How will the peak in US farm subsidies impact poor growers?

As world food prices hover at a four-year low, U.S. subsidies for farmers look set to peak in 2015 with billions of dollars in U.S. government funds flowing into food markets.

So, what does this mean for poor farmers in the developing world?

Luckily, the subsidies won’t have a major destabilising impact on them, according to analysts I’ve spoken to.

Payments to U.S. farmers through 2015 are expected to top $10 billion, the largest annual dispersal for the five years covered by the current U.S. farm bill, the Food and Agricultural Policy Research Institute thinktank reported this month.

Between 1995 and 2012, U.S. farmers received $292.5 billion in government subsidies, with most of the money going to large industrial farms, the Environmental Working Group, a non-profit research organisation, reported.

Critics believe subsidies from the U.S. and Europe distort international markets, allowing wealthy countries to “dump” food on developing countries, hurting local farmers and creating dependency.

Oxfam, an aid group, considers the payments a form of “unfair competition” which hurt farmers in Africa.

But hard data on these allegations is inconclusive, said Jamie Morrison, a senior economist with the U.N.’s Food and Agriculture Organisation (FAO).

“The issue is not black and white,” Morrison told me. The impact of subsidies are “market-specific, commodity-specific and country-specific”, he said, and it’s hard to draw sweeping conclusions.

U.S. subsidies take a variety of forms including payments to farmers based on how much land they own, government-financed crop insurance, and Price Loss Coverage, where funds are provided when average crop prices fall below a given threshold.

Despite the size of subsidy payments, their effect on poor nations is marginal, says Julian Binfield, an agricultural economist at the University of Missouri.

Good weather conditions and high yields in much of the world over the past few years are responsible for low prices, rather than U.S. payments, he said.

“It would be hard to see the impact of this (farm) bill on developing countries,” Binfield told me.

There are, however, some exceptions.

Cotton farmers in West Africa, who export their crop onto world markets, could face lower incomes due to depressed prices caused partially by the subsidies, Morrison said.

Dairy producers, or rice farmers tend to operate in regulated domestic markets, he said, so they are less likely to face pressure from subsidised American crops.

“It’s important not to jump straight to the assumption that increased production in one country will hurt developing countries en mass,” the FAO’s Morrison said.

This article is published in collaboration with The Thomson Reuters Foundation trust.org. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Chris Arsenault covers global food security and agricultural politics for the Thomson Reuters Foundation from Rome.

Image: A farmer harvests wheat on a field. REUTERS/Navesh Chitrakar.