The International Food and Agriculture Trade Policy Council (IPC) have released a new paper in their Policy Focus series looking at the future of direct payments in the US and EU.

Direct payments, or agricultural subsidies, are used as a means of phasing out agricultural market intervention in the form of maintaining high commodity prices and the buying up and disposing of surpluses. They are government subsidies payed to farmers and agribusinesses to supplement their incomes, manage the supply of commodities and influence their cost. Direct payments effectively act as income support to farmers that is not linked to production or price.

In the EU, direct payments account for the largest share of the Common Agricultural Policy budget, spending some €36 billion on them in 2008. The US in turn spends $5 billion dollars a year on direct payments. Over time, the report’s authors argue, these have become a drain on government budgets and have contributed to trade frictions.

The IPC originally welcomed the introduction of direct payments as a move away from market intervention, but with the proviso that these were temporary measures. The paper’s authors emphasise that the linkage of direct payments in the EU to “cross-compliance”, the requirement to meet certain environmental standards, have made direct payments less controversial than in the US.

The paper’s authors provide some key recommendations, which include:

–       The case for continuing payments in the EU needs to be made in a way that is convincing to the public by strengthening the link with the provision of public goods

–       The rationale for continuing payments in the US is weak, and thus should be eliminated on policy reasons

–       In the US, money saved from eliminating payments should go into supporting research and development for productivity enhancement to allow US farmers to compete effectively in world markets.

To read the paper in full, please see: http://www.agritrade.org/Publications/FarmPolicyintheUSandEU.html