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The Impact of US Food Policy

U.S. Food Policy
The U.S. produces around 38.7 percent of all corn grown globally and around 35 percent of all soybeans. With such a large stake in global markets, it is not surprising that when U.S. food policy changes occur, many and often poorer places feel their effects throughout the globe.

Over 1 billion people work in world agriculture, and in poorer regions, a majority of the workforce population works in agriculture. In Sub-Saharan Africa, for example, over 60 percent of the workforce is involved in agriculture. With such a dependence on agriculture, changes in global markets and farming policies can severely affect these poorer populations. U.S. food policy may impact foreign farmers negatively in four principal ways: restricting imports in which developing countries have a comparative advantage; stimulating an overproduction of commodities in the U.S., that when the U.S. exports lowers the international price of goods from which low-income country farmers derive their income; distorting food markets in developing countries by the provision of in-kind food aid; and reducing official development assistance for agricultural and rural development.

Subsidies

Subsidies are a long-standing agricultural policy in the United States. Originating during the Great Depression, farming subsidies are payments and other support that the U.S. federal government gives to certain farmers. Today, the U.S. distributes around $20 billion to farming businesses annually. In 1930, when the stock market crashed, around 25 percent of Americans lived on farms and ranches and the government intended subsidies to help support these smaller family-run farms. Today, the largest 15 percent of farm businesses receive 85 percent of government subsidies that protect them from price fluctuations and unexpected decreased crop production.

Because of the U.S. subsidy system, it is cheaper for U.S. farmers to produce certain crops and thus it is cheaper for many poor nations to import crops such as wheat, barley and corn, instead of buying and growing locally. As one of the world’s largest cotton producers, subsidies can cause severe global price depression. In 2004, Brazil challenged the U.S. cotton subsidies with the support of the World Trade Organization (WTO). The WTO found that U.S. cotton subsidies were responsible for distorted international markets. In winning the dispute, Brazil could impose $830 million in product sanctions and the U.S. paid $300 million to the Brazil Cotton Institute as reparations.

Subsidies are also the main cause of more market distortion for corn, one of the U.S.’s most lucrative crops. Under the North American Free Trade Agreement (NAFTA), the U.S. exports highly subsidized crops that compete with Mexican products. The exported corn contributed to a 413 percent increase in U.S. exports and a 66 percent decline in Mexican producer prices from the 1990s to 2005.

Cargo Preference

Cargo preference is another policy interfering in international relations between the U.S. and its beneficiaries. The Cargo Preference Act of 1954 ensures that ships operated by U.S.-based companies must transport at least 50 percent of overseas-bound food aid. Because of this regulation, 35-40 cents of each dollar spent on food aid goes toward transportation rather than the food itself.

The United States established Cargo Preference to protect U.S.-flag maritime companies and unions from competing for foreign cargo ships. These companies may increase or decrease the cost of transportation. The disparity between foreign-flag and U.S.-flag ships is very costly to the food aid effort. U.S.-flag ships can cost around $100-135 per metric ton while foreign-flag ships cost around $65 per metric ton. By matching foreign pricing, the country could use the $23.8 million that the country that it would have spent on shipping towards feeding the poor.

If the U.S. were to eradicate cargo preference, there would be an additional $300 million to feed another 9.5 million people each year.

Biofuel Mandates

The Renewable Fuel Standard (RFS) emerged with the Energy Policy Act of 2005. This federal policy requires transportation fuel to contain a minimum volume of renewable fuel, namely ethanol from corn or soybeans. This policy was to help American farmers and decrease dependency on foreign oil.

The policy has, however, had a negative effect on global food prices. According to the Resources for the Future, estimates determine that the RFS in the U.S. and the E.U.’s own biofuel mandate will increase global food prices by 15 percent by 2022. Because the RFS demands more corn for ethanol production and because the U.S. produces 40 percent of the world’s corn crops, the policy has had a critical impact on global corn markets. An Iowa State University study estimates that the RFS has diverted a third of U.S. corn crops (10.8 percent of the global corn market) towards production of ethanol and biofuel and has caused an increase in global corn prices from 8-34 percent.

Proactive Policy

The U.S. government has taken major steps toward improving the food security of poor nations. While many food policies focus on farmers and exporting goods, the Global Food Security Reauthorization Act (GSRA) targets farmers in developing countries. Signed into law in 2018, the GSRA ensures funding and support for the Feed the Future initiative. Feed the Future works with local agriculture sectors in developing countries to help build up strong farming techniques and give them the tools to ensure their food security. Thanks to Feed the Future, estimates state that 23.4 million people now live above the poverty line and that farmers have generated $12 billion in new agricultural sales from 2011 to 2017.

Due to the size and volume of exported crops and resources, the U.S. food policy has a strong pull on global markets. Developing and poor nations can feel the effects of rising and falling global food prices most keenly. Therefore, it is important for U.S. policymakers to assess the impact of these policies and others like them. Luckily, initiatives like Feed the Future are working hard to help build stable agricultural communities in developing countries. With such size and resources, the U.S. has the power to create positive change in global markets.

– Maya Watanabe
Photo: Flickr

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Top Five US Trading Partners Receive US Foreign Aid 

Top five U.S. Trading Partners
The U.S. has strengthened relations with other countries around the world by offering foreign aid. In 2017, the top five U.S. trading partners all received foreign aid from the U.S., the world’s largest trading nation.

In 2013, U.S. exports in goods and services were $2.3 trillion. Trade is vital to the U.S. economy as it provides growth, aids jobs and offers Americans affordable goods and services. It supports families and businesses by allowing more productive and higher paying jobs, growing the variety of products available for purchase and encouraging investment for a more rapid economic growth.

The top five U.S. trading partners of 2017 received foreign aid, and then returned the favor by assisting the U.S. economy.

China

Aid received from the U.S. in 2017: $16 million.

China is the United States’ top trading partner with 130,000 exports and 505,000 imports in 2017. In 2015, Chinese manufacturing lowered prices in the U.S. for consumer goods which lowered inflation and in turn gave more money to Americans; as a result, consumer prices were 1 to 1.5 percent lower.

Though the percentage seems small, such actions make a significant impact throughout time. In 2015, the average income for a household was $56,500; trade with China saved these families up to $850 each in that year alone.

Canada and Mexico

Aid received from the U.S. in 2017: $28 million and $61 million.

Canada, Mexico and the United States are members of the North America Free Trade Agreement (NAFTA). Between 1993 and 2017, trade between the three countries quadrupled from $297 billion to $1.17 trillion. Specifically, the U.S. increased its exports of goods to Canada and Mexico from $142 billion to $525 billion.

NAFTA aids economic growth, profits and jobs for all three countries in its agreement.

Japan

Aid received from the U.S. in 2017: $30,000.

Japan benefits the U.S. by providing 710,000 American jobs via exports, and their benefits continue to grow as well. Japanese students that study abroad in the U.S. contribute at least $600 each to the U.S. economy; Japan also ranks fourth of countries to contribute to American tourism. In 2014, there were more than 9.4 million Japanese visitors who spent $17 billion in the U.S.

Germany

Aid received from the U.S. in 2017: $15,000.

Germany is the largest consumer market in the European Union (EU), and due to its success, the U.S. benefits from Germany through exports. Although U.S. investors may have to pay a higher cost while doing business in Germany, they can count on high levels of productivity, a highly skilled labor force, quality engineering, a first-class infrastructure and a prime location in the center of Europe. Germany also helps the U.S. through spreading their businesses overseas — companies such as BMW, Daimler, Siemens and Volkswagen have expanded operations in the U.S. which has resulted in more jobs.

Foreign aid is an important aspect of world operations because it strengthens economies and improves other countries’ ability to grow and build relations. The top five U.S. trading partners demonstrate the direct benefits that foreign aid can bring back to American soil.

– Anne-Marie Maher

Photo: Flickr