Our Works

TRADE - 20 December 2018


by Joao Pacheco

The US Congress adopted a new 5-year Farm Bill that enhances the commodity programs and crop insurance tools previously available to US farmers, in a sharp contrast to the European Commission CAP proposals that drastically cut the budget and support to EU farmers.

The new US Farm Bill increases support across the board. It increases most loan rates for commodities like cereals (wheat, maize, rice, etc), oilseeds (soybeans), cotton, sugar and others like peas and lentils.  It opens up the possibility to increase the reference prices for the insurance program Price Loss Coverage and improves the Agriculture Risk Coverage calculated yields.

Last but not least it boosts the dairy revenue insurance by sharply reducing the premiums for the smallest producers – below on average 240 cows, yes 240 this is not an error, this reflects the size of dairy holdings in the US- and increasing the level of protection for all farmers amongst other improvements.

The new Farm Bill also increases resources for environmental protection, and for export promotion programs.

Thus, the number one competitor of EU farmers gets a significant boost from the State budget the moment when EU farmers face the opposite – a reduction of 12% in real terms of the CAP budget proposed by the Commission.

Two sides of the Atlantic, two different tales. The US Farm Bill is built around tools that do not fit the EU model and needs, but it is striking that the US increases support when the European Commission proposes sharp cuts even when the sector faces stagnant incomes and dire prospects for the future.

The US farmers will have an even more robust set of tools to improve their resilience to market shocks and climatic events, whilst the EU farmers who have little of it would in the future have even less according to Commission’s proposals.

The EU model has done away with countercyclical payments that compensate farmers when prices drop, which led in the past to waste and alienated the sector from market signals and export markets, which concentrates public support in most productive areas and farms, and it should not emulate the US model in that respect.

But the CAP has not provided sufficient resilience tools to absorb climatic and market shocks. We need more climatic and income insurance and mutual funds, we need a real and well-funded crisis management fund – but that will not happen without CAP support.

We also need to do more to protect at the same time the environment and to improve the economy of the sector, which suffers from lower to negative productivity, compromising the future of farmers incomes and the sustainability of the sector. That will not come either without well targeted CAP support on double performance investments.

Will this new US Farm Bill make the European Commission re-adjust its CAP proposals and funding? If not the current Commission, the next? Will it ring alarm bells in capitals all too willing to let farm support go down? Will it energize the European Parliament to raise in defense of the EU agriculture sector?

We can only hope so. Otherwise our future seems more compromised.

Written by Joao Pacheco