David Schweikhardt predicts a lively specialty-crops– centered Farm Bill debate will start in Congress soon.
Specialty crops growers, who were pleased that they got “their own title” in the 2008 Farm Bill, will be even more the focus of attention as the new 112th Congress turns to composing a new Farm Bill for 2012. And they may not like the attention.
That’s the assessment of Dr. David Schweikhardt, a Michigan State University agricultural economist and farm policy expert. He spoke to about 50 Michigan specialty crops growers during the Michigan Farm Bureau annual convention December 1.
Among the possible outcomes in the 2012 Farm Bill:
• Program crop growers, who get an annual per-acre subsidy whether they plant program crops or not, may be able to collect that subsidy—and grow specialty crops on their farms at the same time. That is currently prohibited.
• Fruit and vegetable growers, and growers of other specialty crops like dry edible beans, may be “forced” to take subsidy checks from the government so the government can continue to subsidize program crop growers.
• Subsidies for program crops may be eliminated. Many people are wondering why the government pays corn, soybean, sorghum, wheat, cotton, and rice growers a per-acre subsidy at a time when commodity prices are at record levels.
This issue is growing even larger, Schweikhardt said. Americans are also questioning why the federal government’s subsidies don’t mirror its nutrition recommendations. Are we fighting obesity or promoting it, they wonder.
Why will this issue come to a head now? Schweikhardt said Congress knew, even as it passed the 2008 Farm Bill, that there could be trouble ahead. But it ignored it at the time. The trouble arrived in March 2010.
Brazil had sued the United States in the World Trade Organization already in 2002, saying that U.S. policy of not allowing program crops growers, specifically cotton growers, to plant specialty crops on program acres led U.S. producers to grow more program crops and thus cause higher production and lower prices. It took eight years, but last March, the WTO agreed with Brazil. It allowed Brazil to impose retaliatory tariffs of $829 million on 102 products the United States exports to Brazil.
To avoid the tariffs, the United States negotiated with Brazil in April, and agreed to pay the Brazilian cotton industry $147 million a year in damages instead.
“That $147 million changed the debate,” Schweikhardt said. Early in June, “The Madness of Cotton” was a top headline in the Wall Street Journal. A Washington Post article talked about “wasteful subsidies.”
But the bigger question now is, how many other countries will take similar action? Canada is already accusing the United States of dumping corn into that country. Mexico complains that cheap U.S. corn hurts Mexican growers. Any country that grows any of the six big program crops, or has a dairy industry, or grows other feed grains like oats, or other oil crops like canola or sunflowers, or peanuts, or tobacco, could potentially sue.
In 1990, specialty crops growers convinced Congress that they didn’t want subsidy payments, but they wanted protection from farmers who got them. Before 1990, direct payments went to farmers who followed rules—usually acreage restrictions—on a crop by crop basis. Those kinds of subsidies were found to be against WTO fair trade rules, so Congress changed the law.
It gave farmers “planting flexibility.” They got DCP payments (Direct and Counter-cyclical Payments) no matter what program crop they grew, or what the price was, or even if they grew nothing at all. That fit WTO rules. Specialty crops growers were all right with that arrangement—as long as program crops growers couldn’t use their acres to grow specialty crops and collect program payments. Thus was born FAVR—the Fruit, Vegetable, and Wild Rice Planting Restriction.
“Brazil argued that if program crops growers couldn’t grow fruits and vegetables, it wasn’t true flexibility,” Schweikhardt said. The World Trade Organization agreed.
The coming debate
So, what to do now?
“A key question,” Schweikhardt said, “is how likely is it that DCP recipients would shift to FAVR crops? Is the planting restriction necessary to protect specialty crops growers? It doesn’t take a lot of new production to overwhelm a market.”
Whether farmers would in fact shift program crop land to specialty crops varies by crop and by area, he said. Michigan, it turns out, is most vulnerable. Michigan grows both program crops and specialty crops. Specialty crops generate 42 percent of the state’s crop revenue. Farmers have both the opportunity and the expertise to shift from corn or soybeans to blueberries, cucumbers, potatoes, green beans, tomatoes, or, most likely, dry edible beans.
California and Florida, on the other hand, get most of their crop income from specialty crops—87 and 97 percent, respectively. So farmers there are largely unaffected. Most Corn Belt states growers grow DCP crops and have little interest in or opportunity to grow specialty crops.
Some specialty crops are more vulnerable to “invasion” than others. Tree fruits and vineyards require expertise, specialized equipment, high capital expenditures, and proper sites, so corn farmers won’t likely plant apple orchards.
Whether or not specialty crop growers should worry about the FAVR restriction, they can’t escape being part of the coming debate, Schweikhardt said.
Will Congress drop FAVR to save the DCP payments? Or will it drop DCP payments, after all these years? Key issues involve nutrition—in which specialty crops are considered healthier and thus more worthy of support—and recently high commodity prices, which make U.S. taxpayers wonder why DCP payments are needed.
“The nutrition issue isn’t going away,” Schweikhardt said. “We’re fat and we need to deal with it. Everybody has a stake in this. It affects insurance costs and Medicare costs. It affects airlines; it costs more to fly heavier people.”
Schweikhardt notes that in times of economic stress, trade friction escalates. “The planting flexibility issue is relevant to all countries that are program crop producers,” he said. “It will not go away and could become worse as global trade frictions worsen in 2012 to 2016.” He sees weak economic conditions persisting for a decade or more, and other countries are likely to pursue the route that Brazil successfully established by its challenge to the United States over cotton.