In Defense of Farm Subsidies

A while ago I thought it would be fun to have an “In Defense Of” series that would present arguments for some oft-not-supported causes. Stay tuned for Defenses of Robert Bork and Clarence Thomas…

While debating for Columbia, Josh and I were also responsible for teaching debate to interested students. One aspect of the style we participated in was that the government team proposed the “case” in each round, and unlike [m]any high school debate formats, the “case” was unrestricted by any previously determined resolution. However, there were a handful of prohibitions designed to keep the rounds fair, and one of these was the injunction against “tight cases”–ideas that were so obviously true or one-sided that no matter how well the opposition side argued, they wouldn’t be able to defeat the case. A good example, often used in philosophy, of this is the moral proposition that “we should not torture innocent babies for fun”. Another common example used in illustrating a “tight case” was “the government should end farm subsidies”.

There is a litany of reasons against farm subsidies, which I will briefly mention. Budget hawks harp on their enormous expense. Direct aid to farmers totals around $15-20 billion each year, and one report that aggregated indirect subsidy (i.e. programs for irrigation, export credits, nutrition food aid and loan guarantees) claimed that total direct and indirect aid exceeded $180 billion. Health-conscious critics like Mark Bittman will point out that overproduction of corn allows the cheap production of high fructose corn syrup and all the sugary, diabetes-causing products it engenders, not to mention the corn-fed snack industry. For those who oppose the conglomeration of power in the hands of a few, the Farm Bill disproportionately pays out to large agribusinesses, and not small farmers. Overproduction of wheat, corn, livestock require oil-based fertilizers that destroy the soil and environment. And finally, though I may be missing a few reasons, farm subsidies allow American food producers to dump cheap wheat and corn on the world market, and destroy the livelihood of local farmers in developing countries where agriculture is the primary comparative advantage. Without food subsidies, the argument goes, these local farmers would either be self-sufficient feeders, or could sell their foodstuffs in the market at the same price as American companies.

Let’s look at the last point a little bit. I found a website that showed world production of the three most important cereals: corn, wheat, and rice. (albeit from 2003).

Corn Total Production, Mt %world prod. yield, Mt/ha
World 637,444,480
United States 256,904,560 40.3 8.92
China 114,175,000 17.9 4.85
Brazil 47,809,300 7.5 3.7
Mexico 19,652,416 3.1 2.53
Argentina 15,040,000 2.4 6.47
Wheat
World 549,433,727
China 86,100,250 15.7 3.91
India 65,129,300 11.9 2.62
United States 63,589,820 11.6 2.97
Russia 34,062,260 6.2 1.71
France 30,582,000 5.6 6.23
Rice
World 588,563,933
China 166,417,000 28.3 6.07
India 132,013,000 22.4 3
Indonesia 52,078,832 8.8 4.54
Bangladesh 38,060,000 6.5 3.43
Vietnam 34,518,600 5.9 4.63

One thing I found interesting was theyield, or metric tons of a commodity produced for each hectare planted. The United States, for example, produces 8.92 metric tons of corn per hectare, but the productivity ranges widely, down to Russia’s meager 1.71 metric tons of wheat per hectare. It seemed to me that richer countries generally had higher yields than poorer countries, and in fact a country like Eritrea yielded only 0.24 Mt/ha for wheat and 0.33 Mt/ha for corn. Kuwait and Qatar, on the other hand, have double digit yields of 20 and 12.5, respectively, for corn, despite not being known as particularly fertile places. This makes sense, because a major component of your yield is whether you can afford fertilizer, pesticides, genetically modified crops, or modern machinery. This is not to say that some poorer developing countries do not have excellent climates for agriculture–Egypt, for example, has corn:wheat:rice yields of 7.71, 6.15, and 9.43. Clearly it has retained its historic reputation as a regional breadbasket.Yet even in Egypt, after the building of the Aswan dam, cereal production hasn’t been the same and the country is now the world’s largest importer of wheat.

Just as obviously, it is not so that developing countries have a comparative advantage in agriculture. It seems foolish, in retrospect, to lump together countries like Egypt and Eritrea, which has less than 0.5 yields for both corn and wheat. Even though agriculture is the main economic activity of that latter country, it is subsistence agriculture at best–plagued by manmade disasters like war and deforestation, but also by erosion, drought, and insect infestations. Comparative advantage should not be measured in terms of what uneducated people with time on their hands can traditionally do–modern agriculture is for those with good soil, temperate climate, adequate rainfall, and the technology to maximize those geographical advantages. Nor is it profitable to be an agrarian society, where the majority of people are involved in farming; on the contrary, a nation of small farmers is usually quite impoverished. The fact that America feeds poor people in Africa through cheap corn and wheat, brought about by farm subsidies, is a good thing for countries that don’t have the god-given nor man-made tools to grow as efficiently, and their real comparative advantage is not time for agriculture, but cheap labor galvanized into factory work (think China, Thailand). (note: some Western African countries have a comparative advantage in cotton, but, as far as I know, not wheat/corn/rice).

The other thing I found interesting was that the United States is a Top 5 Producer of both Corn and Wheat, and ranks 11th in terms of Rice. The corn production is astounding: over 40% of the global supply! Recent news has been dominated by coverage of political protests in Egypt and Tunisia, and the specific timing is often attributed to rising food prices. Indeed similar riots occurred in Egypt in 2008, when there was also a wheat shortage, and food prices are higher in 2011 than in 2008, in fact the highest ever since the UN’s Food and Agriculture Organization began indexing prices in 1990. Already, half the Egyptian family’s budget is spent on food. Other Middle Eastern rulers are taking heed. In Bahrain, King Hamad raised government subsidies on flour, poultry, and meat. “Algeria, Libya and Jordan have either relaxed food taxes or duties on food imports or cut prices of staple food. Elsewhere in the Gulf, Kuwait recently introduced a generous stipend and free food for its citizens until March 2012 to ease the pain of higher costs.” Note the benevolence of these dictators is targeted toward food.

Why are wheat prices suddenly so high? The heat wave and fires in Russia/Ukraine, combined with floods in Australia severely diminished the harvests of those major exporters. India and Pakistan both suffered flooding as well. Russia, the world’s 6th largest exporter of wheat, canceled exports. Now China may also be contributing to the problem, as major agricultural regions face the worst drought in centuries, as reported yesterday in the NYTimes. China is a self-sufficient nation with very little exporting or importing, though with many mouths to feed, and a poor harvest could make China’s rich government, with $2.85 trillion in foreign exchange reserves, a big buyer in the international arena, raising prices in an already unstable market.

What does this have to do with farm subsidies? They were originally created in the U.S., in response to the Great Depression, to combat boom-and-bust pricing patterns for agriculture. In bumper years, prices would plummet and it’d be hard to make a profit in an oversaturated market. In lean years, farmers would lose their harvests and need to take on loans just to replant, while the consumer suffered from fluctuating prices. Government subsidies provided a price floor, and income was guaranteed no matter how low prices got. In return, farmers were incentivized to overproduce–there was, after all, a buyer of last resort–and food became cheap and plentiful.

Now in the United States we don’t worry about expensive food; our problem is overeating. But the food riots across in the world, in Manila and Mexico, Cairo and China, remind us why we spend in order to have years of plenty. If America stopped its farm subsidies and American farmers produced only what was domestically needed and a little more, no longer flooding the world market with cheap wheat and corn, would this unpredictable world food crisis have been even more severe? Would the food crisis be better if the U.S. had never had farm subsidies to begin with, and there were small farmers in developing countries trying to feed the Sphinx and the Dragon? Food protectionism costs a lot, no question. But in these modern times with poor countries developing slower than their populations are growing, food security affects global stability. America is no longer merely protecting itself from hunger, but, as an able producer of surplus food, serves as bulwark against global hunger–the farmer of last resort.

(note: one political, not economic, reason to support the Farm Bill is that it makes it incredibly easy to fund and re-authorize Food Stamps/SNAP. Somehow, unlike other social welfare programs, it’s never an issue…)

Advertisements

5 thoughts on “In Defense of Farm Subsidies

  1. A few things…

    1. “Get rid of farm subsidies” wasn’t that tight. I definitely beat that case at least once–straight up– while on the circuit.

    2. Strawman strawman strawman. The problem with farm subsidies is not the third world. The third world was solidly fucked by hundreds of years of colonialism. It is immune to our mild economic mistreatments in the way that a corpse has no additional dignity to lose.

    3. If you want to genuinely defend farm subsidies, defend sugar, which is twice the price in the United States as in the rest of the world, to the detriment of our poor and the benefit of those who make frucose out of corn. Defend the Capper-Volstead exception to the Sherman Act, which permits agricultural cooperatives to conspire to raise prices on basic foodstuffs. The harm to farm subsidies is in the inflated food prices for families, the cost to the national budget, and the misallocation of farmland toward “cash crops” that wouldn’t even be profitable without a regularly re-authorized farm bill.

    • As always, Rob, you cut to the core of the issue. I tried to sidestep sugar, cotton, and ethanol (!) subsidies and focus on cereal grains, but there are, as you rightly point out, more problematic aspects of farm subsidies. Oh well, I gave it a try.

    • Has anyone ever done a comparative analysis of the annual direct and indirect dollar amount of farm subsidies ($180B) and the total direct and indirect corporate net income derived from the sale of products containing subsidized foodstuff commodities? My quick analysis of the top 100 food and beverage companies (Nestle, Tyson, Kraft, Coca-Cola, Pepsi, Etc.) reveals net income of about $60B per year. I’d be willing to bet that even if you add in the others that benefit like ADM, Cargill, Monsanto and the grocery chains like Albertson’s, Aldi and Wal-mart, we’d be hard pressed to top that $180B annual subsidy. Are we really getting a positive return on our investment? I realize it is important to stabilize the food markets, but this can’t possibly be the most efficient way to do it.

      Why not allow modern futures markets to stabilize the price? They allow a farmer to guarantee a price for his crops at the time of planting and be insulated from market price fluctuations, in turn, ultimately shifting the risk from tax payers to the corporations that benefit from the purchase and sale of the subsidized commodities.

      Lastly, the environmental and health care costs for procedures and pharmaceuticals as a result of our over-consumption of the subsidized, processed, foodstuffs dwarfs the benefits used to defend the subsidies. Ending farm subsidies would cause the prices of the commodities to reflect the true cost of production and allow corporations to make decisions of whether or not to bring goods the market based on true market costs.

      This would likely raise the price of unhealthy, processed, foodstuffs above the cost of healthier foods, allowing the consumer to then make choices about what to eat based on their available revenue and their level of desire to eat unhealthy, processed, food vs. healthier, unprocessed foods.

  2. Pingback: In Defense of Clarence Thomas « stone soup

  3. That’s the problem with people who do “debate” – its not about what’s true to them, its about whether they can win the argument. Debate teaches people to play dirty rather than to find answers and cooperate. This is made pretty clear when David Yin immediately caves when asked about sugar. Why try to make an argument in support, David, if you know the answer is that farming subsidies are the worst?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s