3/30/2005

Farm Subsidies

We all know that farm subsidies support the agricultural industry in the U.S.. But what does this do to other countries? The article "Punch-up over handouts" explains who benefits from agricultural subsidies and who it hurts. The author explains that 33 of the 49 poorest countries import more farm goods than they export. If subsidies were extinguished, then these countries would pay a higher price for their imports. Most of these countries already receive aid from other countries, which would just transfer the burden to the aiding country. Other countries, however, would benefit from freer agricultural trade. Brazil and Argentina are already strong agricultural exporters and would gain more from freer trade, while the rest of Latin America would lose approximately $559 million a year. In a world of increasing competition, I believe we should eliminate subsidies and let the market decide who can offer agricultural products at the lowest price. Every country has a comparative advantage in something, let them figure out what it is instead of bailing them out.

2 comments:

Drake said...

One thing that you need to understand is that even the lowest cost providers of agricultural products are very large corporate farms. They are not mom and pop family farms that are up to their eyeballs in debt. Farm subsidies are a way of smoothing out the market and allowing farmers steady prices for the commodities that they produce. Whether they benefit small family farms or large corporate farms the farm subsidies are in place to keep market swings from wiping out farmers in general. Farm commodities prices go from one extreme to another quite often and they have the potential (without farm subsidies) to wipe out even the big farmers. When the big farmers get wiped out because of large market swings, and there is no protection guess who gets to pay more for their groceries. That's right you and I. Maybe you need to look into farm subsidies a little more in depth and you'll understand what I mean.

Dr. Tufte said...

The deal with farm subsidies is far nastier than Rico or Drake realize.

Agricultural subsidies are price floors. These increase the quantity of stuff produced by suppliers. A price floor can only work by taking that excess supply off the market.

Even economists rarely talk about what is done with that surplus. In practice, it is given as "aid" to developing countries.

The problem with that is that giving away American food in developing countries makes it harder for the farmers in those countries to support themselves. Think about it: when was the last time you saw starving people in developing countries who had lost their job fishing, or driving trucks, or mining, or doing domestic work - almost all the starving people are former farmers.

So really, what American farm subsidies do is save American farming jobs by killing them in other countries. Don't believe me? Well, farmers in South America are moving towards production of coca leaf - one of the few cash crops we don't subsidize here.