Resolved: That the United States should substantially change its federal agricultural policy.
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|Source: Insight on the News, July 29, 1996 v12 n28
Title: Q: should government fund promotion of U.S. farm products
Full Text COPYRIGHT 1996 Washington Times Corporation
Yes: Help the American farmer fight subsidized competition in other countries.
Since it was first approved by Congress as part of the 1985 Farm Bill, the Agriculture Department's Market Access Program, or MAP (formerly known as the Market Promotion Program), has been a tremendous success in helping boost U.S. agricultural exports, fighting subsidized foreign competition and protecting American jobs. It has helped generate billions of dollars in additional economic activity and returned many more tax dollars than it has cost.
It also has served as a very effective "Buy American" program. By promoting only American-grown and -produced commodities and related products, it has helped create greater awareness and increased demand among foreign buyers and consumers who are able to choose from a variety of vendors and suppliers from around the world.
The facts speak for themselves. Since 1986, thanks in large part to MAP, U.S. agricultural exports have more than doubled -- increasing from $26.5 billion to an estimated record high of $60 billion this year. This, in turn, is expected to lead to a record trade surplus of more than $30 billion, which represents one of the few bright spots in our overall trade picture. Without U.S. agricultural exports, our nation's trade deficit would be far worse.
U.S. exports of high-value agricultural products also have increased -- helping the United States capture an even larger share of this fast-growing market. Such exports now account for 34 percent of all U.S. agricultural exports.
Overall, U.S. agricultural exports this year will help generate nearly $100 billion in related economic activity throughout our nation's economy. Again, this serves to help broaden our existing tax base, providing billions of dollars in additional revenues far in excess of the program's cost.
In my own home state of Washington, we have seen firsthand how successful MAP can be in helping our farmers and ranchers compete more effectively in the global marketplace. Just to cite one example, in 1986 when the program began, our state exported a total of just slightly more than 5 million boxes of apples. This past year, we exported more than 30 million boxes.
Thanks to a working partnership involving Washington state apple growers, the Washington Apple Commission and the U.S. Department of Agriculture, or USDA, our apple exports have risen nearly 600 percent and grown into a $400 million annual business. Such exports also have led to significant gains in employment and related economic activity in our state. An analysis has shown that for every dollar invested in overseas apple promotion, $12 in tax revenue is generated.
By helping maintain and expand U.S. agricultural exports, MAP has helped keep and created needed jobs here at home. According to the USDA, every billion dollars in U.S. agricultural exports helps create 17,000 new jobs. These include on-farm as well as off-farm jobs such as those involved in handling, processing, marketing, transportation and shipping, as well as those in other sectors of the economy that provide related goods and services. Since 1986, more than 500,000 new jobs have been created as a result of the increase in U.S. agricultural exports. There are more than 1 million Americans employed in such jobs.
MAP already has been reduced by two-thirds since its original authorization. If every government program had endured the same level of reduction, our country would not be facing its current fiscal crisis. In addition, the Federal Agriculture Improvement and Reform Act of 1996, known as the new Farm Bill, further reduced funding to help promote U.S. agricultural exports from last year's level of $110 million to just $90 million -- a reduction of nearly 20 percent. At this level, the program represents less than two-tenths of 1 percent of the USDA's overall budget and even a smaller percentage of the entire federal budget.
The program also has been substantially reformed by Congress and the USDA to ensure that it continues to be cost-effective and to achieve its basic objectives. Under the 1996 Farm Bill, the program is targeted at farmer cooperatives, small businesses and trade associations. The law specifically prohibits any direct assistance to any large company or to any foreign-owned firm for the purpose of promoting foreign-produced products. Such provisions are in addition to earlier reforms which provided for increased oversight and review, certification regarding the use of funds and independent audits.
Furthermore, MAP is a cost-share program. Farmers, ranchers and other participants, including small businesses and farmer-owned cooperatives, all are required to contribute matching funds in order to be eligible for cost-share assistance under the program. This has helped maximize available resources and created a very effective working partnership that remains very important to helping maintain and expand U.S. agricultural exports.
This is especially true given the fact that the global marketplace still is characterized by subsidized foreign competition. The Uruguay Round Agreement, for example, while providing for expanded trade opportunities, did not eliminate the use of export subsidies. It only requires that they be reduced. As a result, the European Union, or EU, is more than able to maintain its 10-to-1 advantage over the United States in the use of such subsidies.
Last year, according to the USDA, the EU budgeted more than $9 billion to help subsidize its agricultural exports. This included $2.7 billion for dairy products; $2.6 billion for meat and related products; $1.6 billion for sugar; $1.3 billion for grains and grain products; $360 million for wine and fresh and processed fruits and vegetables; and $780 million for other processed food products.
While maintaining the use of export subsidies, the Uruguay Round Agreement also allows countries to pursue other policies and programs, including market development and promotion efforts, which are viewed as nontrade-distorting or "green-box" programs. The EU and other major foreign competitors increasingly have focused their efforts on such activities to help their farmers and ranchers maintain and expand their share of the world market. According to the USDA, total expenditures for such activities amounted to more than $600 million during 1994-95.
Clearly, the amount we are spending today on MAP is nothing in comparison to the huge export subsidies and promotional programs of our foreign competitors. Their efforts have been targeted not only toward major overseas markets for U.S. agriculture, such as the Pacific Rim, but also at our own domestic market. As such, U.S. agriculture is faced with subsidized foreign competition not only in overseas markets, but here at home. Clearly, our foreign competitors are focused on maintaining and expanding their share of the world market at the expense of U.S. agriculture.
This is the real world of global competition. America's farmers and ranchers are the most competitive in the world. However, it is not enough to be economically competitive. U.S. policies and programs also must be competitive with those of other countries.
MAP remains one of the few tools we have left to help U.S. agriculture compete effectively in today's global marketplace. It has helped overcome trade barriers and other actions intended to restrict our access to foreign markets. It also is one of the few programs specifically allowed under existing trade agreements and not subject to any reduction. Simply put, our foreign competitors would love to see funding for this program eliminated.
We cannot and should not expect America's farmers and ranchers to compete against the treasuries of foreign governments. To further reduce or eliminate such approaches as MAP, which are intended to help counter such subsidized foreign competition, would be nothing less than unilateral disarmament.
The United States would never pursue such a strategy with regard to national defense or military capability. Neither should the nation surrender its national and economic interests in international trade. Until we truly have a level international playing field, the United States must continue to have in place policies and programs that are competitive with those of other countries.
Such action clearly is supported by an overwhelming majority of Americans. According to a recent national opinion poll, for example, nearly 75 percent of Americans believe that the U.S. government should continue to provide needed assistance to American farmers and ranchers to help offset subsidized foreign competition and protect American jobs. (The poll was conducted in mid-January by the New York-based firm of Penn+Schoen as part of a nationwide survey.)
Maintaining the ability of U.S. agriculture to compete in today's global marketplace is essential if it is to remain a growth industry. Without exports, which account for as much as one-third of domestic production, U.S. agriculture would have to be downsized substantially.
This, in turn, would have a ripple effect throughout the American economy. Agriculture is the nation's largest single industry, accounting for approximately 16 percent of the gross domestic product and nearly one of every six jobs. Maintaining a sound, healthy agricultural economy is important to the nation's overall economic well-being. It also is critical to its continued ability to meet the food and fiber needs of Americans as well as to help feed a hungry world.
By every measure, the USDA's MAP has been a tremendous success. It has helped maintain and expand U.S. agricultural exports, strengthen farm income, improve the balance of trade, counter subsidized foreign competition, promote economic growth and create thousands of new jobs. It also has been extremely cost-effective.
The choice is simple: We can export our products or we can export our jobs.
No: Agribusinesses will be more efficient and profitable without a corporate-welfare program.
The traditional battle cry of businesses in America has been "Get government off our backs!" That's understandable, but while they publicly complain about government interference, many businesses are quietly seeking millions of taxpayer dollars to finance their business projects overseas. This is an excellent example of how corporate welfare is the ultimate in hypocrisy. Republicans have been working hard to get poor people off welfare by encouraging principles of self-sufficiency, accountability and individual responsibility. It's about time we showed the same level of commitment to getting businesses off welfare as well.
Some weeks ago I cosponsored an amendment to the funding bill for all agricultural programs that would eliminate the federal government's Market Access Program, or MAP, a program intended to help promote American commodities overseas but which has become one of the most egregious examples of corporate welfare. It essentially is a handout to businesses to subsidize their advertising overseas -- including advertising by some foreign-owned corporations -- at a cost of $90 million per year to taxpayers. Although the amendment was defeated in the House, Republican Sen. John McCain of Arizona is committed to eliminating MAP in the Senate.
The federal government first began financing corporate advertising in 1985 with a program called Targeted Export Assistance, or TEA. It was established to encourage commercial export markets for U.S. farm products through market development. After receiving harsh and deserved criticism in 1990 for inefficiency and mismanagement from the General Accounting Office, or GAO, the investigatory arm of the federal government responsible for independent audits of all government agencies, the name was changed to the Market Promotion Program, or MPP, and reforms promised. But old habits are hard to break. Criticism continued, and in 1994, Congress and the Agriculture Department "restructured" MPP by changing its name to MAP and promising to fund smaller companies and commodity cooperatives. Unfortunately, the changes largely were limited to nomenclature and cosmetics, not substance; in 1995, large grants continued to go to big corporations. The names may have changed, but the program hasn't.
Some argue that MAP should be maintained because it benefits the economy by helping American business gain access to new markets overseas. However, the GAO, which has issued no less than three reports critical of TEA and MPP, found that "USDA has authorized over $1.25 billion for MPP from fiscal years 1986 to 1993; however, there is no clear relationship between the amount spent on MPP and changes in the level of U.S. agricultural exports." In other words, no evidence substantiates the rationale that MAP helps build business. It also is doubtful whether MAP funds actually are supporting promotional activities or if they simply are replacing private-industry funds. Because MAP provides direct grants to agribusinesses and cooperatives, there is very little oversight.
Like most well-intentioned federal programs, federal funding of market-promotion programs turned out to be counterproductive. Instead of promoting generic agricultural products such as wheat and corn, as originally intended by the law, most of the budget has gone to brand-name advertising of well-known corporations.
The money such large corporations receive from MAP represents only a tiny share of their advertising budget--often significantly less than 1 percent. Thus, instead of being used to fund new advertising campaigns, it is more likely that MAP funds are used simply to offset the costs of promotional activities that already are under way. Ironically, since 1986 nearly $100 million of American taxpayer money has been distributed to foreign companies such as Kyokuyo Co. Ltd. in Tokyo and Dunand Et Cie Des Bananes in Paris to subsidize their advertising.
This should not come as a surprise. Whenever the government attempts to "help" businesses, the inevitable result is reduced efficiency due to weakened market incentives. MAP is a typical example. The program, like all other industry-specific subsidies, artificially raises the industry's rate of return, shielding firms that receive the subsidy from the pressures of market competition.
Why should the free-market principles that allowed these companies to flourish stop at our borders? If overseas promotion is so critical to a particular product's market, then companies would, in considering their rate of return, invest their resources there. And because MAP funds are "free" money with little oversight, corporations have no incentive to spend that money wisely.
A perfect illustration of this principle was provided by a failed $3 million television advertising campaign run by the California Raisin Advisory Board in Japan in 1989. The campaign involved the "dancing raisins" commercials, which were popular in this country. Unfortunately, for some reason the raisins' song lyrics were not translated into Japanese. Since the raisins sang in English, most Japanese viewers could not tell what the shriveled characters were supposed to be. Most thought that they were potatoes or chocolate. In fact, children -- a major target of the campaign -- were frightened by the misshapen figures. Would the raisin industry have spent $3 million of their own this carelessly? Not likely.
Likewise, in 1993, the MPP budget included nearly $1.5 million to promote mink fur and nearly $120,000 to promote alligator hide. It's especially ironic that we are spending that kind of money to promote luxury products.
Proponents of MAP also assert that small and mediumsized companies need the assistance of government export-promotion programs to succeed overseas. Even if that were true, MAP benefits disproportionately "big"--not small or medium-sized--businesses. In addition, the same principle applies to programs that would benefit small businesses as to those that benefit big businesses: Taxpayer dollars should not be used to prop up the bottom line of private businesses, regardless of their size.
More importantly, the American workforce is the best in the world. Both large and small businesses do not need the assistance of government programs to grow domestically or abroad. What they need is for government to get out of the way.
To put the cost of these types of subsidies in perspective, if all federal assistance to business were purged from the budget, the federal budget deficit would be cut substantially. In addition, enough savings would be generated to eliminate the capital-gains tax and the federal estate tax. Eliminating antigrowth taxes would do far more to benefit American businesses and U.S. global competitiveness than having Congress pick industrial winners and losers.
Our amendment to eliminate MAP enjoys support across the philosophical spectrum. Everyone from the Progressive Policy Institute and the Friends of the Earth to the Cato Institute and Citizens Against Government Waste agree that corporate welfare must be eliminated. The best place to start is by cutting the funding of government-subsidized advertising.
If we truly are committed to balancing the budget and downsizing the federal government, we must be willing to attack corporate welfare and take companies such as Tyson Foods off the public dole.
However, eliminating MAP and other corporate subsidies is only half of the equation. If we eliminate their subsidies, we should not continue to take half of their income in taxes and regulation.
Few would argue that we must reduce the bloated and archaic federal bureaucracy while getting our deficit under control. I believe we must reduce government intrusion into the private sector as well as eliminating corporate subsidies. I do not believe, as Ralph Nader and Bill Clinton do, that we can eliminate subsidies while maintaining the current level of oppressive regulation and taxation that is thwarting the growth of both American businesses and agriculture.
That is why cutting corporate welfare should coincide with eliminating the $600 billion in federal regulations that are keeping American businesses from competing in the world markets and inflating the cost of doing business. Some of that is attributable to process regulation, primarily government-mandated paperwork; while excessive environmental regulation now burdens the economy with well more than $100 billion in regulatory costs each year. For example, the government-mandated costs for hiring one new worker have risen by one-third during the past four years.
In addition to overregulation, our tax structure is burdensome to American businesses, which struggle under one of the highest capital-gains taxes in the industrialized world. By eliminating this tax, often a double or triple tax on investment income, businesses will have more of their own capital to invest in both domestic and overseas markets.
This combination of overtaxation and excessive regulation, coupled with corporate subsidies, is deadly to a free market.
We need to renew our commitment to sound fiscal principles and limited government. Tax-and-spend theories have been so thoroughly discredited that most liberals dare not utter them publicly anymore. Unfortunately, many of them continue to work for those principles surreptitiously. Our country has taken its first steps toward a renewed government, confident in its principles, aware of its proper role. But now we've reached the hard part: actually making the changes in entrenched policy and spending programs. Eliminating MAP should be a no-brainer, hardly worthy of debate. Its $90 million of corporate welfare, after all, is not a lot by government standards.
To achieve our objectives of deficit reduction, downsizing the federal government and providing tax relief, we need to scrutinize every expenditure. Nothing can be overlooked. Not even a fairly innocuous $90 million program. It's time to tighten our belts and do what Americans have always done: economize, prioritize and compete.