Editor’s Note: Reason columnist Veronique de Rugy appears weekly on Bloomberg TV to separate economic fact from economic myth.
Myth 1: Because of the financial meltdown, and its repercussions on aid, the scale of hunger that we see now is unprecedented; more people face starvation related to disasters than ever before.
Fact 1: In fact, while unacceptably high, starvation deaths per year have been declining for the past 60 or 70 years. Better publicity, grain market integration, and work by aid agencies have decreased human deaths during each food crisis since the late 1950’s.
The latest available statistics indicate that some progress has been made towards achieving the first Millennium Development Goal, with the prevalence of hunger declining from 20 percent undernourished in 1990-1992 to 16 percent in 2010 (undernourishment describes the status of persons whose food intake regularly provides less than their minimum energy requirements). The Food and Agriculture Organization of the United Nations (FAO) estimates that a total of 925 million people were undernourished in 2010 compared with 1.023 billion in 2009.
Myth 2: Congress says farm subsidies insure a food supply for the U.S. and for the world.
Fact 2: U.S. farm subsidies have exacerbated the balloon in world food prices. In fact, economists have found that abolishing domestic subsidies would actually lower world prices for these crops.
It is often said that without subsidies there would be a smaller food supply and hence, higher prices. This is a common rational behind farm subsidies. It’s quite the opposite. The economic literature shows that abolishing subsidies would actually lower the world price of crops.
Moreover, looking at the 2007 Farm Bill, Julian Alston estimated that eliminating U.S. crop subsidies (but leaving other subsidies and tariffs in place) would result in an increase in U.S. crop production by 7.3 percent. A supply increase leads to lower prices.
The chart below shows the impact that abolishing farm subsidies would have on the price of different commodities, using Alston’s estimates.
As we can see, with the exceptions of wheat and corn, the price of the other commodities would go down in the absence of U.S. subsidies.
Also, here is a World Bank study which focuses on the effects of removing rich country protection and subsidies in agriculture. It finds that poverty rates would fall in virtually all of the developing countries included in the sample, and do so as a simple consequence of the lower world prices for farm products.
This evidence puts lawmakers’ actions in perspective. In 2008, Congress overrode a presidential veto to enact farm legislation that extended existing supports and created new subsidy programs. The legislation added a “permanent disaster” program for areas frequently hit by adverse conditions, and it added a revenue protection program designed to lock in 2008’s high commodity prices. It also aided producers of specialty crops, such as fruits and vegetables with various new programs.