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.

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