FARMERS: NO MORE HIGH ON THE HOG Long coddled by governments, producers around the world are losing clout. A new trade pact could finally trim subsidies -- good news for taxpayers and consumers.
By Ronald Henkoff REPORTER ASSOCIATES Yumiko Watanabe, Bruce Crumley, Suneel Ratan

(FORTUNE Magazine) – THE ENDURING global partnership between farmers and politicians is starting to come unstuck. The leading industrial powers, after years of bickering, now look ready to forge an agreement on rolling back agricultural subsidies. Such an accord, which could be struck by the end of this year, might finally begin to wean farmers from their ever more expensive reliance on government handouts. Last year taxpayers and consumers in developed countries spent an awesome $300 billion to prop up prices, idle acres, block imports, and subsidize exports, according to the Organization for Economic Cooperation and Development (OECD). Full-time farmers make up just 8% of the population of the 24 OECD nations, but in 1990 they received $15,000 each, on average, in taxpayer-financed payments. The opportunity to curb spending on what may well be the world's most coddled minority comes in Geneva, at the sweeping trade-liberalization talks being held under the auspices of the General Agreement on Tariffs and Trade (GATT). These negotiations were supposed to have concluded last December. They broke down when the European Community refused to scale back its extravagantly protectionist Common Agricultural Policy. In recent weeks, however, the ground has shifted. The German government, long an obdurate defender of its enormously inefficient but politically powerful Bavarian farmers, has finally become convinced that the U.S. is not bluffing. The Bush Administration wants an agreement to eliminate most farm subsidies over the next ten years. No agriculture pact -- no GATT treaty. That would be very bad news for Germany's export-dependent manufacturing industry. Even France, the Continent's leading agricultural producer, has come out grudgingly in favor of reform. The French now realize that protectionism, by blocking farm produce from the once-Communist East, threatens the much-hoped- for economic and political unification of Europe. The result: By late November, GATT Director-General Arthur Dunkel is expected to announce the outlines of a package that will set the stage for a global reduction in domestic farm subsidies, tariffs, quotas, and export aid. Virtually no government on earth has clean hands when it comes to agriculture. In Europe intervention gobbles up 57% of the EC's collective budget and sustains legions of marginal farmers. Those protected producers generate mountainous surpluses of beef, grain, and butter, which Brussels buys up at artificially high prices and then dumps on the world market at a discount. THE U.S., despite its determinedly free-market stance at the GATT talks, still dishes out $22,000 per full-time farmer in annual production subsidies -- more than either Japan ($15,000) or the EC ($12,000). In Japan restrictive import policies and price supports buttress a nation of bonsai-size farms (average area: just 3.5 acres) and grossly inflate the price of food. Lawmakers throughout the world have an emotional soft spot for farmers, revering them as the proud custodians of our common agrarian past. By bolstering farmers' incomes, politicians hope to get them to stay on the soil, ensuring consumers a stable supply of high-quality, home-grown food. Says E. ''Kika'' de la Garza, the Texas Democrat who chairs the agriculture committee in the House of Representatives: ''Every country, for no other reason I guess than human nature so demands it, is committed to keeping the small farmer on the land.'' Still, rhetoric is a far cry from reality. In the U.S., federal policies have not prevented 300,000 farmers from leaving the business in the past decade alone. Government programs favor a small number of big producers (whose lobbies contribute generously to Congressmen). Of the $9.3 billion that Uncle Sam spent in price supports for grain, rice, and cotton growers last year, nearly 40% went to just 5% of the farms, those with revenues of $250,000 or more. Says consultant Dale Hathaway, a former Deputy Under Secretary of Agriculture: ''There is this myth that we are helping the small farm with the red barn in Iowa, but these programs are transferring money to large operators with above-average incomes.'' Farmers can survive without subsidies. American growers, blessed with an abundance of fertile soil and a strong work ethic, are among the most efficient in the world. Producers of fruits, vegetables, and chickens manage to prosper with minimal government aid. Australia, a leading proponent of a GATT agreement, has a flourishing farm economy that is virtually subsidy free. But breaking farmers -- even big-time farmers -- of their addiction to subsidies is not easy. Here's how they get hooked: The government guarantees them a price for their crops, inducing them to increase production. As output expands, market prices fall, prompting a need for more subsidies. Washington tries to crack this cycle by ordering -- and sometimes paying -- farmers not to grow crops. Under current regulations the feds can direct farmers who receive subsidies to idle up to 35% of their acreage. Trouble is, supply-side management just doesn't work in a global economy. Cut production in Peoria and someone in Provence will pick up the slack. That's particularly ironic, given that another stated aim of federal farm policy is to promote exports. Complains Robbin Johnson, a vice president of Cargill, the giant grain-trading company: ''We have effectively downsized American agriculture and accommodated the expansion of European agriculture.'' WASHINGTON has begun to scale back its support for agriculture, not because its policies are cockeyed but because they are expensive. In 1985 Congress agreed to a five-year plan for gradually trimming the minimum prices it guarantees farmers. Last year, as part of its deficit reduction plan, it froze those prices until 1996. The support level for corn, for example, is now locked at $2.75 per bushel, down from $3.03 in 1986. The Bush Administration's reform program for the GATT is far more ambitious. Under a proposal it introduced late last year, all countries would slash domestic production subsidies by 75%, tariffs and import quotas by 75%, and export subsidies by 90%. These cuts would be phased in over ten years, starting in 1993, but they would take as their base the period from 1986 to 1988. That would allow the U.S. to get credit for the reductions it has already made in domestic price supports. A GATT agreement would, on balance, be good for U.S. agriculture. If countries pare their export subsidies, American grain growers would likely recapture some of the Third World markets they have lost to European rivals. Most at risk in a deal to reduce import barriers are American producers of sugar, peanuts, and dairy products -- currently protected by high tariffs and quotas. The EC has still not offered a comprehensive response to the American plan. Even so, its 12 members -- with Ireland the lone holdout -- are closer than ever to agreeing on sweeping reform, despite the risk of alienating politically potent farm lobbies. The EC working draft, authored by Agriculture Commissioner Ray MacSharry (who, ironically, is Irish), calls on the Community to reduce guaranteed price levels over three years, also beginning in 1993. The cuts would range from 5% for powdered skim milk to 30% for feed grains. The community would also begin paying farmers to produce less and would offer elderly farmers incentives to take early retirement.

While such reductions may strike outsiders as timid, they represent a significant scaling back of a program that has transformed a hungry postwar Europe into an agricultural powerhouse. The MacSharry proposal has sparked violent protests in France, where farm families and their suppliers still constitute 20% of the electorate. Marauding farmers have hijacked and burned trucks laden with imported produce. They have attacked provincial government buildings, soiling them with refuse, manure, and putrefying meat. Inducing farmers to cut production won't solve one of the most pernicious problems in world agricultural trade -- market access. Every developed country, with the exception of Australia and New Zealand, erects high barriers to imported commodities. Producer groups make no bones about their attachment to protectionism. Says Ed Coughlin, director of regulatory affairs for the National Milk Producers Federation: ''We would just as soon keep the fence up around the U.S.'' The GATT committee on agriculture will probably embrace a concept that scares the devil out of many farmers in the U.S., Europe, and Japan. It's called ''tariffication.'' All countries would be compelled to convert quotas and other trade barriers to tariffs -- and then gradually reduce them. According to the U.S. International Trade Commission, the tariff on butter entering the U.S. would be 96%, on sugar shipped to the EC 170%, and on rice coming into Japan a Godzilla-like 700%. For the Japanese, market access is a matter of intense sensitivity. The island nation, the world's largest importer of food, bans all but a minute amount of foreign rice -- a practice that helps explain why a box of the stuff in Japan costs more than twice as much as it does in an American grocery store. That disparity, however, does not bother Japanese consumer groups. They oppose trade liberalization, arguing it would inflict too much hardship on their cherished countryside. Indeed, a study by ten Japanese academics concluded that abolishing import restrictions would force more than half the country's 1.8 million rice farms to fold. BUT THE JAPANESE government has become increasingly flexible on the matter. The ruling Liberal Democratic Party, though heavily dependent on rural votes, has nonetheless cut spending on subsidies to $12.3 billion, down 16% since 1982. Responding to vigorous lobbying from trading partners, Japan has opened its markets -- a little -- to foreign beef, oranges, and grapefruit. Even on rice, there are hints of a softened position at the GATT negotiations. Says recently elected Prime Minister Kiichi Miyazawa: ''We should not see the round of trade talks ruined because of Japan.'' Whatever the shape and scope of a GATT agreement to reduce government meddling in agriculture, some farmers and politicians will denounce it as unfair. A completely level playing field is probably too much to ask for. But with luck, the game may no longer be so unconscionably expensive for the rest of us.