Six Reasons to Kill Farm Subsidies and Trade Barriers

A no-nonsense reform strategy.

Daniel Griswold, Stephen Slivinski & Christopher Preble from the February 2006 issue

(Page 3 of 4)

Farm programs also waste scarce water resources, especially in the arid West. Agricultural water subsidies alone amount to around $2 billion annually, propping up such uneconomical enterprises as growing cotton in the Arizona desert.

Finally, farm programs crowd out more environmentally friendly land uses by artificially driving up land prices. A sizeable share of the increased income that protection and subsidies deliver to farms becomes "capitalized" through higher land values, because the subsidies increase the stream of income that land can produce. Higher prices for farmland, in turn, render it more expensive to acquire and maintain environmental preserves, parkland, forests, or other land use alternatives that would be more likely to preserve habitat and biodiversity. By keeping marginal farmland under cultivation, the government has slowed the trend of reforestation.

When New Zealand dramatically reduced farm trade barriers and subsidies in the mid-1980s, farmland values fell sharply, allowing marginal land to return to such uses as forestry and eco-tourism. The use of fertilizers declined, along with overgrazing and soil erosion.

5. Larger Markets for U.S. Farmers and Economic Diversity for Rural America

Federal farm programs actually work against the interests of many farmers. Growers, especially the two-thirds who don't receive subsidies, pay a heavy price through lost export opportunities from high trade barriers abroad. Agriculture exporters face average foreign tariffs that are several times higher than the average tariffs on manufactured products. The most promising opportunity to lower those barriers is the Doha Round, which won't achieve a breakthrough until the rich countries stop trying to prop up their farms.

If global barriers to farm trade were removed, the World Bank estimates, worldwide farm exports would be 74 percent higher in 2015 than they would otherwise. American farmers would be among the biggest winners:

Comprehensive reform would mean an additional $88 billion in annual U.S. farm exports by 2015 and an additional $28 billion in farm imports, for a net $60 billion surplus.

Protection has not served the long-term interests of even the most protected farm sectors. Barriers to commodity imports discourage diversification of production into higher-value-added items and retard development of the food processing industry. They discourage domestic consumption and encourage the use of lower-priced substitutes, undermining the protected sectors' own domestic market share.

Artificially high prices for sugar, for example, have contributed to a long-term decline in domestic sugar consumption. Today Americans consume about 40 percent less sugar per capita than they did when consumption was at its peak in 1972. Domestic sugar has been replaced on the menu not by imports but by U.S.-made substitutes such as high-fructose corn syrup and low-calorie sweeteners such as Splenda. Sugar's share of the domestic sweetener market has been cut in half since 1967.

Experience shows that American farmers can thrive in free and open markets. American farmers profitably produce lettuce, celery, cauliflower, potatoes, almonds, pistachios, apples, pears, cherries, melons, blueberries, grapes, and hundreds of other specialty crops without guaranteed prices or protected markets. The impact of farm subsidies on land prices makes growing these unprotected crops more expensive, and barriers caused by the protection of other crops block exports.

The experience of New Zealand and Australia demonstrates that farmers can survive and thrive without significant state support. Both of those countries enacted sweeping, unilateral reforms, including the elimination of import barriers and domestic price support subsidies. As expected, some farms have gone out of business, but many others have changed their operations to meet consumer demand. The result has been not a massive downsizing of the agriculture sector but a surge of innovation, productivity, and output.

6. A More Hospitable World

The collective effect of American farm policies is to depress the income of agricultural producers worldwide, exacerbating poverty in areas, such as sub-Saharan Africa and Central Asia, where people are heavily dependent on agriculture.

The frustration and despair caused by these policies undermine American security. Many people who depend on agriculture for their survival, both as a source of nourishment and a means of acquiring wealth, perceive U.S. farm policy as part of an anti-American narrative in which Washington wants to keep the rest of the world locked in poverty. Indeed, in a survey of anti-American sentiment around the world, the Pew Research Center found a majority of respondents in more than a dozen countries were convinced that U.S. farm and trade policies increased the "poverty gap" worldwide. These sentiments transcended geographic, ethnic, or religious boundaries. In such an environment, terrorist ringleaders find fertile ground for their message of hate and violence.

Nicholas Stern, chief economist at the World Bank, is blunt about America's leadership role. "It is hypocritical to preach the advantages of free trade and free markets," Stern told the U.N. publication Africa Recovery, "and then erect obstacles in precisely those markets in which developing countries have a comparative advantage." Johan Norberg, of the Swedish think tank Timbro, argues that farm protection in developed countries amounts to a "deliberate and systematic means of undermining the very type of industry in which the developing countries do have comparative advantages." (See "Poor Man's Hero," December 2003.)

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Pingback| 10.29.09 @ 5:33PM

1.02 BILLION: The number of urgently hungry people in the world - Page 3 links to this page. Here’s an excerpt:

…for the working family, but your policies are an utter failure. I suppose you are happy that your farm subsides are costing the average family $146 a year in higher food prices. http://reason.com/archives/2006/02/0...ill-farm-subsi   Today, 05:33 PM   # 55 ( permalink) Rashomon Walk-On 5,000+ posts   Join Date: Jun 2008 Location: Rashomon gate Posts: 7,143 Zeke the Wonderdog Quote: Originally…