Farm Subsidies Create Bounty, Boondoggles
DURING the runup to the United States election, President Bush sought to make political hay. He announced with some fanfare the government's plan to spend $1 billion subsidizing farm exports.Skip to next paragraph
Subscribe Today to the Monitor
The September announcement followed a path well-trodden by leaders around the world. Politicians want to help their domestic farmers, and do so through price supports and protective import barriers. The result, experts say, is an inefficient and costly global agricultural system.
As the world's population grows larger and more affluent, demand for food could increase by as much as 50 percent this decade, says Dennis Avery, director of global food issues with the Hudson Institute. Rising incomes mean more people will be able to afford dairy products, meat, oils, and other foods.
But as long as trade policies are locked in the status quo, the world will be unprepared to turn this challenge into an opportunity. High trade barriers will mean instead a staggering loss in potential income and development, economists say. Burdens on both developed and developing nations
The US and European Community together spent more than $220 billion supporting the farm sector last year through higher taxes and food prices, estimates the Organization for Economic Cooperation and Development, the Paris-based association of industrialized democracies.
Such subsidies also mean that farmers in developing countries are discouraged from pursuing agricultural development, since production in most industrialized countries is much higher than it otherwise would be, says Rod Tyers, an economist at the Australian National University and co-author with Kym Anderson of a recently published book, "Disarray in World Food Markets" (Cambridge University Press).
The distorted system within which farmers operate is rife with ironies.
Consider, for example, that the wheat-export subsidies Mr. Bush announced will not put any extra money in farmers' pockets. The income of US wheat farmers depends on "deficiency payments" that the federal government pays, making up the difference between the market price and the higher government-set minimum payment per per acre of wheat, notes Harry de Gorter of Cornell University.
To help discourage overproduction under this system, farmers who get deficiency payments are required to let a certain percentage of their land lie fallow and are paid not to farm it.
When world demand for soybeans rose during the late 1980s, American farmers could have helped fill the void. Instead, Mr. Avery says, they apparently opted "to maintain the highest possible corn-payment bases" - acreage eligible for government payments. This year the US has a record corn harvest, while corn exports continue to fall. Self-sufficiency outmoded?
Avery calls for nations to shift from a goal of self-sufficiency toward a trade-oriented model in which farming would occur where
costs are lowest to consumers and the environment.
Failure to act "could probably knock as much as half a percentage point off the economic growth rates for 3 billion people," he says.
"Comparative advantages [of some nations over others] are bigger in agriculture than anywhere else," Avery adds.
Many Asian nations, with their fast-rising populations and manufacturing prowess, could enjoy a "marriage made in heaven" with strong agricultural producers such as the US, he says. Instead, Asian governments are erecting barriers to international supplies and spending huge sums to produce food domestically.