Oct 09, 2007

Commodities and their Discontents

by Laura Starita

This past July the US House of Representatives passed the 2007 Farm Bill, a piece of legislation that defines, among other things, the terms and conditions for the government agricultural subsidy and loan programs offered to US farmers. The farm bill comes up for renewal every five years or so, and the 2007 version now being debated and modified in the Senate looks very similar to every farm bill that has passed since 1996 giving often wasteful subsidies to growers of agricultural commodities such as corn, wheat, soy, rice and cotton.

Philanthropy Action provides a detailed analysis of the relationship between U.S. farm subsidies and hunger in the third world in a new opinion piece. In addition, a number of interesting articles have come out recently about the current state of commodities farming, particularly as it pertains to corn. In the past twelve months the price of corn has skyrocketed to its highest level in thirty years partly based upon demand for ethanol. As a result, reports the Washington Post, some corn farmers are experiencing a windfall given that they still collect their subsidy (a cash payment that is allocated on the basis of acreage, regardless of the market price for the commodity), as well as a profit from their product. Some forward-thinking farmers have further invested in ethanol refineries, so they also get the proceeds from an ethanol subsidy. Yes, current government policy subsidizes both the overproduction of corn and the use of that overproduction for making ethanol. This may sound like great news for the farmers but the actual result has been dramatic ups and downs in the corn and refined corn markets, fluctuations subsidies are meant to prevent.

Of course, what happens in the American corn market matters all over the world. The spill-over from rising corn prices due to the ethanol boom caused the price of corn tortillas, the staple food of poor Mexicans, to more than double.

Corn is not the only commodity seeing a hike in prices. As reported in the New York Times, soy is also seeing a record high since farmers are shifting acreage to corn, and wheat is also on the rise as the result of drought in Australia, one of the top five wheat producing countries. The collective impact of all these price increases is that the U.S. government is purchasing much less of those commodities for its food aid programs. This may seem like good news given the controversial nature of the country’s in-kind food aid policy, except that nothing is coming in to replace it. Given that the U.S. provides anywhere between half and two-thirds of the food donations distributed by the UN Food Program, a 40 percent decrease in US donations off its 2005 levels could have huge impacts on those who depend on the food for survival.

Together, these pieces show the extent to which the American farm bill is perpetuating a deeply broken system that hurts everyone. There is some hope that the subsidies system will be curtailed as the Senate modifies the current version but we have a long way to go before the farm bill does what it is meant to: protect both farmers and those who consume their products. 

Washington Post: Corn Farms Prosper, but Subsidies Still Flow

New York Times: As Prices Soar, US Food Aid Buys Less

Philanthropy Action: Tipping The Balance on Food Aid