First World Subsidies and Third World Poverty
I never touch the stuff, but tomorrow I’m on a panel discussing the coffee trade at the Johnson Center. It’s all part of GMU’s International Week. While getting ready for the talk, I was pleased to learn that activists concerned about Third World poverty have finally noticed the ill effects of First World agricultural subsidies. Check out the Kick All Agricultural Subsidies (Kickaas) blog – it’s not bad.
I suspect that the activists are a bit confused about who will profit from the end of agro-subsidies. Based on elasticities, the main gainers will probably be First World consumers, First World taxpayers, and owners of high-quality land in the Third World. Low-quality land and agricultural workers are too elastically supplied to be big gainers. Still, the Guardian editorial that launched the Kickaas blog is more or less correct:
Abolish all agricultural subsidies… This is one of those rare topics that unites right and left. It is also one of the few remaining free lunches in economics from which practically everyone gains. It would galvanise developing countries’ agriculture while freeing more than $300bn currently being spent by governments – over $200 per capita – every year on subsidies for other purposes. There will inevitably be transitional problems for some western farmers but nothing like the structural change other industries have experienced. And in the long run it will be of benefit to them, too. [Uh, that’s going a little too far. B.C.] They will be able to grow crops they are good at rather than those attracting subsidies. All that the developing countries are seeking is a level playing field on which to compete. Is that too much to ask?
No, it’s not. Economists and humanitarians, unite!
Apr 13 2007 at 4:02am
If in any significant economic area, the third world countries can be competitive , its Agriculture. The rich world subsidies has been the single most trade distortion tool ever devised.
More pressure needs to be build on if the situation is to change. Third world countries have weak governments and democracy whereas First world economies have strong government and democracy. The result is the situation where the farmers of rich countries have far stronger voice than poor farmers in poor countries. The irony of the situation is that its big commercial farms and Agro industries, with strong lobbies, who benefit from the subsidies regime whereas small farmers in the first world economies are living with minimum income level. The farms act and CAP has distorted farming to help larger farms. Just look at the increasing average size of farms in the first world to see how small farmers are being driven off.
At the same time, small land holdings in third world countries has made large scale commercial farming non viable. Much of the poor countries have yet to complete land reform, wherein vast swathes of land are still held by the elites of the poor countries. Its still semi-feudal world out there. The issue of land distribution is nowhere in the development agenda. The subsequent rise of commercial farming is far away.
Adding to the woes of poor world farmers, modern agriculture is getting more capital intensive. Milk production of say indian cows is almost ten times lower than the ones of European cows.
If the current subsidy regime last very long, there is a possibility in the future that modern farming makes small scale farming in developing countries economically unviable. There wont be a chance for the developing countries to catch up in the future as the capital intensity will keep on growing up.
The academics and humanitarian need to be more vocal. And the policy makers in the third world should be aware and active to remove the trade distortions ASAP.
Apr 13 2007 at 7:59am
I am a farmer, and I disagree with most of what arthas says.
Third world countries have a very difficult time competing with any modern agriculture system, subsudized or not. Mexican agriculture, hardly a true bottom third world country, is not able to compete significantly with the U.S.
Small farms and large farms come and go for much the same reasons other businesses do.
One main point often overlooked in the farm subsidy debate is that governements need to keep the people fed. Having an adequate supply of food that is affordable and available is necessary. Hungry people are difficult to govern. Government subsidies ensure an over production of food. Wealthy countries are able to do this, hence our current system.
Before everyone starts bashing me as an farmer dependant on a government check, let me state clearly that I want the US to stop ag subsidies. The rest of the world ought to follow suit and end the checks to farmers.
Be aware, this may cause an increase in the price of food. Especially if it becomes more profitable for producers to grow fuels than food.
I propose that the best food policy is for governments to forward contract an oversupply on the open market. Then leave the world farmers to fill them and along with other agricultural demands of society.
Apr 13 2007 at 8:12am
When I first found out about Kickaas I was surprised to see it supported by The Guardian. Vic Keegan who runs it is someone senior in the Guardian management.
When I expressed that surprise he wrote to me reminding me that the paper was, in part, founded by Cobden, specifically to argue for free trade (against the Corn Laws). Thankfully, they do still retain part of their classically liberal outlook: the paper as a whole is generally sound on trade.
Apr 13 2007 at 10:13am
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Apr 13 2007 at 12:59pm
Thank you Bryan for the “Uh, thats going a little too far.” Why do people do we feel compelled to overstate an argument?
As an American how much am I subsidizing farmers?
I can survive 10 years on old jeans and tee shirts if we get the textile question wrong, but I’m in trouble in about a week if food gets messed up.
The British nearly got starved out twice by the Germans. Is that an unintended consequence of the repeal of the Corn Laws?
Farmers are the last gov sub I’d get rid of. There is a least a trillion of other stuff that goes first.
Apr 13 2007 at 2:30pm
The only possible argument against it is that the Guardian is for it. Hell, they still employ a journalist who was a KGB agent.
Apr 13 2007 at 2:48pm
I agree with Pjens above that the benefits of reducing subsidies is highly overrated. Yes, eliminating subsidies would help farmers in poor countries, but very little. The productivity of those farmers is very low. They hardly produce enough to feed their own families. They simply don’t have the excess capacity to export very much. In the poorest countries, farmers primarily use short-handled hoes to work slash and burn plots. Those countries would see no benefit. On the other hand, the advanced corporate farms of Brazil might see some benefit.
Financial aid, ending subsidies, forgiving loans, and all of the other proposals for helping poor countries are nothing but distractions from the real issue–governance.
Apr 13 2007 at 3:27pm
I am in favor of abolishing all farm subsidies, but farm subsidies in rich countries are good for consumers in poor countries because they make food cheaper.
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