐​resistant Bt cowpea],” they estimate, “would especially harm Nigeria, as malnourishment is widespread there… [and] cost Nigeria about 33 million USD to 46 million USD and between 100 and 3,000 lives.”</p> <p>European restrictions on GMOs, the study argues, have serious costs. The same, however, goes for EU and U.S. agricultural subsidies, which undermine their African competitors and cost European and American taxpayers billions of dollars each year. I&nbsp;have a&nbsp;better idea. Let’s keep our money and let African compete with us on an even playing fiel</p> </div> Wed, 06 Sep 2017 09:20:00 -0400 Marian L. Tupy https://www.cato.org/publications/commentary/europes-anti-gmo-stance-killing-africans Why It Would Be Madness to Produce All Our Own Food https://www.cato.org/publications/commentary/why-it-would-be-madness-produce-all-our-own-food Ryan Bourne <div class="lead text-default"> <p><a href="http://www.bbc.co.uk/news/business-38995446" target="_blank">In a&nbsp;somewhat bizarre report</a>, the UK supermarket Morrisons has pushed the idea that Britain would be better off if the country grew more of its own food. According to the supermarket, more domestic production would bring significant benefits, not least insulating consumers from global price volatility.</p> </div> , <div class="text-default"> <p>This is a&nbsp;remix of an old protectionist tune: the idea that opening up markets to global trade makes an economy considerably more volatile and “risky”. It is a&nbsp;variation of the claim that we desire “food security” or “energy security” — the capacity to fulfil all our wants and needs through domestic production alone. It often manifests itself with support for “buying local” or “buying British” or, more recently “Buy American”, as articulated by the new President.</p> <p>No doubt this argument has more resonance given the&nbsp;<a href="http://www.bbc.co.uk/news/uk-38851097" target="_blank">recent iceberg lettuce shortage</a>&nbsp;in the UK, following unusual weather in Spain. If only the UK produced its own lettuce, and did not depend on those unreliable Spaniards, it would surely enjoy security of supply?</p> <p>When considering reasoning such as this, it always makes sense to test whether the idea is scalable, up or down. Suppose that rather than saying “Britain should become more self‐​sufficient in food production”, we said, “Ryan Bourne’s family should become more self‐​sufficient in food production”.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>This is a&nbsp;remix of an old protectionist tune: the idea that opening up markets to global trade makes an economy considerably more volatile and “risky”.</p> </div> </div> </aside> , <div class="text-default"> <p>Rather than trading through exchanging cash for food products in a&nbsp;supermarket, in this world I&nbsp;would have to produce all my own food. I&nbsp;perhaps would have a&nbsp;herd of cattle, rent out a&nbsp;part of an allotment, use a&nbsp;greenhouse, invest in tools for my garden and vegetable patch and start growing a&nbsp;whole range of different foodstuffs.</p> <p>Let’s put aside the one‐​off capital purchases. The first thing to admit is that I&nbsp;would be hopeless at it. I&nbsp;don’t have a&nbsp;clue how to grow anything. Diverting resources into growing my own crops would probably be&nbsp;extremely inefficient with low yields for substantial effort.</p> <p>Given that I&nbsp;would be tending to my food production, I&nbsp;would also spend far less time doing other things that I&nbsp;am far better at, not least writing these kinds of articles.</p> <p>If substantial numbers of people were cajoled into producing their own foodstuff, then these costs — the inefficiency plus the loss of production elsewhere — would add up substantially across the whole economy.</p> <p>The same would be true if we decided all goods should be produced locally in my home town of Gillingham, in Kent, or even to the county itself. If significant inputs to production had to be substituted from service industries and apple production to instead produce all agricultural foodstuffs irrespective of the costs of doing so, then there would be a&nbsp;huge loss of overall production.</p> <p>So why do we believe that things would be different if we restricted production to a&nbsp;particular nation and decided we would only buy goods produced nationally?</p> <p>Not only would there be an absence of certain products which simply could not be produced in the UK. But goods prices would be higher owing to less competition, and total production would be much smaller because the economy as a&nbsp;whole would not be diverting resources into industries and products which we had comparative advantages in producing.</p> <p>In other words, protection, or restricting trade to local trade, would hurt both consumers and overall production. The only theoretical beneficiaries would be some producers within protected product markets who saw import‐​substitution demand rise as a&nbsp;result of import restrictions. And even here the absence of more competition is likely to reduce productivity improvements over time.</p> <p>Take, as an example, the recently discussed&nbsp;<a href="http://dailysignal.com/2016/09/22/what-happened-when-new-zealand-got-rid-of-government-subsidies-for-farmers/" target="_blank">New Zealand farming reforms of the 1980s</a>. Far from protection enhancing well‐​being, the evidence shows that subsidies undermined the productive potential of the sector. Practically all forms of assistance to New Zealand’s farmers were withdrawn over a&nbsp;period of five years in the 1980s.</p> <p>Big changes occurred — the sheep stock halved and beef and sheep farms fell by a&nbsp;third. But larger herd sizes and increases in lambing rates made the remaining farms much more productive, while production of fruits and wines grew sharply and a&nbsp;venison industry developed. The country now has a&nbsp;healthy and more productive agricultural sector, highly responsive to global demands and trading at world prices.</p> <p>This is an essential insight of trading that has been known since the days of Adam Smith. We can increase the size of the economy through specialisation and the division of labour — with people producing those things that they are relatively efficient at doing.</p> <p>This process is enhanced when we remove barriers within a&nbsp;nation or between nations to trade. Protectionism is costly. There’s a&nbsp;reason why, in times of war, countries have blockaded others. Hint: no country blockades another in the expectation that it would boost the local blockaded economies.</p> <p>But the costs do not just stop there. Contrary to the Morrisons report, deliberately seeking to shift to “local production” would not produce more certainty or security either. Returning to Ryan Bourne’s independent food production story, suppose that a&nbsp;bad harvest or a&nbsp;plant disease wiped out a&nbsp;substantial part of my food production in a&nbsp;given year.</p> <p>Absent the ability or willingness to trade, I&nbsp;would simply go without, and would not be able to consume those foodstuffs which I&nbsp;enjoy. In an attempt to improve security through all local production, I&nbsp;would have maximum insecurity of consumption. The same can be seen in the Spanish lettuce example. Were Spain to implement a “buy local lettuce” law, then the failing harvest of lettuces would result in skyrocketing prices and lower sales.</p> <p>The UK had some experience of this attempt to have “energy security” with its attempts to protect the coal industry through the 1970s and early 1980s. Far from ensuring “security of supply”, protection led to the monopoly power of the mining industry and the unions, resulting in strikes and constant threats of strikes that made energy supplies less, not more, secure.</p> <p>When the sector was liberated and support withdrawn, energy prices fell significantly as consumers were able to import much cheaper natural gas. Since then, supplies have been much steadier as they have been more diverse.</p> <p>A reliance on imports does not make an economy more at risk, because markets provide security in the same way that they provide other attributes of products which consumers consider valuable.</p> <p>If customers want their supply of any given product to be “secure” through continuous availability then supermarkets have to diversify their supply arrangements with a&nbsp;range of producers from across countries, which will be reflected through the prices of the goods on supermarket shelves. They might also invest in extra freezing and refrigeration units, for example.</p> <p>What about instances where governments react to rising international prices or supply shocks by imposing export restrictions to keep prices lower in domestic markets? Surely we can have the best of both worlds: trading freely in normal times but then protecting consumers when a&nbsp;crisis hits?</p> <p>Evidence in fact suggests that when one country starts doing this, all countries do, exacerbating the initial supply shock and leading to spiralling overall prices. This should not surprise us, since prices set freely provide signals on the shortages or surpluses of products which leads to adjustments in behaviour.</p> <p>The only semi‐​feasible reason why one might seek domestic self‐​sufficiency would be if you believed there was a&nbsp;high possibility of mass mobilisation war.</p> <p>Yet a&nbsp;substantial empirical literature has shown that trade and the interdependence it generates actually makes conflict less likely. And, frankly, if World War III happens then we’d have bigger problems than the availability of lettuce.</p> </div> Mon, 27 Feb 2017 11:01:00 -0500 Ryan Bourne https://www.cato.org/publications/commentary/why-it-would-be-madness-produce-all-our-own-food 43. Agricultural Policy https://www.cato.org/cato-handbook-policymakers/cato-handbook-policy-makers-8th-edition-2017/agricultural-policy <div class="text-default"> <p><strong><em>Congress should</em></strong></p> </div> , <div class="text-default"> </div> , <blockquote class="blockquote"> <div> <p>• phase out farm subsidy programs because they are harmful to taxpayers, the economy, and the environment; and<br>• eliminate trade protections on agricultural goods while working to pursue liberalization in global markets.</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>The U.S. Department of Agriculture (USDA) spends $25 billion or more a&nbsp;year on subsidies for farm businesses. The particular amount each year depends on the market prices of crops, the level of disaster payments, and other factors. Most agricultural subsidies go to farmers of a&nbsp;handful of major crops, including wheat, corn, soybeans, and cotton. Roughly a&nbsp;million farmers and landowners receive federal subsidies, but the payments are heavily tilted toward the largest producers.</p> <p>Some farm subsidy programs counter adverse fluctuations in prices, revenues, and production. Other programs subsidize farmers’ conservation activities, insurance coverage, product marketing, export sales, research and development, and other activities. Agriculture is no riskier than many other industries, yet the government has created a&nbsp;uniquely large welfare system for farmers.</p> <p>In 1996, Congress enacted some pro‐​market reforms under the “Freedom to Farm” law. The law allowed farmers greater flexibility in planting and moved toward reliance on market supply and demand. But Congress reversed course in the late 1990s and passed a&nbsp;series of supplemental farm subsidy bills. As a&nbsp;result, subsidies that were expected to cost $47 billion over the seven years of the 1996 law ended up costing $121 billion. In 2002, Congress enacted a&nbsp;farm bill that further reversed the 1996 reforms. The law increased projected subsidy payments, added new crops to the subsidy rolls, and created a&nbsp;new price guarantee scheme called the “countercyclical” program. In 2008, Congress overrode a&nbsp;presidential veto to enact farm legislation that added further subsidies. The law created a&nbsp;permanent disaster program and added a&nbsp;revenue protection program for farmers to lock in profits from high commodity prices. It added a&nbsp;sugar‐​to‐​ethanol program to help keep sugar prices artificially high, and it added new subsidies for “specialty crops” such as fruits and vegetables.</p> <p>In 2014, Congress passed yet another huge farm bill. The bill changed the structure of subsidies but did not cut the overall level of benefits. The law ended the direct payment program, the countercyclical program, and the Average Crop Revenue Election program. However, it expanded the largest farm subsidy program — crop insurance — and added two new subsidy programs, the Agricultural Risk Coverage (ARC) program and the Price Loss Coverage (PLC) program. When the 2014 farm bill was passed, supporters claimed that it would save taxpayer money, but the opposite has happened. The Congressional Budget Office now estimates that the ARC and PLC programs will cost billions of dollars a&nbsp;year more than originally promised. The cost of crop insurance is also rising.</p> <p>All of these subsidies ensure that farm incomes are much higher than the incomes of most other Americans. Farm programs are welfare for the well‐​to‐​do, and they induce overproduction, inflate land prices, and harm the environment. They should be ended, and American farmers should stand on their own two feet in the marketplace.</p> <h2><em>Eight Types of Farm Subsidy</em></h2> <p><em>1. Insurance.</em> Crop insurance run by the USDA’s Risk Management Agency has become the largest farm program, with annual outlays of about $8 billion. Subsidized insurance protects against various business risks, such as adverse weather, low production, and low revenues. It covers more than 100 crops, but corn, cotton, soybeans, and wheat are the main ones. It subsidizes both insurance premiums and the administrative costs of the 19 private insurance companies that offer policies to farmers. The companies receive the subsidies and earn excess profits from the high premiums they charge; but farmers also benefit because the USDA pays about 60 percent of their premium costs, according to the Government Accountability Office (GAO). Indeed, economist Bruce Babcock finds that most farmers make money on insurance over time, receiving more in claims payouts than they pay in premiums. Congress channels the largest portion of farm subsidies through the insurance program to obscure the identities of the wealthy recipients. Under prior farm programs, news stories often identified the millionaires receiving farm subsidies, which was embarrassing to Congress. Insurance subsidies are less transparent and have no income limits, and so Congress has expanded the program over the years.</p> <p><em>2. Agricultural Risk Coverage (ARC).</em> This program pays subsidies to farmers if their revenue per acre, or alternatively their county’s revenue per acre, falls below a&nbsp;benchmark or guaranteed amount. Generally, the lower the prices and revenues are, then the larger the subsidies paid out are. More than 20 crops are covered, from wheat and corn to chickpeas and mustard. ARC subsidies fluctuate, but they were about $7 billion in 2016.</p> <p><em>3. Price Loss Coverage (PLC).</em> This program pays subsidies to farmers based on the average national price of each particular crop compared with the crop’s reference price. The larger the fall in a&nbsp;crop’s price below its reference price, the larger the payout to farmers. PLC subsidies also cover more than 20 crops. PLC subsidies fluctuate, but they were about $2 billion in 2016.</p> <p><em>4. Conservation programs.</em> The USDA runs many farm conservation programs, which cost taxpayers more than $5 billion a&nbsp;year. The largest is the Conservation Reserve Program, which pays farmers about $1.7 billion a&nbsp;year to keep millions of acres of their land out of production.</p> <p><em>5. Marketing loans.</em> This program was created during the New Deal. The original idea was to give farmers a&nbsp;loan at harvest time so that they could hold their crops to sell at a&nbsp;higher price later on. But the program has evolved into just another subsidy program that delivers higher payments to farmers when market prices are low. These subsidies cost about $400 million in 2016.</p> <p><em>6. Disaster aid.</em> The government operates various disaster aid programs for many types of farmers, from wheat growers, to livestock producers, to tree fruit producers. In addition to permanent disaster programs, Congress sometimes distributes additional aid after adverse events. Disaster and supplemental aid costs about $1 billion to $2 billion a&nbsp;year.</p> <p><em>7. Marketing and export promotion.</em> The Agriculture Marketing Service spends about $1.2 billion a&nbsp;year on farm and food promotion activities. The Foreign Agricultural Service spends about $1.4 billion a&nbsp;year on a&nbsp;range of activities, including marketing U.S. farm and food products abroad through 93 foreign offices.</p> <p><em>8. Research and other support.</em> Most American industries fund their own research and development, but the government employs thousands of scientists and other experts to aid the agriculture industry. The USDA spends about $3 billion a&nbsp;year on agriculture and food research at more than 100 locations. The department also provides many other services, such as loan programs for farmers, statistical services, and economic studies.</p> <h2><em>Six Reasons to Repeal Farm Subsidies</em></h2> <p><em>1. Subsidies redistribute wealth upward.</em> Farm subsidies transfer the earnings of taxpayers to well‐​off farm businesses and landowners. USDA data show that farm incomes have soared far above average U.S. incomes. In 2014, the average income of farm households was $134,164, which was 77 percent higher than the $75,738 average of all U.S. households. The same year, the median income of farm households was $81,637, which was 52 percent higher than the U.S. median of $53,657.</p> <p>Although farm programs are advertised as support for small farmers, most subsidies go to the largest farms. Economist Vincent Smith found that the largest 15 percent of farm businesses receive more than 85 percent of all farm subsidies. Over the years, many well‐​known billionaires have received farm subsidies because they are the owners of farmland. Prior to the 2014 farm bill, the Environmental Working Group (EWG) found that 50 people on the Forbes 400 list of the wealthiest Americans received farm subsidies. The new farm bill channels the largest share of subsidies through insurance companies, making it hard to determine the identities of recipients. But in 2015, the GAO found that at least four recipients of crop insurance subsidies have a&nbsp;net worth of more than $1.5 billion.</p> <p><em>2. Subsidies damage the economy.</em> The extent of federal coddling and micromanagement of the agriculture industry is unique. In most industries, market prices balance supply and demand, profits steer investment, businesses take risks, and entrepreneurs innovate to improve quality and reduce costs. Those market mechanisms are blunted and undermined in U.S. agriculture, causing a&nbsp;range of economic harms, including overproduction, distorted land use, distorted choice of crops, inflated land prices, and inadequate cost control.</p> <p><em>3. Subsidies are prone to scandal.</em> Like all government subsidy programs, farm programs are subject to both bureaucratic waste and recipient fraud. One problem is that some farm subsidies are paid improperly as farmers create business structures to get around legal subsidy limits. Another problem is that Congress and the USDA distribute disaster payments in a&nbsp;careless manner, with payments going to farmers who do not need them. The EWG found another boondoggle: the “prevented planting” program covers losses if conditions during a&nbsp;season prevent farmers from planting some areas. EWG found that billions of dollars over the years have been paid to farmers who would not normally have planted the areas included in their USDA claims.</p> <p><em>4. Subsidies undermine U.S. trade relations.</em> Global stability and U.S. security are enhanced when less developed countries achieve economic growth. America can help by encouraging poor nations to adopt free markets and expand their international trade. However, U.S. and European farm subsidies and agricultural import barriers undermine progress on achieving open trading relationships. Federal sugar protections block freer trade within the Americas, for example, while enriching sugar growers and harming U.S. consumers and U.S. food companies that use sugar.</p> <p><em>5. Subsidies harm the environment.</em> Federal farm policies damage the natural environment in numerous ways. For example, subsidies cause overproduction, which draws lower‐​quality farmlands into active production. As a&nbsp;result, areas that might otherwise have been used for parks, forests, grasslands, and wetlands get locked into less efficient agricultural use. Subsidies are also thought to induce excessive use of fertilizers and pesticides. Producers on marginal lands that have poorer soils and climates tend to use more fertilizers and pesticides, which can cause water contamination problems. Sugar cane production has expanded in Florida because of the federal sugar program, for example, and the phosphorous in fertilizers used by the growers causes damage to the Everglades.</p> <p><em>6. Agriculture would thrive without subsidies.</em> If U.S. farm subsidies were ended and agricultural markets deregulated, farming would change. Different crops would be planted, land usage would change, and some farm businesses would contract while others would expand. But a&nbsp;stronger and more innovative industry would emerge with greater resilience to market fluctuations. Private insurance, other financial tools, and diversification would help cover risks, as they do in other industries.</p> <p>An interesting example of farmers prospering without subsidies is New Zealand. In 1984, New Zealand ended its farm subsidies, which was a&nbsp;bold stroke because the country is four times more dependent on farming than is the United States. The changes were initially met with resistance, but New Zealand farm productivity, profitability, and output have soared since the reforms. New Zealand farmers cut costs, diversified land use, sought nonfarm income, and developed niche markets such as kiwi fruit. The Federated Farmers of New Zealand argues that that nation’s experience “thoroughly debunked the myth that the farming sector cannot prosper without government subsidies.” That myth needs to be debunked in the United States as well.</p> <h2><em>Suggested Readings</em></h2> <p>Babcock, Bruce A. <em><a href="http://www.ewg.org/research/crop-insurance-lottery">Crop Insurance: A&nbsp;Lottery That’s a&nbsp;Sure Bet</a></em>. Washington: Environmental Working Group, February 2016.</p> <p>Cato Institute. “<a href="https://www.downsizinggovernment.org/agriculture">Department of Agriculture.</a>” Down​siz​ing​Gov​ern​ment​.org.</p> <p>Coleman, Robert. “<a href="http://www.ewg.org/agmag/2016/04/rich-get-richer-50-billionaires-got-federal-farm-subsidies">The Rich Get Richer: 50 Billionaires Got Federal Farm Subsidies.</a>” Environmental Working Group <em>AgMag</em>, April 18, 2016.</p> <p>Cox, Craig, Soren Rundquist, and Anne Weir. <em><a href="http://www.ewg.org/research/boondoggle">Boondoggle: “Prevented Planting” Insurance Plows Up Wetlands, Wastes $Billions</a></em>. Washington: Environmental Working Group, April 28, 2015.</p> <p>Environmental Working Group. “<a href="http://www.ewg.org/key-issues/farming">Key Issues: Farming.</a>” <em>AgMag</em>.</p> <p>Government Accountability Office. “<a href="http://gao.gov/assets/670/669062.pdf">Crop Insurance: Reducing Subsidies for Highest Income Participants Could Save Federal Dollars with Minimal Effect on the Program.</a>” GAO-15–356, March 2015.</p> <p>—. “<a href="http://www.gao.gov/assets/670/664670.pdf">Farmers Have Been Eligible for Multiple Programs and Further Efforts Could Help Prevent Duplicative Payments.</a>” GAO-14–428, July 2014,</p> <p>O’Neil, Colin. “<a href="http://www.ewg.org/agmag/2016/04/are-billionaires-getting-crop-insurance-subsidies-we-still-don-t-know">Are Billionaires Getting Crop Insurance Subsidies?</a>” Environmental Working Group <em>AgMag</em>, April 28, 2016.</p> <p>Smith, Vincent H. “<a href="http://www.washingtonexaminer.com/cash-crop/article/2564098">Cash Crop.</a>” <em>Washington Examiner</em>, May 11, 2015.</p> <p>—. “<a href="http://www.usnews.com/opinion/economic-intelligence/articles/2016-01-14/farm-subsidies-are-crony-capitalism">Crony Farmers.</a>” <em>U.S. News &amp;&nbsp;World Report</em>, January 14, 2016.</p> <p>—. “<a href="http://www.aei.org/events/the-2014-farm-bill-a-midterm-review">A Midterm Review of the 2014 Farm Bill.</a>” American Enterprise Institute, February 10, 2016.</p> <p>U.S. Department of Agriculture, <a href="https://www.cato.org/www.ers.usda.gov/topics/farm-economy/farm-household-well-being.aspx">Economic Research Service</a>. Various data on farm incomes and subsidy payments.</p> </div> Thu, 16 Feb 2017 03:00:00 -0500 https://www.cato.org/cato-handbook-policymakers/cato-handbook-policy-makers-8th-edition-2017/agricultural-policy Food and Witches to Burn https://www.cato.org/publications/commentary/food-witches-burn Patrick J. Michaels <div class="lead text-default"> <p>A few hundred years ago, in the depths of the Little Ice Age, crops failed and people starved. Cool summers slowed growth, growing seasons were generally short, and low soil temperatures kept everything wet, possibly promoting the growth of hallucinogenic ergot molds on small grains such as wheat. </p> </div> , <div class="text-default"> <p>In this miasmatic world, medieval authorities determined that witches were the cause of the bad weather. So they burned them.</p> <p>You can question the logic. But is it any less goofy that — again because of the climate — burning food to make our cars run worse and use more gas?</p> <p>That’s what 100 percent ethyl alcohol made from corn, also known as ethanol, does. It has less energy than pure gas, so cars lose a&nbsp;mile or two per gallon burning the stuff. Hybrid cars that skimp on gas can lose much more because they tend to be underpowered to begin with. Burning 10 percent ethanol fuel, drivers have to mash the throttle to simply get them up to speed.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>There is literally nothing good coming out of our ethanol binge.</p> </div> </div> </aside> , <div class="text-default"> <p>Ethanol consumes a&nbsp;lot of corn. The current Environmental Protection Agency “mandates” result in 44 percent — or nearly half of the corn that we use domestically — being diverted from food and feed to ethanol.</p> <p>Ethanol does about as much for the climate of today as burning witches did about the Little Ice Age. A&nbsp;raft of recent science shows that it actually produces more carbon dioxide emissions in its life cycle than does burning pure gas. </p> <p>Opposition to ethanol is wide and deep. The respected pollster Celinda Lake finds that 56 percent of self‐​identified Republicans and a&nbsp;plurality of Democrats and Independents don’t like it. That’s why organizations ranging from the American Fuel &amp;&nbsp;Petrochemical Manufacturers to the Union of Concerned Scientists and Friends of the Earth have all come out swinging against corn‐​based ethanol mandates.</p> <p>So should anyone who cares about the world’s poor. Sure, here in the USA, most of us spend only a&nbsp;tiny portion of our income on food. In the underdeveloped world, the percent of income that just goes to food subsistence can run up to 80 percent.</p> <p>What we are doing has to raise food prices. We are the OPEC of corn, producing nearly 40 percent of the globe’s supply. We are therefore burning up approximately 18 percent of the world’s corn. Because of subsidies paid to ethanol producers, they can afford to pay top dollar to U.S. farmers, increasing the amount of land diverted from pasture or other crops, usually soybeans. That means other countries grow more beans, crowding out their corn land and further restricting the supply.</p> <p>It’s generally so lucrative to grow corn now that farmers plant from fencerow to fencerow. This wipes out the unplowed edges of fields that trap excess fertilizer before it can wash into the creek that eventually flows into the Gulf of Mexico, leaving a “dead zone” of overnutrified water for 6,500 square miles around the mouth of the Mississippi. In the East, ethanol contributes to the degradation of Chesapeake Bay, further imperiling its crab and oyster populations.</p> <p>To reiterate: the ethanol mandate comes from the United States Environmental Protection Agency. Earlier this month, the (Republican) Senate Banking Committee turned down a&nbsp;bill to stop it by a&nbsp;15–7 margin.</p> <p>The silliness is boggling. In 2011, Stanford scientists calculated that global warming has reduced global crop yields by one or two percent. (For context, please note that global food production has doubled in the last 30&nbsp;years). What this means is we are burning up more food than global warming takes away.</p> <p>Sensible people would say that it is right to stop nonsense, but the farm lobby is powerful, and corn‐​fed Iowa — the ethanol capitol of America — will reject any politician who dares utter a&nbsp;word against its Washington welfare.</p> <p>There is literally nothing good coming out of our ethanol binge. We are increasing world hunger, contributing more greenhouse gases, and — possibly most important of all — making our cars run yucky. There’s no good argument for corn ethanol. It’s witchcraft.</p> </div> Thu, 29 Oct 2015 10:13:00 -0400 Patrick J. Michaels https://www.cato.org/publications/commentary/food-witches-burn Antidumping Fowls Out: U.S.–South Africa Chicken Dispute Highlights the Need for Global Reform https://www.cato.org/publications/free-trade-bulletin/antidumping-fowls-out-us-south-africa-chicken-dispute-highlights K. William Watson <div class="lead text-default"> <p><strong>Introduction</strong></p> </div> , <div class="text-default"> <p>The United States and South Africa recently resolved a&nbsp;long‐​standing dispute over trade in chicken. Fifteen years ago, South African authorities, in response to domestic industry claims that American poultry farmers were “dumping” chicken meat in South Africa by selling at unfairly low prices, imposed antidumping tariffs on chicken from the United States. These duties were so high that American producers were locked out of the market entirely. The U.S. government has long claimed that those duties were improperly calculated.</p> <p>An agreement reached in June 2015 has now settled the dispute by establishing an import quota that enables U.S. producers to sell a&nbsp;set amount of chicken in South Africa without paying the antidumping duties. This sort of managed trade may be better than no trade, but the market is sure to remain politicized and inadequately competitive.</p> <p>The dispute aptly demonstrates the need for new international rules to rein in abusive antidumping practices. South African authorities relied on an illogical, result‐​oriented method for determining whether U.S. producers were “dumping” chicken. Nevertheless, the U.S. government continues to resist the kinds of reform proposals that would have prevented these duties from being imposed in the first place. U.S. exporters should be pressing Washington to join efforts to reform antidumping rules at the World Trade Organization.</p> <p><strong>Antidumping Abuse</strong></p> <p>Many countries have antidumping laws that enable their domestic industries to petition the government to impose special duties that will ostensibly remedy the effects of “unfair trade.” Antidumping duties are imposed if imports are being sold at prices below “normal value” and causing material injury to the domestic industry. Typically, normal value is considered to be the price at which a&nbsp;producer sells its product in its home market.<sup>1</sup></p> <p>Supporters of antidumping laws argue that price differences between markets demonstrate the existence of distortions at home that make producers unfairly competitive abroad. These distortions might be trade barriers, monopoly privileges, subsidies, or anything that prevents re‐​importation of low‐​priced exports from driving down home market prices.<sup>2</sup></p> <p>In reality, however, antidumping laws can be used to penalize all sorts of legitimate pricing practices.<sup>3</sup> For one thing, the existence of price discrimination is simply not sufficient to prove anticompetitive behavior or “unfair” conditions. But if foreign firms discriminate between markets or sell at prices below the cost of production — both common, legal, and often profit‐​maximizing choices of U.S. companies producing and selling in the United States — antidumping law deems it proof positive of the existence of foreign government policies that bestow unfair advantages on their exporters. Moreover, the complexity inherent in the administration of antidumping laws means that the authorities have discretion to make countless adjustments and approximations in their calculations.<sup>4</sup> As a&nbsp;result, dumping margins often bear little relationship to a&nbsp;producer’s own prices and are therefore not indicative of any market distortions or unfair practices.<sup>5</sup></p> <p><strong>South Africa’s Blatant Trick</strong></p> <p>The duties South Africa has imposed on imports of chicken from the United States for the last 15&nbsp;years are particularly egregious. The case offers a&nbsp;good example for how authorities can abuse the complexities of antidumping law to justify duties that have no meaningful relationship to actual market conditions.<sup>6</sup></p> <p>In South Africa, and many other countries, consumers prefer dark meat chicken (thighs and legs), while Americans have a&nbsp;strong preference for white meat (breasts and wings). As a&nbsp;result, U.S. chicken producers were able to sell certain dark meat chicken products for a&nbsp;higher price in South Africa than they could in the United States.</p> <p>If export prices are higher than home market prices, it would seem that there is no dumping. According to one study of the case, the average value of U.S. chicken producers’ exports to South Africa minus transportation costs exceeded the U.S. market price consistently throughout the period of investigation used by South African antidumping authorities.<sup>7</sup> Nevertheless, the South African Board of Tariffs and Trade imposed antidumping duties on U.S. chicken ranging from 209 percent to 375 percent.<sup>8</sup></p> <p>They were able to arrive at these high duty rates by ignoring U.S. producers’ home market sales and instead using a&nbsp;methodology known as “constructed value,” which estimates normal value by calculating cost of production and adding estimated amount for profit. The WTO Antidumping Agreement allows the use of constructed value in two circumstances.<sup>9</sup> Specifically, those circumstances are when (1) a “particular market situation” exists or (2) a&nbsp;lack of sufficient sales “in the ordinary course of trade” means that domestic sales “do not permit a&nbsp;proper comparison.” South African authorities claimed that both problems were present in the U.S. chicken market.<sup>10</sup></p> <p>First, they claimed that Americans’ peculiar and strong preference for white meat was so abnormal that it created a “particular market situation.” The authorities claimed that strong consumer preference for white meat caused the price for dark meat chicken in the United States to be “artificially low” and noted that U.S. production of dark meat was largely meant for overseas markets. These facts, they claimed, made U.S. dark meat prices inappropriate as a&nbsp;gauge of normal value.<sup>11</sup></p> <p>Second, they determined that U.S. producers’ sales of dark meat in the United States were not in the ordinary course of trade because they were made below the cost of production. In order to make that claim, however, authorities had to reject long‐​standing cost accounting methods of the U.S. chicken producers.</p> <p>The problem with determining the cost of producing dark meat is that you can’t get chicken legs without producing an entire chicken. Up until the animal’s parts are separated from each other, those parts incur joint costs of production. To determine the costs of producing just some of a&nbsp;chicken, you have to allocate those joint costs between the different parts. The most reasonable method is to allocate joint costs based on the relative value of the different end products.<sup>12</sup> The products that command a&nbsp;higher price are assigned a&nbsp;larger share of the joint costs. That’s how chicken producers do it in their own accounting records.</p> <p>The WTO Antidumping Agreement states: “costs shall normally be calculated on the basis of records kept by the exporter or producer under investigation, provided that such records are in accordance with the generally accepted accounting principles of the exporting country and reasonably reflect the costs associated with the production and sale of the product under consideration.“<sup>13</sup> South African authorities acknowledged that value‐​based cost allocation was consistent with accepted accounting principles but nevertheless decided that the method was unreasonable and chose to assign costs based on weight.<sup>14</sup></p> <p>Using weight‐​based cost allocation, South African authorities determined that most U.S. producers’ home market sales were made at prices below the cost of production. This meant that home market sales were generally not made “in the ordinary course of trade” and so could not serve as a&nbsp;proper comparison with export prices. They used that observation to justify the use of constructed value instead of home market prices to determine normal value.</p> <p>Remember that constructed value is ultimately based on costs of production. So using weight‐​based cost allocation not only enabled South African authorities to use constructed value, it also inflated that value, and by extension, the dumping margins by basing normal value on these unrealistic costs of production.</p> <p>It’s worth pointing out that this practice is not only abusive toward importers, it also contravenes the rationale for antidumping laws. The idea is that foreign producers benefitting from trade barriers or monopoly conditions in their own country are able to use those high profits to offset losses abroad, thus enabling them to consistently undersell domestic producers.<sup>15</sup> Higher prices in the home market are supposed to be evidence of a “sanctuary market” where higher‐​than‐​normal profits cross‐​subsidize lower‐​priced export sales.</p> <p>The existence of below‐​cost sales in the home market is direct evidence that there is no sanctuary market.<sup>16</sup> When authorities use a&nbsp;methodology that utilizes those sales in a&nbsp;way that increases dumping margins, they reveal just how illogical antidumping practice has become.</p> <p><strong>An Ill‐​Conceived Settlement</strong></p> <p>Fifteen years since the duties were first imposed, an agreement has now been reached that will restore limited market access for U.S. chicken in South Africa. Under the settlement, South Africa agreed to establish a&nbsp;large quota for imports of chicken from the United States that will be exempt from the antidumping duties.<sup>17</sup></p> <p>This result is certainly beneficial for U.S. chicken producers but it is far from ideal. For one thing, instituting a&nbsp;quota establishes a&nbsp;permanent regime for managed trade. The quota for imports of U.S. chicken will be set at 65,000 tons — only slightly more than the amount imported prior to the imposition of antidumping duties 15&nbsp;years ago.<sup>18</sup> South African authorities will have to decide who gets to import up to the quota limit and who gets left out. There is no fair or economically rational way to do that, so import licenses will be granted on the basis of political clout, bribery, or (at best) an arbitrary formula.</p> <p>Reports claim that South Africa will establish a&nbsp;review board to reconsider the quota on an annual basis and potentially raise it if the market for chicken consumption grows.<sup>19</sup> This set up enables authorities to operate like a&nbsp;cartel manager dividing up market share and managing prices. The result will inevitably be a&nbsp;market driven by established firms — both American and South African — lobbying to maintain and grow the value of their privileged access to consumers.</p> <p>Another troubling part of the settlement is the way that the United States pressured South Africa to finally make a&nbsp;deal. The agreement was reached shortly after Congress reformed the African Growth and Opportunity Act, a&nbsp;program that grants duty‐​free access to the U.S. market for a&nbsp;wide range of products from sub‐​Saharan Africa. The reforms, which were championed by members of Congress sympathetic to the chicken industry, make it more likely that South Africa (or any other country whose policies catch the ire of an American industry) could lose its benefits under the program.<sup>20</sup></p> <p><strong>The Need for Reform</strong></p> <p>Rather than merely pressuring South Africa to accept managed trade schemes, the U.S. government ought to be addressing the core problem of overly permissive antidumping rules at the WTO that enabled the chicken duties in the first place.</p> <p>The WTO’s Antidumping Agreement currently lays out the parameters within which national governments’ antidumping laws and regulations must operate. The purpose of the agreement is to prevent countries from abusing the antidumping process as a&nbsp;tool for ordinary protectionism. But those rules allow too much discretion on the part of national authorities.</p> <p>There is no shortage of ideas for how to improve the administration of national antidumping laws. The most recent work among WTO members has been to consider reforms aimed at increasing transparency, due process, and predictability.<sup>21</sup> A&nbsp;Cato Trade Policy Analysis from 2002 laid out a&nbsp;comprehensive list of 21 potential reforms to the WTO Antidumping Agreement that would help bring national antidumping practices into closer conformity with the rationale for antidumping laws. They include requiring evidence of market distortion, eliminating the cost test, revising the criteria for using constructed value, restricting various methodological abuses, and increasing the rigor and transparency of injury determinations.<sup>22</sup></p> <p>In particular, the proposals to eliminate the cost test — that is, the practice of weeding out home market sales sold at prices below the cost of production, which has the effect of artificially raising the average home market price or causing resort to constructed value as the basis for normal value — could have prevented South African authorities from imposing such high duties on U.S. chicken.</p> <p>Unfortunately, one of the greatest impediments to achieving global antidumping reform is the United States government. The U.S. trade negotiating agenda is staunchly opposed to any antidumping reform under domestic or international law. The recently passed Trade Promotion Authority bill includes as an objective “to preserve the ability of the United States to enforce rigorously its [antidumping] laws.“<sup>23</sup> That legislation also included special, more onerous procedures for considering agreements that require any changes to U.S. antidumping law.<sup>24</sup></p> <p>This is especially unfortunate because, like other forms of protectionism, U.S. antidumping laws are not good for the United States. They work to benefit a&nbsp;handful of U.S. industries at the expense of consumers and other U.S. manufacturers who rely on imported materials. Approximately 80 percent of U.S. antidumping measures are imposed on intermediate goods like steel and chemicals, driving up the prices downstream U.S. companies have to pay to get those materials.<sup>25</sup> Despite the argument of proponents that antidumping laws are needed to redress “unfair trade,” the fact is that antidumping laws, as they are currently applied, punish perfectly legitimate economic activity and drive up manufacturing costs, impeding U.S. economic growth and competitiveness.</p> <p>Moreover, U.S. exports are a&nbsp;prime target for foreign antidumping duties. Since 1995 the United States has been the fourth most common target of foreign antidumping actions.<sup>26</sup> And while antidumping was historically a&nbsp;tool used by developed countries, in recent years India, Brazil, and China have emerged as some of the most prolific users. For the developing and newly developed countries using antidumping, U.S. companies have been the biggest or second biggest target.<sup>27</sup></p> <p>Clearly, U.S. exporters have a&nbsp;strong interest in reining in antidumping abuse because current practices are too permissive to prevent foreign governments from closing their markets to U.S. products, even in the absence of any evidence of dumping.</p> <p><strong>Conclusion</strong></p> <p>The way South African authorities justified steep duties on U.S. chicken is a&nbsp;particularly egregious example of the larger global phenomenon of antidumping abuse. Rather than seek to mitigate these abuses one at a&nbsp;time through managed trade arrangements, the U.S. government should spearhead efforts to reform antidumping rules at the WTO.</p> <p>If the United States is going to be a&nbsp;leader in improving the global trading system and reducing protectionism around the world, U.S. exporters should insist that antidumping reform be part of the U.S. trade agenda. They should not let a&nbsp;handful of domestic industries control the debate and block an important avenue for economic progress.</p> <p><strong>Notes</strong><br><sup>1</sup> But alternative methods for calculating “normal value” are permitted under World Trade Organization rules. See World Trade Organization, Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Article 2.1.<br><sup>2</sup> Greg Mastel, <em>Antidumping Laws and the U.S. Economy</em> (Armonk, NY: M. E. Sharpe, 1998), p. 43.<br><sup>3</sup> N. Gregory Mankiw and Phillip L. Swagel, “Antidumping: The Third Rail of Trade Policy,” <em>Foreign Affairs</em>, July/​August 2005.<br><sup>4</sup> See Daniel Ikenson, “Abuse of Discretion: Time to Fix the Administration of the U.S. Antidumping Law,” Cato Trade Policy Analysis no. 31, October 6, 2005.<br><sup>5</sup> See Brink Lindsey and Daniel J. Ikenson, “Antidumping 101: The Devilish Details of ‘Unfair Trade’ Law,” Cato Trade Policy Analysis no. 20, November 26, 2002.<br><sup>6</sup> See Brink Lindsey and Dan Ikenson, “Coming Home to Roost: Proliferating Antidumping Laws and the Growing Threat to U.S. Exports,” Cato Trade Policy Analysis no. 14, July 30, 2001, pp. 14–15.<br><sup>7</sup> Jonathan R. Coleman, John Fry, and Warren S. Payne, “Use of Antidumping Measures by Developing Countries: The Impact on U.S. Exports of Agricultural Products” (paper presented at Agricultural Policy Reform and the WTO: Where Are We Heading? Capri, Italy, June 23–26, 2003).<br><sup>8</sup> South Africa Board on Tariffs and Trade, “Investigation into the Alleged Dumping of Meat of Fowls of the Species Gallus Domesticus, Originating in or Imported from the United States of America: Final Determination,” report no. 4088, 2000, p. 96.<br><sup>9</sup> World Trade Organization, Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Article 2.2.<br><sup>10</sup> South Africa Board on Tariffs and Trade, “Investigation into the Alleged Dumping of Meat of Fowls,” report no. 4088, 2000, pp. 18–35.<br><sup>11</sup> Ibid., pp. 18–21.<br><sup>12</sup> See Charles T. Horngren, et al., Cost Accounting: A&nbsp;Managerial Emphasis (Upper Saddle River, NJ: Prentice Hall, 14th ed., 2011), chap. 16.<br><sup>13</sup> World Trade Organization, Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994, Article 2.2.1.1.<br><sup>14</sup> According to the South Africa Board of Tariffs and Trade, value‐​based allocation was unreasonable because even after separate costs, the dark meat had a&nbsp;lower production cost than a&nbsp;whole unprocessed chicken. South Africa Board on Tariffs and Trade, Report no. 4088, p. 22.<br><sup>15</sup> Brian Hindley and Patrick A. Messerlin, <em>Antidumping Industrial Policy: Legalized Protectionism in the WTO and What to Do About It</em> (Washington: AEI Press 1996), pp. 6–14.<br><sup>16</sup> Brink Lindsey and Dan Ikenson, “Reforming the Antidumping Agreement: A&nbsp;Road Map for WTO Negotiations,” Cato Trade Policy Analysis no. 21, December 11, 2002, p. 15.<br><sup>17</sup><em>World Trade Online</em>, “U.S., South Africa Settle Longstanding Poultry Spat, Address SPS Issues,” June 12, 2015.<br><sup>18</sup> Ibid.<br><sup>19</sup> Ibid.<br><sup>20</sup> “Isakson Applauds Committee Action to Extend African Growth and Opportunity Act,” press release, April 22, 2015.<br><sup>21</sup> WTO Negotiating Group on Rules, “Anti‐​Dumping: Issues of Transparency and Due Process,” June 15, 2015, TN/RL/W/257, and “Anti‐​Dumping Negotiations,” July 15, 2015, TN/RLW/259.<br><sup>22</sup> Lindsey and Ikenson, “Reforming the Antidumping Agreement.“<br><sup>23</sup> Bipartisan Congressional Trade Priorities and Accountability Act of 2015, §2(b)(16).<br><sup>24</sup> Ibid. §5(b)(3).<br><sup>25</sup> See World Trade Organization Committee on Anti‐​Dumping Practices, “Semi‐​Annual Report under Article 16.4 of the Agreement — United States,” G/ADP/N/265/USA, February 26, 2015; Daniel Ikenson, “Economic Self‐​Flagellation: How U.S. Antidumping Policy Subverts the National Export Initiative,” Cato Trade Policy Analysis no. 46, May 31, 2011.<br><sup>26</sup> World Trade Organization statistics on anti‐​dumping <a href="https://www.wto.org/english/tratop_e/adp_e/adp_e.htm">https://​www​.wto​.org/​e​n​g​l​i​s​h​/​t​r​a​t​o​p​_​e​/​a​d​p​_​e​/​a​d​p​_​e.htm</a>.<br><sup>27</sup> Ibid.</p> </div> Mon, 19 Oct 2015 09:58:00 -0400 K. William Watson https://www.cato.org/publications/free-trade-bulletin/antidumping-fowls-out-us-south-africa-chicken-dispute-highlights Will Tobacco Kill the Trans‐​Pacific Partnership? https://www.cato.org/publications/commentary/will-tobacco-kill-trans-pacific-partnership Simon Lester <div class="lead text-default"> <p>The TPP will liberalize trade in thousands of products by reducing tariffs, quotas, and other trade barriers. Increased trade in many of these products, particularly in the agriculture sector, will be controversial as protected domestic industries face new competitors. But one product in particular may play an outsized role in the U.S. political debate over TPP:&nbsp;<a href="https://ustr.gov/New-Proposal-Tobacco-Regulation-Trans-Pacific-Partnership" target="_blank">Tobacco</a>.</p> </div> , <div class="text-default"> <p>Reports indicate that tobacco has been “carved out” of standard rules on foreign investment. This is sure to cause concern for members of Congress, including Senate majority leader Mitch Connell, who represents the tobacco‐​producing state of Kentucky.</p> <p>So, what kind of carve‐​out exactly did tobacco get? For decades now, governments have used treaties and trade agreements to offer special protections to foreign investors. Perhaps based on an assumption that foreign investors are treated worse than domestic investors by domestic regulators and courts, these extra protections have proliferated through thousands of treaties worldwide.</p> <p>Critics allege that these international investment rules are tools of intimidation and litigation, rather than a&nbsp;means of encouraging investment (as supporters claim). The critics seem right on this point. Evidence that these rules promote investment is weak at best. And there are many examples of multinational corporations challenging sensitive domestic laws and regulations.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Reports indicate that tobacco has been ‘carved out’ of standard rules on foreign investment.</p> </div> </div> </aside> , <div class="text-default"> <p>Enter into this contentious debate, tobacco, already a&nbsp;much‐​demonized product in U.S. politics. Of the hundreds of investment claims that have been filed, only two relate to tobacco, but they are particularly notorious ones. One case involves Phillip Morris challenging Australia’s plain packaging regulations for cigarettes, designed to undermine the use of branding on cigarette products. Another involves a&nbsp;claim by Phillip Morris against Uruguay’s cigarette packaging regulations, including the use of graphic images on the packaging.</p> <p>These cases have led to accusations that the tobacco industry is abusing the system. On their face, the regulations at issue do not treat foreign companies any differently than domestic companies, so how could the rules possibly have been violated by these regulations? Aren’t the Phillip Morris claims frivolous?</p> <p>Actually, they are not, due to the broad scope of the investment rules. Companies can bring lawsuits against regulations that discriminate against foreigners (the traditional focus of trade law), but they can also challenge government behavior that falls below a&nbsp;so‐​called “minimum standard.” One way this obligation is expressed is that government actions must be “fair and equitable.” Tribunals have offered varying interpretations of the standard, but one view is that whether the actions are “arbitrary” is a&nbsp;key component of the standard (recent EU proposals use the term “manifestly” arbitrary).</p> <p>It doesn’t take a&nbsp;lawyer to see how such a&nbsp;standard offers a&nbsp;wonderful opportunity to argue against many domestic regulations and other government actions. Companies and individuals often believe that governments treat them in an arbitrary manner. Thus, there is no abuse of the system when Phillip Morris brings a&nbsp;claim. It genuinely believes it is being treated badly, and is using the system exactly as designed when it files a&nbsp;lawsuit.</p> <p>The obvious way to reform the system would be to take out this minimum standard of treatment obligation, and focus the system on non‐​discrimination (as well as actual expropriation, another key obligation). But any such proposals are met with fierce resistance by business groups, who want to maintain their power to threaten lawsuits against domestic policies they did not like.</p> <p>Their resistance may have made such reform impossible in the TPP. Instead, tobacco regulation was simply excluded from the scope, with the fundamental flaws in the system left as is. In a&nbsp;sense the tobacco carve‐​out acknowledges the system’s problems, while leaving them basically intact.</p> <p>Legal issues aside, the question now is one of politics. The tobacco carve‐​out was an effort to balance the demands of public health groups (who want strong tobacco regulation) and business interests (who want to keep the current investment rules). But the political calculation changes now that Congress has to weigh in.</p> <p>Tobacco interests may have had a&nbsp;hard time getting heard during the TPP talks. But now they will have a&nbsp;strong voice in the form of Sen. McConnell, who <a href="http://thehill.com/policy/finance/249913-mcconnell-warns-obama-against-tobacco-carveout-in-trade-deal" target="_blank">said</a>&nbsp;the following on this issue back in late August, in a&nbsp;letter to U.S. Trade Representative Michael Froman: “I ask again that you not set a&nbsp;new precedent for future U.S. trade negotiations by negatively carving out a&nbsp;specific U.S. agriculture commodity—in this case tobacco.” All eyes will be on him, as he reflects on whether he can live with a&nbsp;tobacco carve‐​out in the TPP, or whether he would rather wait on the TPP, and gamble that a&nbsp;future Republican president could renegotiate this provision.</p> <p>The TPP has many controversial parts, and its success or failure will not be completely dependent on the tobacco issue. Nevertheless, trade deals are often close votes in Congress, and the tobacco carve‐​out could have a&nbsp;major impact on the result.</p> </div> Wed, 14 Oct 2015 10:22:00 -0400 Simon Lester https://www.cato.org/publications/commentary/will-tobacco-kill-trans-pacific-partnership Juan Carlos Hidalgo discusses agricultural protectionism in Costa Rica on CNN en Español’s Dinero https://www.cato.org/multimedia/media-highlights-tv/juan-carlos-hidalgo-discusses-agricultural-protectionism-costa-rica Tue, 23 Jun 2015 15:35:00 -0400 Juan Carlos Hidalgo https://www.cato.org/multimedia/media-highlights-tv/juan-carlos-hidalgo-discusses-agricultural-protectionism-costa-rica Supreme Court Dries Price Controls Like a Raisin in the Sun https://www.cato.org/publications/commentary/supreme-court-dries-price-controls-raisin-sun Ilya Shapiro, Randal John Meyer <div class="lead text-default"> <p>How would you like it if, after a&nbsp;year of planting, growing, and harvesting a&nbsp;crop, you learned the government would take 47 percent of your yield without any compensation or guarantee of future return? That was the dilemma Marvin and Laura Horne faced when federal trucks showed up at their farm to haul away tons of raisins. Unlike most growers, however, the Hornes decided not to let the government simply take the literal fruits of their labor, but instead to fight all the way to the Supreme Court—twice.</p> </div> , <div class="text-default"> <p>The Agricultural Marketing Agreement Act (AMAA) of 1937, a&nbsp;cockamamie New Deal program that nobody’s bothered to repeal, allows the U.S. secretary of agriculture to create commissions for certain agricultural products in certain geographical areas, and to approve “marketing orders” from those commissions. These marketing orders allocate a&nbsp;portion of the designated crop from all producers in the covered region for government control and disposition. In other words, they set aside part of farmers’ crops to do with as bureaucrats decide.</p> <p>The Hornes’ crop was controlled by—we’re not making this up—the Raisin Administrative Committee. In 2002–2003, this committee ordered raisin growers to turn over 47 percent of their crop; the following year, 30 percent. The Hornes decided not to comply with the order when the federal government came to collect its “free” raisins. For their troubles, they received a&nbsp;fine in the amount of the “fair market value” of the raisins—nearly half a&nbsp;million dollars—plus a $200,000 penalty for their disobedience.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Agriculture despots used to be able to seize farmers’ produce at will. With a&nbsp;new Supreme Court decision in favor of two raisin farmers, that may change.</p> </div> </div> </aside> , <div class="text-default"> <p><strong>What&nbsp;the Raisin Decision Says</strong></p> <p><a href="https://www.youtube.com/watch?v=HFbzLPJtYPE" target="_blank"><em>Horne v. Department of Agriculture</em></a>&nbsp;first came to the Supreme Court on the question of whether the Hornes even had the right to claim that the government action was indeed a “taking” for “public use,” requiring the government to give the Hornes “just compensation” under the Fifth Amendment’s Takings Clause. The Supreme Court unanimously sided with the Hornes and remanded the case for lower‐​court review of that takings issue.</p> <p>Now, two years after permitting the Hornes to escape a&nbsp;byzantine administrative purgatory and have their day in court, the Supreme Court&nbsp;<a href="http://www.supremecourt.gov/opinions/14pdf/14-275_c0n2.pdf" target="_blank">sided with them</a>&nbsp;again, declaring that raisins are “private property—the fruit of the growers’ labor—not ‘public things subject to the absolute control of the state.’ Any physical taking of them for public use must be accompanied by just compensation.”</p> <p>Moreover, as Chief Justice John Roberts wrote for all of his colleagues save Justice Sonia Sotomayor, “[n]othing in the text or history of the Takings Clause, or our precedents, suggests that the rule is any different when it comes to appropriation of personal property [as distinct from real estate]. The Government has a&nbsp;categorical duty to pay just compensation when it takes your car, just as when it takes your home.”</p> <p><strong>What the Decision Means</strong></p> <p>Today’s Supreme Court decision has far‐​reaching implications for the continuation of all the New Deal‐​era agricultural price controls—which seem so bizarre that the Hornes’ case attracted&nbsp;<a href="http://www.economist.com/news/united-states/21649510-farmer-asks-supreme-court-let-him-keep-his-crop-california-raisin-grab" target="_blank">more</a>&nbsp;media&nbsp;<a href="http://www.wsj.com/articles/the-incredible-raisin-heist-1429570964" target="_blank">attention</a>&nbsp;than your typical regulatory challenge (or perhaps Jon Stewart just&nbsp;<a href="http://thedailyshow.cc.com/videos/pmrodj/raisin-growers-lawsuit" target="_blank">has a&nbsp;thing</a>&nbsp;for nature’s candy).</p> <p>Indeed, marketing orders exist across a&nbsp;cornucopia of&nbsp;<a href="http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=TemplateN&amp;navID=LinktoCurrentFruitandVegetableMarketingOrders&amp;rightNav1=LinktoCurrentFruitandVegetableMarketingOrders&amp;topNav=&amp;leftNav=&amp;page=FVMarketingOrderIndex&amp;resultType=&amp;acct=fvmktord" target="_blank">agricultural products</a>, including almonds, apricots, avocados, cherries (sweet and tart, respectively), citrus (Florida and Texas), cranberries, dates, grapes, hazelnuts, kiwifruit, olives, onions (four geographic designations), pears, pistachios, plums/​prunes, potatoes (five geographic areas), spearmint oil, tomatoes, and walnuts—nearly 30 bureaucracies in total! The&nbsp;<a href="https://www.law.cornell.edu/uscode/text/7/608c" target="_blank">AMAA</a> also permits the federal government to reach into the hops and honeybee industries. All of these schemes are at a&nbsp;minimum constitutionally suspect now, and likely would be invalidated if some brave plaintiff followed the Hornes’ example, stood in the way of government trucks, and fought the resulting fines in court.</p> <p>The ruling also has implications for state and federal dairy schemes. The AMAA also regulates dairy production, with marketing orders reaching more than half the country. Dairy controls have been particularly contentious; they were even the underlying subject of the infamous&nbsp;<em>United States v. Carolene Products</em>, the 1938 case that bifurcated our rights and allowed governments at all levels to run roughshod over economic and property rights.</p> <p>After&nbsp;<em>Horne</em>, some 80&nbsp;years since the start of the New Deal, the government’s agriculture technocracy is finally drying up like a&nbsp;raisin in the sun.</p> </div> Tue, 23 Jun 2015 10:05:00 -0400 Ilya Shapiro, Randal John Meyer https://www.cato.org/publications/commentary/supreme-court-dries-price-controls-raisin-sun If You Don’t Want Your Food Genetically Modified, Tell Nature to Stop It. https://www.cato.org/publications/commentary/you-dont-want-food-genetically-modified-tell-nature-stop-it Swaminathan S. Anklesaria Aiyar <div class="lead text-default"> <p>Chipotle hit the headlines last week when the company announced it would no longer serve customers genetically modified foods. This despite the fact that more than a&nbsp;trillion meals containing genetically modified food have already been eaten in the United States without incident. Science has decisively found that these foods have no negative impact on health.</p> </div> , <div class="text-default"> <p>Chipotle’s move seems to be based more on marketing than on science.</p> <p>Recent research drives home how misled alarmists are about genetically modified food. All human beings, two Cambridge University scientists have established, are genetically modified, including Chipotle’s customers. Over the years, hundreds of foreign genes have jumped into human DNA through a&nbsp;natural phenomenon called “gene flow.” As a&nbsp;result, all humans carry genes that originated in algae, bacteria and fungi.</p> <p>If humans can safely accept alien genes without mishap, why not food, too?</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Science has decisively found that these foods have no negative impact on health.</p> </div> </div> </aside> , <div class="text-default"> <p>Farmers and breeders have for centuries used cross‐​breeding to improve the genetic characteristics of crops and animals. Because this process involves gene transfers within the same species, environmental advocates label it “natural” — even though cross‐​breeding is clearly man‐​made. Modern genetic splicing makes it possible to combine genes from completely different species to produce much‐​needed products, including pest‐​resistant and high‐​yielding crops.</p> <p>The Bt gene from pest‐​resistant bacteria, for example, has been inserted into cotton to create a&nbsp;pest‐​resistant Bt cotton. The combination has greatly raised yields and reduced pesticide use. But some activists condemn this as a&nbsp;crime against nature.</p> <p>When fears about genetically modified foods first arose, little was known about gene flow, also called horizontal gene transfer. The idea that genes could jump across species violated then‐​conventional wisdom.&nbsp;But scientific research has established that natural gene transfers regularly occur.&nbsp;So genetic transfers are not a&nbsp;human invention — just a&nbsp;belated human effort to imitate what nature has been doing all along.</p> <p>This discovery has convinced some longtime campaigners against genetically modified crops to make a&nbsp;U‑turn. British author and journalist Mark Lynas, for example, converted from being an activist opposed to genetically modified food to a&nbsp;firm supporter in a&nbsp;<a href="http://www.forbes.com/sites/richardlevick/2013/01/17/i-was-wrong-how-one-activists-apology-changes-the-gmo-debate/" target="_blank">notable 2013 mea culpa speech</a>, in which he apologized for letting his opinions trump the scientific data.</p> <p>Scientists once thought that gene transfers&nbsp;occurred naturally only in simple organisms like bacteria. But research shows that transfers are also common in complex species, including human beings. Does this genetic intrusion make humans a&nbsp;monster species? Hardly.</p> <p>The&nbsp;<em>Economist</em>&nbsp;used the headline “Genetically Modified People” for a&nbsp;report on genetic research by Alastair Crisp and Chiara Boschetti, the two Cambridge scientists. They have identified 145 genes that have crossed over from other species to humans.</p> <p>This is, of course, a&nbsp;tiny fraction of the 20,000 odd genes in a&nbsp;human body. Why then should environmentalists lose sleep over the introduction of a&nbsp;single alien gene into crops?</p> <p>Research on gene flow is still in its infancy. It could ultimately reveal thousands of alien genes that have entered human DNA.&nbsp;This should be no surprise: Nature has had almost a&nbsp;million years to do its work.</p> <p>One gene identified by the Cambridge researchers helps hold cells together; it crossed over into humans from a&nbsp;fungus. Marine algae appear to be the source of another human gene associated with fat mass. Bacteria have provided a&nbsp;third gene that helps define blood groups.</p> <p>Apart from human transfers, the scientists examined gene transfers in nine other primate species, 12 fruit fly species and four nematode worms. They found that the phenomenon was ubiquitous.&nbsp;The researchers considered the possibility that what looked like gene transfers between species might actually be genes both had inherited from a&nbsp;common ancestor millions of years ago.</p> <p>Genes found in another animal could be a&nbsp;common ancient inheritance. But genes in animals that came from plants or bacteria would almost certainly represent gene flow. Crisp and Boschetti found that, on average, worms had 173 gene transfers, fruit flies 40, and primates had 109. Humans, with 145 transfers, were more genetically modified than other primates.</p> <p>The researchers found two imported genes for amino‐​acid metabolism, 13 for fat metabolism and 15 for modifying large molecules. They identified five immigrant genes that generated valuable anti‐​oxidants, and seven that aided the immune system.</p> <p>Far from creating monsters, the scientists found that genes from alien species appear beneficial. Activists against genetically modified organisms can argue that natural gene transfers have been spaced out over millennia, giving species time to adapt. But every time a&nbsp;natural gene transfer occurred, it carried the same risks as the insertion of a&nbsp;Bt gene into cotton or eggplants.</p> <p>Besides, all crops, genetically modified or otherwise, are field‐​tested for safety before commercial release. The United States has approved dozens of genetically modified crops for commercial use. Virtually all U.S. corn and soybeans today are genetically modified.</p> <p>Chipotle’s claim of serving food free of genetic modifications is dubious because the meats it serves come from animals and chickens likely fed on genetically modified corn and soybean meal. More important, why should Chipotle even make the claim when its own customers are genetically modified?</p> </div> Fri, 22 May 2015 08:58:00 -0400 Swaminathan S. Anklesaria Aiyar https://www.cato.org/publications/commentary/you-dont-want-food-genetically-modified-tell-nature-stop-it ‘Dolphin Safe’ Labels on Canned Tuna Are a Fraud https://www.cato.org/publications/commentary/dolphin-safe-labels-canned-tuna-are-fraud K. William Watson <div class="lead text-default"> <p>After multiple condemnations from the World Trade Organization, it’s time for consumers to realize that U.S. “dolphin safe” labels are a&nbsp;fraud cooked up by special interests. A&nbsp;WTO panel&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdj70OwjAMhN8lM20a1CLoxM-EkLogxJIluKZEIiRKHIqEeHcMYmLwcv7uzn6KYEC0YnPYr-az1WwhJiLiYP2NxRA9IVCRU-msQzCJSvCOEciJvMMIvsd_NwRiaeC9WZ59PGH6mYLtRTudiByvDFyIQqulluM4lhEzYfyCWppIFq6o5bRSjZZVraXiyYkPMYXDhwVfUL6ZwvaH_W7dVV2jtscPXdWq5qY7Z31fUK83-1NH6Q" target="_blank">announced</a>&nbsp;for the third time in three years that U.S. laws defining dolphin‐​safe are protectionist. This should be a&nbsp;wake‐​up call for eco‐​conscious consumers who want to make sure their grocery purchases aren’t harming the ocean. By providing cover for a&nbsp;handful of major brands the law actually makes it harder to purchase responsibly caught tuna.</p> </div> , <div class="text-default"> <p>Whether companies can market their tuna as dolphin‐​safe has a&nbsp;huge impact on consumer and retailer behavior. Currently&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdj8EOwiAQRP-FcymxMY32ZOMnGG9ctrBtSWgh7CIH47-LxpPXmfcymaeIYMQgrvfbeOrH_iwakXBxYa9hTIHRsMzUbm5DA8StCVtFTCYOGyYTLP7bJnKNltrDZQ5pQvpJ0VkxdI3IyVdgZY6DVlqVUlrwHqaQuThvvZvxY2hlg4-r20mWFTySVryitI44p8nti5zBMMmvKH-sJJhRct5Bq2N3PtXZByb6_jm83ujJUVU" target="_blank">around 98%</a>&nbsp;of canned tuna sold in groceries stores carries the label. By most measures, the dolphin‐​safe label should be deemed a&nbsp;success—consumers responded to information and the market responded to consumers.</p> <p>The problem is that the law defining dolphin‐​safe is actually designed to&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdj0FrwzAMhf-Lz1XcZrRsOa3sJ4zdfHEdLTFzIiPJC2X0v1eUwWAniafvPZ5-XI3JDe7t4_38fDqfXtzOMU6ZVhMrk2JSaNItecEURbtEiyGpidKCnGjE_-5U1aTJ7vH1k_iC8muqeXRDv3ONiwGzah2CD37btu6PC16yogTPGIvUvAbf7w998PujbU-GK0EiZitWrpBiKQI6IzSwSaBRvsDioFzzOkG8UFMYqdQ5r5ZqNb6R5fHf4XYHbnJVYw" target="_blank">mislead</a> consumers about the fishing methods used to catch tuna.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The best way to empower consumers to make a&nbsp;difference in tuna practices is to keep government out of the labeling business.</p> </div> </div> </aside> , <div class="text-default"> <p>Most Americans think that the existence of a&nbsp;dolphin‐​safe label means that no dolphins were harmed when the tuna were caught. In truth, the label only means that one particular fishing method was not used in one particular part of the ocean. It is no coincidence that the place and practice most scrutinized by the law are where and how the Mexican tuna industry operates.</p> <p>Known as “setting on dolphins,” the practice of circling dolphin pods with nets as a&nbsp;way to catch tuna was widely criticized for harming dolphin populations up through the 1980s. But that was before the creation of the&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdjjELwjAQRv_LzTVBh6KdLFXERQRx6xKvZxswXrhc7SD-d6M4ub7vPfieEB1CBc35VC_LulxBAUK953uGUVgJdTYmE3wgdEkNcsgKjkk5kCB39F9j1Iz6vLv1leVC6RdF30G1KGCUWxYG1Ziq1rZ2mibjnSoalr61-01z3B52ZtBP9CBJ3zfz1xukyDe5" target="_blank">International Dolphin Conservation Program</a>, which places observers on tuna vessels to verify that no dolphins are harmed during the catch. Since then, dolphin mortality from this practice has virtually <a href="https://protect-us.mimecast.com/redirect/eNpdjk0KwjAQhe-SdU3QRdGuLPYG1V02cTptA00mJBNBxLs7iCt3j-_98F4qOVCdutzG_tj27Uk1KuPiKQpMmRiBd7Xo4AOCK6yBgkSgFqaAGWjC_zYkFrSI784z5TuWXyn5SXWHRtW8SWBlTp011jhgTYAuAsWC-SHiqSkv1hTPaM1AMArGbM1crjW6gba0-qjTNMuqGOV7d__-APgKRUM" target="_blank">disappeared</a>.</p> <p>In order to qualify as dolphin‐​safe, tuna may not be caught using this method regardless of whether dolphins are actually harmed. Even if this method isn’t used, tuna caught in the eastern tropical Pacific may only be called dolphin‐​safe if an independent observer verifies that no dolphins were harmed. Tuna caught elsewhere in the world can be called dolphin‐​safe based merely on a&nbsp;declaration from the ship’s operator.</p> <p>One important aspect of the dolphin‐​safe labeling rules is that companies that do not meet the specific requirements are prohibited not only from using the label but from stating anything about how their practices impact dolphins. That means that Mexican tuna brands have no way to explain their fishing methods to consumers.</p> <p>And there’s reason why eco‐​conscious consumers in particular might want that information. Unlike Mexican fisheries, the major U.S. producers catch tuna using fish aggregation devices (FADs), a&nbsp;practice that&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdj8sKgzAURP8la01QWlFXlX5C6S4gMV41YB7c3NRF6b83tF11O3MOwzxZUJr17Hq_DW0zNB0rGMJqvMthQE-gqUyRW2NBq0hce5sRnSJ5C6j9DP-2DpSjNffqsnicIP6kYGbW1wVLuGdgIwq9FFIcx8G3tCzGZccF_x2RwioTDZQrAjh1qJ2kQLBgJ8By9nvYjItqgZKSU-M0ntu66aoT38jueewBGD8vqtcbvOZNcw" target="_blank">activists have condemned</a>&nbsp;as “floating death traps” because of its high incidence of bycatch. Dolphins aren’t the only creatures threatened by irresponsible tuna fishing.</p> <p>It is no accident then that the major U.S. tuna producers who support and benefit from the dolphin‐​safe label are counted by activists as among the worst offenders on sustainable fishing practices. Greenpeace released a&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdjjEOwjAMRe_iuSSCoYJOVBwBsWUJrgmRSB05DhkQdydCTKzvvyf9F2SPMMHpcp734zweYAChEHntMAsroW5qMSkmQl_UIKeuYC3KiQR5of8as3YU-u6PN5YrlV-U4wLTboAqjy7cVfPkrLOtNROEaM3kkQxLcLYW76zW1YcaF3K210-S8r21fX8AzRE79A" target="_blank">Canned Tuna Shopping Guide</a> earlier this year. They take into account multiple factors like the health of tuna stocks, traceability, and even “ethical labor practices.” The guide ranks major U.S. brands at the bottom for failing on almost all measures.</p> <p>And what does Greenpeace have to say about the dolphin safe label? “Dolphin safe does not mean ocean safe. It means that one fishing method that targets tuna that swim with dolphins is not used to catch the tuna. What about the rays and turtles?!”</p> <p>It’s very likely that, even without the current dolphin‐​safe rules, some consumers will avoid Mexican brands out of concern that “setting on dolphins” is totally unacceptable. It’s also true that other consumers will be glad to have more “FAD‐​free” options. It’s <a href="https://protect-us.mimecast.com/redirect/eNpdj71uwzAMhN9FcxglMRC0nhrkEYpuWiiajgTIpiBSXYq-e9Wfqdvh7jsc7sNVJDe7-9vr7el6uz67g2v8yLIPszYxJoOuxy1vTKh2JNkGQl1NNm4kC_9vU7VhPUaOL6u0yPpXqnlx8-XgeisDSGZ1Dj74yEiJEuamlHm3_LsS_OV0noI_Td8q-AmsdUsKsoMlhhVjYQWM0g0WKTXlHRRXhoKRiwY_Jt-56c-X8-cX4B1Nlg" target="_blank">perfectly reasonable</a>&nbsp;for eco‐​conscious consumers when choosing between the two to pick tuna caught by setting on dolphins (with observers to ensure no dolphins were harmed) over tuna caught using FADs. The dolphin‐​safe rules obscure this distinction and prevent consumers from playing a&nbsp;more active role in ocean conservation.</p> <p>The best way to empower consumers to make a&nbsp;difference in tuna practices is to keep government out of the labeling business. Open competition will foster more sharing of more accurate and relevant information. Groups like Greenpeace serve a&nbsp;vital function in the market by providing like‐​minded consumers with well‐​packaged information. The existence of federal rules, however, gives power to lobbyists that they would not have in a&nbsp;free market.</p> <p>But even if you think some regulation is needed, the current regime is possibly the worst way to do it. The WTO first concluded over three years ago that U.S. regulations violated trade rules because they are more onerous for Mexican fisheries in a&nbsp;way that&nbsp;<a href="https://protect-us.mimecast.com/redirect/eNpdj0FrwzAMhf-Lz1XcZrRsOa3sJ4zdfHEdLTFzIiPJC2X0v1eUwWAniafvPZ5-XI3JDe7t4_38fDqfXtzOMU6ZVhMrk2JSaNItecEURbtEiyGpidKCnGjE_-5U1aTJ7vH1k_iC8muqeXRDv3ONiwGzah2CD37btu6PC16yogTPGIvUvAbf7w998PujbU-GK0EiZitWrpBiKQI6IzSwSaBRvsDioFzzOkG8UFMYqdQ5r5ZqNb6R5fHf4XYHbnJVYw" target="_blank">doesn’t contribute to protecting dolphins</a>. Minor changes made to the law last year were not enough to bring to the United States into compliance. If the goal of the program really were to protect dolphins, we would not be having this problem.</p> <p>Consumers want information about production practices because it gives them more power to influence how companies operate. It fosters an environment where companies compete for business based on those practices. Protectionist dolphin‐​safe labeling laws do the opposite—they empower companies to influence consumers through misinformation while reducing competition.</p> </div> Wed, 29 Apr 2015 10:04:00 -0400 K. William Watson https://www.cato.org/publications/commentary/dolphin-safe-labels-canned-tuna-are-fraud Rebel Farmers and Government Cartels: How the New Deal Cartelized U.S. Agriculture https://www.cato.org/publications/commentary/rebel-farmers-government-cartels-how-new-deal-cartelized-us-agriculture Trevor Burrus <div class="lead text-default"> <p>Marvin Horne doesn’t look like a&nbsp;man in open rebellion against the United States government, but the 70‐​year‐​old raisin farmer and his wife Laura have had enough. If they get their way, they’re not going to let the U.S. Raisin Administrative Committee take their raisins anymore.</p> </div> , <div class="text-default"> <p>Yes, there’s a&nbsp;Raisin Administrative Committee.</p> <p>This week, the Supreme Court heard arguments in Horne’s case challenging the Raisin Administrative Committee. It’s the New‐​Deal case that took 80&nbsp;years to bring.</p> <p>Like an agency pulled from the pages of an Ayn Rand novel, the Raisin Administrative Committee (RAC) oversees many parts of U.S. raisin production. The 47‐​member committee consists of different representatives from the raisin industry, including “handlers,” those who pack the raisins and prepare them for sale, and “growers,” those who grow and dry grapes. They meet in an office in Fresno and issue “marketing orders,” which decide, among other things, how many raisins should be diverted into the National Raisin Reserve each year. By taking raisins off the open market, the RAC maintains an artificially high price for raisins and keeps many, but obviously not all, raisin farmers happy. Think of it as a&nbsp;raisin cartel, a&nbsp;raisin OPEC.</p> <p>Under federal law—the Agricultural Marketing Agreement Act of 1937 (AMAA), amended in 1949 to include raisins—raisin handlers are obligated to divert whatever percentage of raisins the RAC demands, and then take whatever compensation the committee offers, which is often nothing.</p> <p>Marvin Horne is one of the unhappy raisin farmers who feels that the RAC has outlived its usefulness, if it ever had any to begin with. More than ten years ago, Horne refused to hand over his raisins to the RAC. In response, the RAC fought back, including hiring private investigators to stake out the Hornes’ farm. Now Marvin Horne stands on the precipice of dealing the RAC a&nbsp;near‐​fatal blow—a Supreme Court opinion ruling that, under the Fifth Amendment’s Takings Clause, the RAC has to pay just compensation whenever it takes a&nbsp;farmer’s raisins.</p> <p>The Hornes, who currently owe the government about 1.2 million pounds of raisins and approximately $700,000&nbsp;in fines, have few options left except for a&nbsp;Supreme Court victory. Their fight against the RAC, however, is part of a&nbsp;proud tradition of individuals fighting against government‐​created cartels, especially in agriculture. Those cartels collude against consumers in ways that would be blatantly illegal in industries that don’t enjoy government sanction. Occasionally, someone will fight back against the cartel, and the industry will circle the wagons to protect its unique, anti‐​competitive privilege.</p> <p><strong>The New Deal</strong></p> <p>Over 200&nbsp;years ago, famed economics sage Adam Smith understood the dangers of allowing competitors to collude. In&nbsp;<em>The Wealth of Nations</em>, Smith wrote, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a&nbsp;conspiracy against the public, or in some contrivance to raise prices.” Most importantly, wrote Smith, the law should not encourage such collusive, anti‐​competitive behavior: “But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”</p> <p>During the New Deal, Smith’s wise words were wholly forgotten. From the moment President Franklin D. Roosevelt arrived in office, he had cartels on his mind. Competition, he thought, was too fierce, and it was causing prices and wages to fall too low. While competition could be good, “destructive competition” was bad. The answer, thought FDR and his famed brain trust, was to use the law to promote cooperation between members of the same industry in order to ensure that competition was “fair.”</p> <p>The result was the National Industrial Recovery Act (NIRA), signed by FDR on June 16, 1933. In essence, the NIRA tried to cartelize the entire economy. Businesses were encouraged to meet together in “a conspiracy against the public,” in Adam Smith’s words. But their agreements, rather than being mere handshake deals carried out in smoke‐​filled backrooms, were to have the force of law. An industry’s agreed‐​upon “code of fair competition” would be signed by the president himself, and violators could be fined or even jailed for violating the code. Just a&nbsp;few decades previously the federal government had passed anti‐​monopoly “trust busting” laws like the Sherman Anti‐​Trust Act in order to combat anti‐​competitive collusion. During the New Deal, however, the government entirely changed course. What was once an unmitigated evil was seen as a&nbsp;necessary step on the road to recovery.</p> <p>Without the force of government backing up the rules, cartels are notoriously difficult to maintain. Voluntary collusion always presents opportunities for someone to shirk the agreement in order to make extra cash while his competitors hold their prices steady. In the worst situations, shirkers are countered with mob‐​like tactics, from slashing tires, to breaking kneecaps, to burning down stores. When the government gets involved in enforcing cartels they essentially take‐​over the job of busting kneecaps. Cronies with lead pipes are replaced by bureaucrats and police officers.</p> <p>But often their tactics are similar. After the “code of fair competition” for Ohio’s tire companies was passed under the NIRA, smaller tire companies found that the government’s enforcers were hardly better than the mob’s. F.H. Mills, president of Master Tire and Service, Inc. out of Youngstown, wrote to Senator William Borah, an opponent of the NIRA, of his plight. He complained in particular about a&nbsp;Mr. Frank Blodgett, an administrator from the National Recovery Administration. Mills “explained my conditions” to Mr. Blodgett, “and showed where it would be impossible to stay in business and comply with his request.” In response, Mr. Blodgett “demanded that he be given the right to go over my books and run my business according to his ideas.” When Mills refused, the “furious Mr. Blodgett then stated that he would put his heel upon the neck of our little company and twist it with all the force at his command.”</p> <p>The little companies had it the worst. Businesses are hardly uniform, and each company faces different pressures depending on its brand name, geographic location, and other variables. The “codes of fair competition” under the NIRA did not countenance such variation. The Ohio tire code, for example, was largely written by Goodyear, Firestone, and Goodrich, and it thus primarily benefited those large companies. Before the NIRA, small manufacturers like Master Tire and Service could only survive by undercutting the nationally recognized brands in price. After the NIRA, they were compelled to raise their prices to the large manufacturers’ level. Large companies had advantages in economies of scale and service, and the NIRA stripped small companies of their only competitive advantage. And of course Goodyear, Firestone, and Goodrich wanted it that way.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Mongrel‐​agencies like the RAC are cave dwellers, they hate to be brought into the light.</p> </div> </div> </aside> , <div class="text-default"> <p><strong>Bringing Down the NIRA</strong></p> <p>All of this is important backdrop to the case that brought down the NIRA, which, like the Hornes, featured businessmen who were fed‐​up with government‐​enforced cartels.</p> <p>The four Schechter brothers ran two fairly large butcher shops in Brooklyn. As Jewish immigrants, they ran a&nbsp;kosher shop, mostly selling poultry to retailers. They slaughtered their chickens ritualistically, in compliance with Jewish dietary law.</p> <p>Their specialized company and unique clientele were the type of aberrant business that the NYC chicken cartel was ill equipped to deal with. Under the “Code of Fair Competition for the Live Poultry Industry” for NYC, the Schechter brothers’ business model was basically illegal. In order to prevent “destructive price cutting” the code prohibited “killing on the basis of grade.” In other words, customers did not have the right to “make any selection of particular birds.” As silly as it sounds, the code required the butcher to reach into the chicken coop and grab the first chicken that touched his hand, any specific selection was prohibited. If a&nbsp;customer wanted to buy a&nbsp;half coop, the butcher could only break the coop in half. Because kosher rules require that unhealthy birds be discarded, the code essentially made kosher butchery illegal.</p> <p>Although the brothers tried to follow the rules, it proved nearly impossible to run their business. And neither the code enforcers nor the U.S. attorneys had much sympathy for the brothers’ situation. The government charged them with selling “unfit chickens” to two men, and they went to trial. The trial was a&nbsp;confusing ordeal of strange questions posed to the Schechter brothers, who spoke halting English—at one point, brother Martin was ominously asked “There is a&nbsp;lot of competition between you and your competition, is there not?”—and attacks on the brothers’ education levels. In the end, the judge fined them $7,425—over $100,000 today—and sentenced all four brothers to between one and three months in jail.</p> <p>The chicken cartel’s mob‐​like enforcers seemed to have done their job.</p> <p>But the Schechters refused to back down, and they took their case to the Supreme Court. They argued that Congress’s power regulate interstate commerce did not reach the local NYC poultry industry. They also argued that the NIRA delegated too much legislative power to the executive branch.</p> <p>During oral arguments at the Supreme Court, the justices struggled to understand that bizarre provisions of the code of fair competition. Just explaining the code elicited laughter from the courtroom audience and jokes from the justices. While the Schechters’ attorney, Joseph Heller, explained the prohibition on customer selection of chickens, Justice Harlan Fiske Stone asked “Do you mean that there can be a&nbsp;selection if he buys one‐​half the coop?” “No. You just break the box into two halves,” Mr. Heller responded. The laughter in the courtroom was amplified by Justice George Sutherland’s jape “Well, suppose, however, that all the chickens have gone over to one end of the coop?”</p> <p>The Schechters won, and with their victory came the end of the National Industrial Recovery Act. It was not the end, however, of Roosevelt’s scheme to cartelize the U.S. economy.</p> <p><strong>Agricultural Cartelization</strong></p> <p>The Supreme Court may have temporarily halted Roosevelt’s plan for large‐​scale cartelization in business and industry, but he next set his sights on agriculture. In many ways, and certainly in the case of the Hornes, New Deal agricultural reforms are still with us today. The perseverance of bizarre things like the RAC are a&nbsp;testament to the permanence of even the silliest government programs.</p> <p>The Hornes work under the Agricultural Marketing Agreement Act of 1937. Raisins weren’t included in the act, however, until 1949, when there was a&nbsp;pronounced post‐​war drop in demand for raisins. The government had been buying tons of raisins to send to the troops, and, after the war, raisin farmers felt somehow cheated by the return to normal levels of raisin demand. This is a&nbsp;recurring story in U.S. agricultural policy—farmers feeling that high, stable prices achieved during some time past were actually the “just” prices and that government should work to guarantee that price. In the New Deal, for example, the “fair” price for many agricultural commodities was determined to be the one achieved during 1910–14, a&nbsp;time of prosperity for farmers.</p> <p>The dairy industry, in particular, was transformed by New Deal agricultural policies. As a&nbsp;result, the industry exists within a&nbsp;convoluted system of managed competition, a&nbsp;tangled web of subsidies and regulations where playing politics can be more important than being a&nbsp;good businessman who serves his customers well.</p> <p>In the early 2000’s, another “agricultural outlaw” like Marvin Horne found himself fighting the dairy industry for the right to run his business as he saw fit. Hein Hettinga was a&nbsp;prosperous Western dairy farmer who decided to restructure his business around New Deal‐​era constraints. Like raisins, dairy farmers can be either “producers,” those who gather raw milk, and “handlers,” those who bottle and package milk products. Under the AMAA, farmers who only bottle milk from their own cows, so‐​called “producer‐​handlers,” can avoid paying into some of the government‐​imposed programs. Hettinga did just this, and he soon was undercutting the competition by up to 20 cents per gallon.</p> <p>Drawing on the kind of spunky, can‐​do American spirit that made this country great, the dairy industry went whining to Congress. Hettinga should not be allowed to exploit that “loophole” in the law, they complained. “Loophole” is of course just cartel‐​speak for what would be normal business practices in a&nbsp;less‐​regulated industry.</p> <p>The dairy industry has powerful lobbyists and the ears of many members of Congress. One was Harry Reid, the then minority whip, who had once snuck an amendment into a&nbsp;spending bill that exempted Las Vegas‐​area dairy farmers from some federal pricing rules. Despite the amendment, Reid’s precious Las Vegas dairy industry was still facing competition from a&nbsp;large milk plant that was under construction outside of town.</p> <p>The horse trading went into full gear, and the patchwork of federal rules for Arizona (where Hettinga’s main plant was located), California, and Nevada presented many trading opportunities. Reid wanted exemptions for all Nevada producers, Arizona producers wanted to be protected from the threat of lower‐​cost Nevada milk, and California producers wanted Hettinga’s business throttled.</p> <p>Lobbying money and campaign cash flowed. In the end, Hettinga was outmatched. Without even a&nbsp;committee hearing, the new milk bill was brought up by Reid to a&nbsp;nearly empty Senate chamber and passed by “unanimous consent,” which is Senate‐​speak for rubber‐​stamping backroom deals. The bill closed the Hettinga “loophole” but, ironically, or perhaps expectedly, opened up the exact same loophole for Reid’s Nevada producers.</p> <p>Hein Hettinga tried to bring a&nbsp;legal case, but he was quickly shot down by the D.C. Circuit Court of Appeals. The courts of appeals are&nbsp;bound by Supreme Court precedent, which wasn’t on Hettinga’s side. Judges Janice Rogers Brown and David Sentelle, however, added a&nbsp;stem‐​winder opinion explaining how silly they thought the law was. “Given the long‐​standing precedents in this area no other result is possible,” they wrote, but there was a&nbsp;larger lesson to be learned:</p> </div> , <blockquote class="blockquote"> <div> <p>The Hettingas’ collision with the MREA [Milk Regulatory Equity Act]—the latest iteration of the venerable AMAA—reveals an ugly truth: America’s cowboy capitalism was long ago disarmed by a&nbsp;democratic process increasingly dominated by powerful groups with economic interests antithetical to competitors and consumers. And the courts, from which the victims of burdensome regulation sought protection, have been negotiating the terms of surrender since the 1930s.</p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>***</p> <p>And that’s how America produces milk, grows its raisins, and, once, slaughtered its chickens. Actually, it is how nearly all American agriculture is done. Silly policies that originated in failed New Deal ideas—policies that the justices themselves couldn’t help making fun of—became the law of the land. Now, the RAC exists because it exists, and, like all artificial government agencies, its first instinct is survival.</p> <p>Of the two amicus briefs filed in support of the government, one was tellingly written by Sun‐​Maid, the largest raisin marketer in the world. The brief is a&nbsp;shameless defense of the RAC, of which Sun‐​Maid producers or handlers hold 13 of the 47 seats. The RAC, the brief explains, allows “industry participants to collectively decide whether to regulate their respective industries.” It “benefits the entire raisin industry, including petitioners, by avoiding price volatility.” In other words, let us regulate ourselves because we benefit from it. Hettinga’s big dairy competitors or the Schechters’ big poultry opponents couldn’t have said it better.</p> <p>Occasionally people like the Hornes, the Schechters, or the Hettingas help expose agricultural cartels and crony capitalists for what they are—government agencies that help big businesses and hurt consumers. This happens rarely, however, because it is usually easier to work with the government than to work against it, and cartelization is usually agreeable to those in the cartel.</p> <p>Mongrel‐​agencies like the RAC are cave dwellers, they hate to be brought into the light. They prefer to hide behind a&nbsp;prolix U.S. agricultural code that is essentially printed chloroform, to borrow a&nbsp;phrase from Mark Twain. Like bacteria specially adapted to live in harsh environments, the code is their sustenance. Only a&nbsp;few industry specialists really understand how the code works, and they want to keep it that way.</p> </div> Fri, 24 Apr 2015 15:33:00 -0400 Trevor Burrus https://www.cato.org/publications/commentary/rebel-farmers-government-cartels-how-new-deal-cartelized-us-agriculture Raisin a Laugh at the Supreme Court https://www.cato.org/publications/commentary/raisin-laugh-supreme-court Trevor Burrus <div class="lead text-default"> <p>It’s not a&nbsp;good sign when Supreme Court justices laugh at the law the government is trying to defend.</p> </div> , <div class="text-default"> <p>When it comes to defending the Raisin Administrative Committee, however, it’s hard not to laugh.</p> <p>On April 22, the Supreme Court heard a&nbsp;challenge to the Raisin Administrative Committee’s despotic power over U.S. raisin farmers. What is the&nbsp;<a href="http://www.raisins.org/" target="_blank">Raisin Administrative Committee&nbsp;</a>(RAC)? Think of it as Raisin&nbsp;<a href="http://www.opec.org/" target="_blank">OPEC</a>, a&nbsp;cartel maintained by the Department of Agriculture that has the power to take raisins from farmers and offer nothing in return.</p> <p>Like OPEC, it does this to keep the price of raisins artificially high. Unlike OPEC, however, the RAC has an enforcement division, the U.S. government, and if you cross the RAC, they can come after you in court.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>When it comes to defending the Raisin Administrative Committee, it’s hard not to laugh.</p> </div> </div> </aside> , <div class="text-default"> <p>That’s what happened to&nbsp;<a href="http://cdn.ca9.uscourts.gov/datastore/opinions/2014/05/09/10-15270.pdf" target="_blank">Marvin Horne</a>, who, a&nbsp;little over 10&nbsp;years ago, decided he’d had enough of the RAC’s shenanigans and refused to turn over his crop. In response, the RAC came after him, going so far as to hire private investigators to stake out the Horne’s farm.</p> <p>When you cross the RAC, you better be prepared to pay the price. For Marvin Horne, the price is $700,000—a steep fine for refusing to give the government what belongs to him.</p> <p>Collusion like this usually takes place in a&nbsp;smoke‐​filled backroom, away from the prying eyes of the SEC or the Federal Trade Commission. If any other business colluded like the RAC, they would be prosecuted for blatant violations of the&nbsp;<a href="http://www.ourdocuments.gov/doc.php?doc=51" target="_blank">Sherman Anti‐​Trust Act</a>. Yet, on Wednesday, the government stood before the Supreme Court and defended the RAC because it works for the benefit of the farmers.</p> <p>That is, of course, the point of a&nbsp;cartel—to benefit the colluders and hurt consumers.</p> <p>Horne is arguing to the Supreme Court that, under the&nbsp;<a href="http://law2.umkc.edu/faculty/projects/ftrials/conlaw/takings.htm" target="_blank">Fifth Amendment’s Takings Clause</a>, which says private property can’t be taken for public use without just compensation, the RAC owes him something for his raisins. Judging by yesterday’s argument, he will probably win his case.</p> <p>In addition to asking pointed and probing questions of the unfortunate government attorney charged with defending the case, the justices couldn’t resist making fun of the program entirely.</p> <p>Chief Justice John Roberts joked that the government probably comes and takes the raisins “in the dark of night.” Justice Antonin Scalia joked that, while maybe the government could prohibit dangerous things from entering into commerce, these would have to be some “dangerous raisins.” Justice Elena Kagan simply asked, “We could think that this is a&nbsp;ridiculous program?” after which Justice Scalia said, “It doesn’t help your case that it’s ridiculous, though. You acknowledge that.”</p> <p>This wasn’t the first time a&nbsp;group of Supreme Court justices laughed at silly government‐​created cartels. Eighty years ago, a&nbsp;different set of Supreme Court justices were laughing at the live poultry cartel for the city of New York. The poultry cartel was a&nbsp;product of the&nbsp;<a href="http://www.ourdocuments.gov/doc.php?doc=66" target="_blank">National Industrial Recovery Act</a>&nbsp;(NIRA), which was the cornerstone of&nbsp;<a href="http://rooseveltinstitute.org/policy-and-ideasroosevelt-historyfdr/new-deal" target="_blank">President Franklin Roosevelt’s New Deal</a>.</p> <p>Roosevelt was obsessed with cartels as the solution to the nation’s economic woes. While the Court struck down the NIRA, cartelization policies continued to be enacted, especially in agriculture.</p> <p>The RAC began in 1949 as an amendment to a&nbsp;New Deal‐​era law called the<a href="http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC5067868" target="_blank">Agricultural Marketing Agreement Act&nbsp;</a>of 1937. The New Deal was the genesis of our modern agricultural policies which, to put it mildly, are insane.</p> <p>And although no reputable economist believes that U.S. agricultural policy makes any sense whatsoever, we seem to be stuck with organizations like the RAC, as well as hundreds more that few people have heard of—a testament to perseverance of government‐​granted privileges.</p> <p>Explaining New Deal policies is a&nbsp;risible endeavor. Contrary to what schoolchildren learn, the New Deal didn’t save the country. Instead it forced the economy into a&nbsp;<a href="http://www.youtube.com/watch?v=JVNSQ72wvlc">Keystone‐​Cops movie</a>&nbsp;of regulatory madness. The&nbsp;<a href="http://www.youtube.com/watch?v=MK6TXMsvgQg">Benny Hill theme</a>&nbsp;is the best soundtrack for the New Deal, not “<a href="http://www.npr.org/2008/11/15/96654742/a-depression-era-anthem-for-our-times" target="_blank">Brother Can You Spare a&nbsp;Dime?</a>”</p> <p>Of course, Roosevelt’s failed and laughable policies had very unfunny repercussions on the poorest Americans. They also have repercussions today, such as the Raisin Administrative Committee.</p> <p>Organizations like the RAC hide behind a&nbsp;prolix agricultural code that, to borrow a&nbsp;phrase from Mark Twain, is like reading printed chloroform. But those with a&nbsp;stake in the game understand that the code supports them. Like bacteria that feed off of sulphur vents, it is their unique form of sustenance.</p> <p>They’d prefer to keep their existence a&nbsp;secret, but thankfully cases like Horne’s help drag them into the light.</p> </div> Fri, 24 Apr 2015 13:28:00 -0400 Trevor Burrus https://www.cato.org/publications/commentary/raisin-laugh-supreme-court The Iowa Agricultural Panderfest https://www.cato.org/publications/commentary/iowa-agricultural-panderfest Michael D. Tanner <div class="lead text-default"> <p>Political junkies have always been of two minds about the Iowa caucuses’ position as the first step on the road to the presidential nomination. On the one hand, Iowa is far less diverse, far more rural, and generally more insular than much of the country. It tells us little about a&nbsp;candidate’s broader appeal. On the other hand, its small media market and retail politics allow candidates without huge war chests to compete on a&nbsp;nearly equal footing. Whereas in bigger states, candidates with lots of money can flood the airwaves with advertising, in Iowa, candidates actually have to answer questions from voters and the media in person.</p> </div> , <div class="text-default"> <p>Iowa also provides one other valuable service. It lets us see just how far candidates will go in pandering to special interests. And this year, most of the potential Republican candidates are already providing a&nbsp;particularly craven spectacle.</p> <p>Last week, nearly everyone thinking of running for the Republican nomination made a&nbsp;pilgrimage to the Iowa Agricultural Summit, where the putative candidates pledged their allegiance to agricultural subsidies generally and the Renewable Fuel Standard specifically.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Most of the GOP candidates told farmers they love the Renewable Fuel Standard.</p> </div> </div> </aside> , <div class="text-default"> <p>The RFS is an EPA regulation mandating that gasoline sold in the United States contain a&nbsp;minimum amount of “renewable fuel” components, primarily ethanol. This year, transportation fuel sold in the U.S. must contain at least 15.21 billion gallons from such renewable sources. That figure is scheduled to rise to 36 billion gallons by 2022. Most gasoline sold today is a&nbsp;blend that is 90 percent gasoline and 10 percent ethanol, known as E10, to comply with these regulations. In order to meet the mandate in the future, the ethanol would have to be increased to 15 percent. The mandate is a&nbsp;windfall for Iowa corn farmers — roughly half of all Iowa corn production goes to ethanol, and farmers earn nearly $5 billion annually from the program — but a&nbsp;disaster for pretty much everyone else. The mandate drives up the cost of both gasoline and food. It adds about 13 cents per gallon to the cost of gas. And, according to the CBO, 10 to 15 percent of the rise in food prices since 2007 can be attributed to the RFS. It also reduces U.S. food exports, adding to both food costs and hunger worldwide.</p> <p>At the same time, the RFS does little or nothing to help the environment. Studies show that, if one accounts for all the fuel and fertilizer needed to grow the corn in the first place, as well as the lower fuel efficiency of gasoline mixed with ethanol, ethanol actually is a&nbsp;bigger source of pollution than traditional fuels. One study, by Princeton professor Tim Searchinger, published in <em>Science</em> magazine, found that over a&nbsp;30‐​year span, ethanol ends up contributing twice as much carbon dioxide to the air as the same amount of gasoline would. That is why environmental groups like Friends of the Earth and the Clean Air Task Force oppose the mandate.</p> <p>Even the Obama administration, which has never met an environmental regulation it didn’t love, has recognized the problems with the Renewable Fuel Standard, calling for the mandate to be scaled back (though not eliminated).</p> <p>None of this stopped Republican candidates from telling Iowa farmers that they were committed to continuing, and even strengthening, the mandate.</p> <p><strong>Jeb Bush</strong> was typically wishy‐​washy. He declared the RFS a&nbsp;success, but allowed that it might eventually be eliminated. He then added, “Whether that’s 2022 or sometime in the future I&nbsp;don’t know.”</p> <p><strong>Chris Christie</strong>, on the other hand, was not wishy‐​washy at all. He loves the Renewable Fuel Standard and even attacked the Obama administration for not being more forceful in implementing it. “Certainly anybody who’s a&nbsp;competent president would get that done in their administration,” he told the farmers. Taking his pandering beyond the ethanol mandate, Christie also offered a&nbsp;strong endorsement of crop insurance and agricultural subsidies.</p> <p><strong>Scott Walker</strong>, who in 2006 spoke out against an ethanol mandate, reversed course this time, supporting the RFS and saying he would press the EPA to ensure “certainty in terms of the blend levels set.” Walker did say that he hopes “long term … to get to a&nbsp;point where we directly address those market access issues … so that eventually you didn’t need to have a&nbsp;standard.” But that’s quite a&nbsp;difference from his 2006 statement that “it is clear to me that a&nbsp;big‐​government mandate is not the way to support the farmers of this state.” Walker’s U‑turn on the issue was blatant enough to cause some observers to wonder if he was risking a&nbsp;Romney‐​like reputation for adjusting his positions to fit the audience.</p> <p><strong>Rick Perry</strong> joined Walker in the flip‐​flopping category, although he was at least honest about it. He acknowledged that he had opposed the RFS in the past, but now warned against eliminating the mandate too quickly. Perry, who once asked the EPA for an RFS waiver for Texas, said he opposes mandates generally, but opposed “discriminat[ing] against the RFS.”</p> <p>However, the biggest ethanol enthusiasts were the lesser candidates <strong>Mike Huckabee</strong>,<strong> Lindsey Graham</strong>, and <strong>Rick Santorum</strong>. Rising to Christie levels of pandering, Huckabee declared ethanol a&nbsp;national‐​security issue, saying that the Renewable Fuel Standard was necessary for the United States to achieve “energy independence.” Graham doubled down on the national‐​security angle, claiming that every gallon of ethanol reduces by a&nbsp;gallon “what you have to buy from people who hate your guts.”</p> <p>Santorum proudly announced that he was “always willing to take the side of ethanol in a&nbsp;debate.” Ethanol, Santorum said, “creates jobs in small‐​town and rural America.” Besides, Santorum noted, the RFS “is a&nbsp;mandate. It is not a&nbsp;tax.” Glad he cleared that up.</p> <p>Only <strong>Ted Cruz</strong> among those at the summit was willing to stick to free‐​market principles. (<strong>Rand Paul</strong> did not attend the summit but also opposes the Renewable Fuel Standard. “He does not support the government telling consumers or businesses what type of fuel they must use or sell,” according to his spokesman. <strong>Marco Rubio</strong> also did not attend the summit. He says he does not yet have a&nbsp;position on the Renewable Fuel Standard, but will eventually come up with one “holistically,” as part of an overall energy plan. )</p> <p>Cruz called the RFS “corporate welfare” and declared that “businesses can continue to compete, continue to do well without having to go on bended knee to Washington asking for subsidies, asking for special favors.” Taking a&nbsp;shot at those rivals who had joined the panderfest, Cruz told the farmers, “The answer you’d like me to give is, ‘I’m for the RFS, darn it.’ But I’ll tell you, people are pretty fed up, I&nbsp;think, with politicians who run around telling one group one thing, another group another thing, and then go to Washington and they don’t do anything they said they’d do.”</p> <p>Oh, and if anyone is wondering, Hillary Clinton, who was invited to the agricultural summit but did not attend, backed the Renewable Fuel Standard in her 2008 campaign. Her spokesmen have refused to comment on her current position. Perhaps the e‑mail was lost.</p> <p>As of now, the 2016 Iowa caucuses are tentatively scheduled for January 18. If the agricultural summit is any example, it’s going to be a&nbsp;very long ten months.</p> </div> Wed, 11 Mar 2015 10:36:00 -0400 Michael D. Tanner https://www.cato.org/publications/commentary/iowa-agricultural-panderfest U.S. Sugar Policy Is Not So Sweet https://www.cato.org/publications/commentary/us-sugar-policy-not-so-sweet Daniel R. Pearson <div class="lead text-default"> <p>Today, millions of Americans will give boxes of candy to their valentines. Seeking to strengthen loving relationships is a&nbsp;very good thing; what is not so good is that the candy will cost more than it should because of U.S. sugar policy. The sugar program should be reformed to make sweetness and romance more affordable.</p> </div> , <div class="text-default"> <p>The sugar program has become increasingly complicated and market distorting since import quotas were re‐​established in the early 1980s. Today, no other agricultural commodity faces such a&nbsp;stultifying collection of laws and regulations. The government controls how much sugar American sugarcane and sugar beet farmers are allowed to sell in the U.S. market. The 40 countries allowed to export sugar to the United States are limited by quota amounts established more than 30&nbsp;years ago. The U.S. Department of Agriculture acquired surplus sugar in 2013&nbsp;in an effort to keep the price high, and then spent more than $250 million of taxpayer funds to convert that sugar into relatively lower‐​value ethanol.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Valentine’s Day would be just a&nbsp;bit sweeter if the U.S. stopped distorting the sugar market.</p> </div> </div> </aside> , <div class="text-default"> <p>A&nbsp;<a href="http://sugarreform.org/wp-content/uploads/2011/11/The-Impact-of-the-U.S.-Sugar-Program-Beghin-Elobeid-Report-11.17.11.pdf" target="_blank">2011 study</a>&nbsp;by economists at Iowa State University estimated that consumers would save up to $3.5 billion per year (depending on the size of the gap between U.S. and world prices), if the United States ended all market‐​distorting sugar policies. Given that the 2007 Census of Agriculture was able to count only 4,714 sugar farmers (4,022 producing beets and 692 producing cane), that amounts to a&nbsp;consumer cost of about $740,000 per farmer. Perhaps it’s not surprising that sugar growers have been willing to live with the program’s restrictions in order to enjoy its benefits.</p> <p>Other countries also have policies that distort sugar production and trade. Because of those subsidies, the U.S. sugar industry has long argued that it could not survive without government support. Many policymakers have accepted that argument, which has helped to prevent reform measures from moving forward. However, a&nbsp;2015 publication by the U.S. Department of Agriculture&nbsp;<a href="http://www.ers.usda.gov/publications/sssm-sugar-and-sweeteners-outlook/sssm-309.aspx#.U8A1jbHVcSk" target="_blank">casts serious doubt</a>&nbsp;on that presumption by presenting a&nbsp;study of global sugar production costs. That analysis clearly suggests that the sugar industry would remain viable, even in the absence of U.S. import restrictions and domestic supports.</p> <p>The proposition that all or most of the U.S. sugar industry would remain economically successful is supported by the example of Canada. That country has no sugar import restrictions or domestic supports. Despite those free‐​market conditions, sugar beets are produced commercially in Alberta. Defenders of the U.S. policy status quo have yet to explain why the American industry would die from exposure to open competition, while the Canadian industry lives on. Canada may have a&nbsp;clear advantage in some pursuits (ice hockey comes to mind), but it is not at all obvious that Canada is better suited to sugar production than is the United States.</p> <p>The path to reform is straightforward. The U.S. sugar program should be ended as soon as is legislatively possible. Unilateral reform would be quick, simple, entirely within the scope of U.S. policymakers, and would provide substantial benefits to consumers and the broader economy. It would free sugar growers to respond to opportunities in the marketplace instead of needing to seek permission from regulators in Washington. Liberalization also would provide moral authority for the United States to push for sugar reform in other countries via negotiations under the auspices of the World Trade Organization.</p> <p>Would ending the U.S. sugar program in 2015 guarantee that all Americans would revel in Valentine’s Day bliss a&nbsp;year from now? Unfortunately, no. Reform of U.S. sugar policy won’t fulfill the desires of every heart. However, it would provide significant benefits to consumers, as well enhancing the stature of the United States as a&nbsp;country that is willing to work toward an open, competitive, and growing global economy. And that’s not a&nbsp;bad way to show some sweetness and love to mankind.&nbsp;</p> </div> Sat, 14 Feb 2015 09:40:00 -0500 Daniel R. Pearson https://www.cato.org/publications/commentary/us-sugar-policy-not-so-sweet Toward Free Trade in Sugar https://www.cato.org/publications/policy-analysis/toward-free-trade-sugar Daniel R. Pearson <div class="lead text-default"> <p>For decades, political support for the U.S. sugar program has been underpinned by the general sense that the costs of producing sugar in this country are quite high relative to prices prevailing in world markets. Thus, the elimination of government support would lead to the certain death of the sugar industry. Recent analysis indicates that this view simply is not correct. Rather, the U.S. industry would continue to produce sugar economically in the absence of government support.</p> </div> , <div class="text-default"> <p>This paper will review the recent history of U.S. government intervention in sugar markets from the time price supports were reestablished as part of the 1981 farm bill. Since then, sugar has been subject to a&nbsp;higher degree of government control than any other major agricultural commodity. Among the consequences of those protectionist policies have been higher incomes for U.S. sugar growers, expanded domestic production, reductions in imports from traditional suppliers, increased trade frictions, U.S. unwillingness to provide meaningful sugar market access during trade negotiations, higher costs to consumers, and transfer of confectionary manufacturing capacity away from the United States to countries with more open and competitive sugar markets.</p> <p>The paper concludes with a&nbsp;discussion of two primary alternatives for ending U.S. sugar protectionism. Unilateral reform would be quick, simple, entirely within the scope of U.S. policy, and would lead to a&nbsp;market‐​oriented and competitive U.S. sugar industry. Multilateral reform would require extended negotiations with sugar producers and governments of other countries, but has the prospect of creating a&nbsp;more open and nonsubsidized global marketplace. Domestic sugar interests would prefer a&nbsp;multilateral approach. American consumers, commercial sugar users, taxpayers and free traders would favor unilateral reform. The best approach may be to set an example for the world by enacting unilateral reforms, then use the resulting moral leverage to build momentum for multilateral liberalization.</p> </div> Wed, 11 Feb 2015 00:00:00 -0500 Daniel R. Pearson https://www.cato.org/publications/policy-analysis/toward-free-trade-sugar Consumers Win as WTO Condemns Protectionist Meat Labels https://www.cato.org/publications/commentary/consumers-win-wto-condemns-protectionist-meat-labels K. William Watson <div class="lead text-default"> <p>In the guise of informing consumers, U.S. country‐​of‐​origin labeling (COOL) regulations are being used to protect a&nbsp;small number of cattle growers from competition at the expense of everyone else. This week, a&nbsp;World Trade Organization dispute panel found that the program violates U.S. trade obligations for unjustifiably discriminating against foreign cattle. With the threat of trade retaliation from Canada and Mexico looming, the loss at the WTO strengthens domestic opponents of COOL and makes it more likely that Congress will finally act to end this shamefully protectionist boondoggle.</p> </div> , <div class="text-default"> <p>Under current U.S. COOL rules, retailers selling beef and pork must include labels stating what country the animal was in when it was born, raised, and slaughtered. This information might be interesting to a&nbsp;curious shopper, but it is completely useless in determining the quality or safety of meat. The same U.S. food safety standards apply regardless of where the animal came from.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Ending the protectionist country‐​of‐​origin labeling regime is good policy because the law harms U.S. consumers and businesses.</p> </div> </div> </aside> , <div class="text-default"> <p>Consumers are, of course, welcome to care about things that don’t really matter, and generally, more information is a&nbsp;good thing to have. Sometimes, though, the cost of providing that information is greater than its value. Mandating that companies provide consumers with information will overcome that hurdle by removing the low‐​information option and forcing consumers to pay the higher price. Making labels mandatory also introduces opportunities for&nbsp;<a href="https://www.cato.org/publications/policy-analysis/regulatory-protectionism-hidden-threat-free-trade">rent‐​seeking</a>&nbsp;by companies looking to shift costs onto their competitors.</p> <p>That’s exactly what’s happening with the COOL regulations, and is the crux of the WTO complaint. Canada and Mexico are not complaining that American consumers, armed with their dinner’s travel itinerary will eschew immigrant cattle. Rather, they point out that complying with the rules imposes huge costs on U.S. meat processors who buy cattle that once lived across the border. If a&nbsp;slaughterhouse buys any cattle that rode on a&nbsp;truck traversing the 49th parallel, it must segregate those animals and their meat through the entire production and delivery process.</p> <p>The arbitrary burdens imposed by COOL regulations create a&nbsp;strong incentive for meat packers to purchase only cattle that was born and raised in the United States in order to avoid segregation costs. The labeling rules create artificial demand for domestic cattle while increasing the cost of beef for all American consumers.</p> <p>So far, this dynamic has made COOL very popular in Washington. The reality of politics is that the most popular policies are those in which the benefits go to a&nbsp;small well‐​organized group of people while the costs are spread thin to many. The Obama administration in particular is keen on furthering the interests of COOL supporters and has gone out of its way to make the rules as onerous as possible on importers of foreign cattle.</p> <p>Indeed, this isn’t the first time the WTO has called out COOL regulations for violating U.S. trade obligations. The only reason they’re reviewing it now is that the Obama administration claimed that they changed the regulation to comply with a&nbsp;2012 ruling. But those changes actually&nbsp;<a href="https://www.cato.org/publications/commentary/protecting-us-consumers-big-cattle">made the law worse</a>&nbsp;by requiring even more segregation without reducing the detrimental impact to Canadian and Mexican cattle. Not fooled by such a&nbsp;<a href="https://www.cato.org/publications/commentary/protecting-us-consumers-big-cattle">cynical maneuver</a>, the latest WTO report simply reiterates the same conclusions reached two years ago.</p> <p>But the political dynamic is about to change. The latest loss at the WTO brings us one step closer to authorized sanctions by Canada and Mexico. If America’s two largest export markets retaliate by imposing tariffs on U.S. exports, the political dynamic underpinning COOL suddenly changes. Canada has released&nbsp;<a href="https://www.cato.org/blog/thank-you-canadians-we-are-you">a&nbsp;list</a>&nbsp;of products it intends to tax—including wine, apples, rice, corn, mattresses, and furniture. These are U.S. industries that normally could not care less about cross‐​border livestock trade. But they will&nbsp;<a href="http://www.coolreform.com/about-the-coalition/" target="_blank">not sit idly by</a>&nbsp;while their business suffers on behalf of cattle ranchers.</p> <p>Even if the administration refuses to budge, Congress’s opinion of COOL is about to sour immensely as cattle ranchers find themselves&nbsp;<a href="http://thehill.com/blogs/congress-blog/economy-budget/214960-country-of-origin-labeling-dispute-threatens-us-exports" target="_blank">woefully outgunned</a>&nbsp;on Capitol Hill. Ending the protectionist COOL regime is good policy because the law harms U.S. consumers and businesses. Thanks to the WTO process, ending COOL is now good politics too.</p> </div> Fri, 24 Oct 2014 13:26:00 -0400 K. William Watson https://www.cato.org/publications/commentary/consumers-win-wto-condemns-protectionist-meat-labels Will India Destroy the WTO’s Agricultural Reforms? https://www.cato.org/publications/commentary/will-india-destroy-wtos-agricultural-reforms Daniel R. Pearson <div class="lead text-default"> <p>President Obama and Indian Prime Minister Narendra Modi recently met in Washington. Supporters of trade liberalization had hoped that this meeting might dissuade India from seeking to roll back the World Trade Organization’s agricultural disciplines. However, India appears committed to a&nbsp;government‐​driven food system that is working poorly both for India and for the rest of the world.</p> </div> , <div class="text-default"> <p>The Sept. 30 joint statement only notes that the leaders “discussed their concerns about the current impasse” and “directed their officials to consult … on the next steps.” Reading between the lines, this means that India remains intent on providing market‐​distorting farm subsidies well in excess of its WTO commitments, while seeking concurrence from other nations to tear up the twenty‐​year‐​old Uruguay Round Agreement on Agriculture (URAA).</p> <p>The URAA was a&nbsp;remarkable achievement. For decades countries had utilized beggar‐​thy‐​neighbor subsidies that encouraged excess production and drove down world prices. Thus, a&nbsp;portion of the adjustment costs of one nation’s misguided policies was borne by farmers in other countries. For the first time, the URAA created rules to limit the use of trade‐​distorting subsidies. India and all other WTO members agreed to those provisions. Some countries subsequently adjusted their agricultural policies to bring them into conformity.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>An unwillingness to enforce the limits on agricultural subsidies risks losing those hard‐​won reforms for good.</p> </div> </div> </aside> , <div class="text-default"> <p>India has taken a&nbsp;different approach. The government has raised farm supports to make them even more market distorting. The Food Corporation of India (FCI), a&nbsp;government agency, purchases a&nbsp;substantial quantity of farmers’ wheat and rice at prices set well above world levels. It then sells a&nbsp;portion in 500,000 “fair price” stores to some 800 million poor people at low prices. This food procurement and distribution system is widely recognized as being inefficient, wasteful and corrupt.</p> <p>An estimated 40 percent of the food never reaches its intended consumers. In July it was reported that 3&nbsp;million metric tons (MMT) of grain (equivalent to the annual wheat consumption of the Philippines) were being stored in sacks on the ground covered only with plastic sheeting; spoilage is widespread. Local officials sometimes appear to find it preferable to divert grain to other buyers instead of delivering it to the subsidized shops. Intended recipients of food aid have reported being required to pay bribes in order to receive ration cards. Those who can’t afford bribes are forced to buy a&nbsp;bit of high‐​priced grain in the commercial market.</p> <p>India’s subsidy regime violates its WTO commitments by spending too much on market‐​distorting farm supports. The URAA was written carefully to allow unlimited subsidies to help feed underprivileged people. It is subsidies to farmers that are constrained, not subsidies to consumers. Recently India provided an update to the WTO regarding its agricultural expenditures, claiming that they still were within the allowable level. But that assertion requires accepting incorrect computations for both the price level and the quantity of production qualifying for support. An insightful (and conservative) 2011 study by DTB Associates calculated that India was then exceeding its allowed support levels by a&nbsp;minimum of $37 billion. The figure surely is larger now.</p> <p>The URAA provides helpful guidance as to how India might restructure its agricultural policies. The WTO problem would be solved if India simply purchased its desired commodity stocks at free‐​market prices. Additional support then could be provided to farmers through decoupled payments (not linked to current production or price of a&nbsp;crop), or through any of several other specified policy options that could help to spur development in rural communities. Those measures include expenditures for research, pest and disease control, extension advisory services, marketing services, infrastructure services, and insurance programs.</p> <p>India is a&nbsp;consequential participant in the global agricultural economy. In addition to having the world’s second largest population, it also has the second largest area of tillable land. Its subsidies lead to surpluses, which move into export channels. The country usually ranks first or second in rice exports and also finds overseas customers for wheat and sugar. As a&nbsp;result, farmers in other countries suffer from lower prices.</p> <p>It would be nice to think that some blunt but quiet conversations between senior officials of India and other WTO countries would persuade India to bring its policies into compliance. However, the new Modi government has taken a&nbsp;strong stand on this issue and seems unlikely to change without meaningful pressure. Other countries should apply that pressure by bringing a&nbsp;WTO dispute settlement case against India’s agricultural subsidies.</p> <p>Initiating dispute settlement would not only provide a&nbsp;stimulus for India to rethink its position, it would have the broader benefit of reaffirming the international community’s commitment to policy restraint enshrined in WTO agreements. An unwillingness to enforce the limits on agricultural subsidies risks losing those hard‐​won reforms for good.</p> </div> Tue, 14 Oct 2014 08:23:00 -0400 Daniel R. Pearson https://www.cato.org/publications/commentary/will-india-destroy-wtos-agricultural-reforms Horne v. U.S. Dept. of Agriculture https://www.cato.org/publications/legal-briefs/horne-v-us-dept-agriculture-1 Steffen N. Johnson, Eimeric Reig-Pleissis, Christopher E. Mills, Ilya Shapiro, Trevor Burrus <div class="lead text-default"> <p>In the feudal era, rulers funded their households by taking a&nbsp;share of the crops farmers in their territory produced. The lords called this tribute and the peasants would’ve called it extortion. We like to think that we’ve come quite a&nbsp;ways since then. After all, taxes are now paid withmoney—or even a&nbsp;digital abstraction of money—and <em>forms</em>, not cartloads of grain. We can even feel good (well, sanguine) about paying taxes, because we know that we’re funding the government of our own choosing—a democratically elected leadership restrained by the Constitution—not just feeding the avarice of a&nbsp;local warlord. Except if you’re a&nbsp;raisin farmer in California, a&nbsp;state responsible for 40% of the world’s and 99% of America’s raisins. If you’re a&nbsp;California <span>serf</span> raisin farmer, you’re required by federal law to hand over up to 47% of each year’s crop to the U.S. government so the government can control the supply and price of raisins under a&nbsp;New Deal‐​era regulatory scheme. Yet the Fifth Amendment says that “private property [shall not] be taken for public use, without just compensation,” so it’s hard to see how it would be constitutional for the government to take nearly half a&nbsp;farmer’s harvest without <em>any </em>payment—let alone “just compensation.” (To be clear, if you grow grapes for use in wine or juice, you’re fine. It’s only if you dry out those grapes that you have to watch your property rights evaporate.) Yet the U.S. Court of Appeals for the Ninth Circuit has done just that, repeatedly. In 2012, the <em>en banc</em> court held that nobody could challenge this taking in federal court. The Supreme Court <a href="https://www.cato.org/blog/governments-legal-arguments-shrivel-vine">unanimously disagreed</a>. (For more background and to read Cato’s merits brief in that case go <a href="https://www.cato.org/publications/legal-briefs/horne-v-us-dept-agriculture-0">here</a>.) Failing to take the hint, the Ninth Circuit has now held that the Fifth Amendment’s protection against state expropriation simply doesn’t apply to <em>personal</em> property (as opposed to real estate). To put it bluntly, that’s an arbitrary, unprecedented, and ahistorical distinction, so raisin farmers are once again forced to ask the Supreme Court to correct lower court’s failure to protect their rights. Joined by the five other organizations, Cato has filed a&nbsp;brief urging the Court to take this case, thus insuring that the farmers’ constitutional rights aren’t left to wither on the vine. We argue that the Ninth Circuit’s distinction between real and personal property has no basis in the text and history of the Constitution, Supreme Court precedent, or a&nbsp;reasonable understanding of the English language. The Fifth Amendment embodies the notion that property rights are central to a&nbsp;free people and a&nbsp;just government. It could not be more clear that property can’t be taken without “due process,” and that when it is taken, the government must pay “just compensation.” These guarantees reflect the many values inherent in private property, such as individual achievement, privacy, and autonomy from government intrusion. By devaluing property rights of all sorts, the Ninth Circuit weakens the values of autonomy and reliance that undergird the Takings Clause and conflicts with the very foundations of our constitutional order. Raisin farming ain’t easy; five pounds of grapes yield only one pound of raisins. Raisin farmers shouldn’t have to hand over half of that pound to the federal government.</p> </div> Wed, 08 Oct 2014 17:33:00 -0400 Steffen N. Johnson, Eimeric Reig-Pleissis, Christopher E. Mills, Ilya Shapiro, Trevor Burrus https://www.cato.org/publications/legal-briefs/horne-v-us-dept-agriculture-1