There’s lots of fuss in the media about agricultural subsidies… but over at TomPaine.com, in his weekly critique of newspaper stories, economist Dean Baker disagrees.
This claim is not supported by research findings. For example, a recent World Bank study found that if rich nations removed all subsidies and barriers affecting merchandise trade (not just agricultural goods), it would raise income in poor countries by just 0.6 percent. This means that if a country had a per capita GDP of $1,000 at present, its income would rise to $1,006 when the full impact of this trade liberalization was felt.
The World Bank’s research actually shows that developing countries would gain far more if rich nations abandoned their efforts to impose U.S.-style patent and copyright protection. While agricultural barriers have been a frequent topic in recent news stories on trade, the much larger economic impact of patent and copyright protection has been completely ignored (see “The Relative Impact of Trade Liberalization on Developing Countries“).
Here’s one of the many problems with agricultural subsidies, at least in the US: they’re insanely hypocritical. The US prevents other countries from having agricultural subsidies or protective tariffs on the grounds that it interferes with the free market; meanwhile, it subsidizes its own farmers heavily enough to erase the vastly higher costs of farming in the US. Thus, the rice farmers I knew in Costa Rica were producing rice at a cost of $3-4 per hundredweight. American farmers, mostly in California, could produce rice for no less than $8 per hundredweight. Yet Costa Rica is a net importer of rice and local farmers have a terrible time finding markets, because US subsidies push the price of US rice down to $1-2 per hundredweight.
Furthermore, subsidies (in Iowa, and probably everywhere else) are sold as a way to preserve the family farm. In fact, the family farm is mostly gone already, and most subsidy money goes to agribusiness operations of various kinds – confinement animal lots, the phenomenally wealthy potato and sugar beet magnates of the Dakotas, etc. Also to developers who are absolutely not farming, but keep land sort of in cultivation to get tax breaks until they build the next subdivision.
Ag subsidies can be great – the NYT profiled a French shepherd who’s part of a tradition going back hundreds of years and whose meat is sold almost entirely locally. He figured that if the French government wanted to pay for that tradition to continue, that’s great; I mostly agree. I also think ag subsidies for small (especially local/organic) producers would change the way food is produced and consumed in the US for the better by making local/organic food more affordable. But I want to be clear: small farmers need protection from US agribusiness, not from small poor-nation farmers. And current US ag subsidies absolutely do not do the trick.
I should add that I don’t know much about patent and copyright law, and that I don’t mean to suggest that dropping ag subsidies is actually the most important thing. But U.S. hypocrisy, visible in the discrepancies between the policies we have and the policies we promote and between our rhetoric and our policy, makes ag subsidies a particularly easy target.
It is important to note two categories of Ag subsidies. The PL-480 program is a way of subsidizing the price of farm products for foreign buyers. This is where the US and France have fought for decades to sell grain to places like Egypt, Pakistan, Iraq, etc. The other category are those subsidies to NOT grow a crop so as to limit supply and thus drive up the price to US consumers so that, theoretically, the farmer can make a profit. Then the Food Stamp and School Lunch programs are just a means of increasing demand. Of course, the middleman retail sector seems to sponge up most of this money, though the programs partially alleviate the equitable losers from the food price support system.
I like to play “What if?” analysis where Prescription Drug policy is analogized to Ag policy. You know, it is an open policy of “price support” where the food stamp component has gone on steroids at the expense of taxpayers. If you do not participate in a government subsidized program then you can never afford to pay the price. But drugs still only represent about 1% of the GDP, so it is not quite as significant as Ag policy (at least from a budget perspective, for now, though individually it can have catastrophic consequences). Good ol’ competition, from Brazil on AIDs drugs, is the only reason that the US has had to cave in on prices internationally. Aid on AIDs to Africa makes sense in this context, as an effort to thwart further development of drugs by the likes of Brazil.
Patent and copyright protection have valid economic justifications from a microeconomic perspective. The problem comes when those valid goals get abused to form the basis of economic warfare as a substitute for the predatory pricing schemes that are no longer considered acceptable.
Gone are the days of Land Grant Institutions and the Agriculture Extension Service with a mandate to spread the good word about new technology. Unless you go to Brazil . . .
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