The United States Department of Agriculture should end its support programs for domestic agricultural production. 70% of agricultural support goes to 10% of the farmers, which is almost entirely comprised of oligopolistic, multinational corporations. Farmers in developing countries cannot compete against products produced on subsidized farms in developed countries. Farming is one of the few economic sectors where developing countries are considered to have comparative advantage. Meaning, agricultural products could be produced cheaper in developing countries, whilst developed countries could concentrate on manufactured products and intellectual property. On top of which, agricultural support programs in the United States go to subsidize corn-ethanol biofuel production, which crowds out the land, labor and resources available for food-slated corn production. Global food prices have hit records highs this year after hitting records highs only three summers ago. The population of the planet is estimated to reach nine billion in forty years. In order to feed nearly a third more of the population in four decades, the Green Revolution of agriculture of the 1970’s will have to be replicated. Agriculture support programs distort market realities, artificially raise prices, and raise the barriers to entry into the system for farmers in developing countries. Combined with incentives for food producers to switch to biofuel production, these policies do not help the world and benefit the few at the expense of the many. In this age of austerity, the budget for farming support for the United States Department of Agriculture should be significantly cut, if not eliminated. These policies impede the success of the Doha Development Round, conflict with the principles espoused by the North American Free Trade Agreement and impede, not encourage, global economic development. Ultimately, one has to ask, “Are there any good reasons to support agricultural subsidies?” The answer is, No.[1]
Republicans achieved the highest gains in seats in the House of Representatives in the November 2010 on heals of austerity and government reform. Since the election, the bi-partisan Debt Commission has presented the results of its study to both houses of Congress. One of their recommendations included cutting $3 billion in agricultural subsidies.[2] The United States Department of Agriculture (USDA) has been supporting farmers since the Great Depression, when a sharp decline in the demand for commodities pushed commodities prices below the costs of production and forced many farmers out of the profession. And although the world is still recovering for the economic catastrophes caused by the Great Recession of 2008, the agricultural market today is much different from the market faced by farmers and policymakers alike in the 1930’s.[3]
While Republicans and the Tea Party Caucus are quick to propose cuts for education, service projects, maternity care and public broadcasting, their free market rhetoric ends when it comes to criticizing the USDA’s agricultural subsidy programs.[4] These programs are widely considered my proponents of trade liberalization as distorting the true market price of commodities.[5] Further, the USDA goes beyond merely subsidizing agriculture production. Farmers receive insurance guarantees, marketing support, export subsidies, import tariffs on agricultural products from abroad, protection from competition and guaranteed price floors for commodities. Invariably, these policies go beyond elevating food prices domestically, they create a whole-host of negative ramifications throughout the world.
And here, one can draw connections to the modern-day revolutions throughout the Middle East. Although the popularity of the many of theses protests, whether in Egypt, Yemen, Tunisia or Algeria, stemmed from the lack of political accountability in governance, protesters sight the rising cost of food as one of their main grievances.[6] Global food prices spiked earlier this year above the previous heights set during the summer of 2008. Although in developed countries, food prices reflect a very small percentage of commodities fluctuations, commodities prices account for roughly sixty to seventy percent of food prices.[7]
The current spike in food prices, specifically wheat, has been attributed principally to the poor harvests in the Untied States last summer as a result of higher than expected temperatures, droughts and fires in Russia last year and proposed export bans in India and China to meet domestic demand, there is a correlation in the increase of commodities prices and market distorting measures by the United States and other developed countries.[8]
The developing world and agricultural importing countries have demanded diminished support for domestic agricultural production by the Untied States, the European Union and Japan.[9] Initially, the United States cozied up to the idea of reducing its domestic support of agriculture during the era of free trade fostered by the ratification of the North American Free Trade Agreement (NAFTA), but continual dissatisfaction from the outsourcing of jobs by the American public has led many politicians to shy away from the espousing free trade.[10]
Ironically, the Tea Party’s austerity platform has yet to sincerely consider cuts to the USDA agricultural support programs, despite ranging from $10 to 30 billion per annum. Comparatively small when compared to the budgets of other governmental agencies, but cutting agricultural support programs in all its forms could add hundreds of billions of dollars of growth and trade to the world economy. Possible growth figures range from slightly over one hundred billion dollars to the tune of half a trillion dollars. Further, these support measures were and still remain one of the points of contention for the resolution to the Doha Development Round.[11]
The Doha Rounds of World Trade Organization (WTO) negotiations on the future of global trade began nearly a decade ago following the September 11th terrorist attacks. Then-US Trade Representative and now president of the World Bank, Robert Zoellick, sought to rally support behind the Doha Round as a means to bulwark Al-Qaida’s threat to the world economic order.[12] Ten years later, the Doha Rounds have stalled since 2008 after continued disagreement over agricultural subsidies bogged down the talks. Zoellick’s attempt to rally the world around the need to stand tall against the Al-Qaida threat failed miserably.
Aside from domestic politics and the various interest groups associated in the agricultural sector in the Untied States. Popular support for the maintenance of agricultural subsidies remains strong amongst several policy makers for fear of sabotage of the world food markets by would-be terrorists. These appeals to fear may reside with segments of the greater public, but besides extorting the threats Global Jihadism play on the agricultural production, they are not rooted in any semblance of logical thought.[13]
Playing up fears over food security are as much of a threat to trade liberalization as the agricultural subsidies themselves. Terrorist conspirators could arguably sabotage everything that is traded; yet we do not subscribe to these argumentum ad baculum when it comes to importing electronics or automobiles, why should we do so when presented with these same arguments in agriculture? The ludicrous nature of these polices is demonstrated best by the recent trade row between Brazil and the United States. In 2002, Brazil appealed to the World Trade Organization to force the United States to discontinue illegally subsidizing the American cotton farmer to the tune of 1.5 to 4 billion dollars per year.[14]
After nearly eight years of appeals by the United States to World Trade Organization, the WTO allowed Brazil to impose retaliatory measures. When Brazilian trade officials warned American businesses operating in Brazil that over 100 American products would be receiving higher import tariffs by the Brazilian government, these businesses turned around and lobbied the American government to send a trade delegation to Brasilia. Crisis adverted. Brazil dropped retaliatory measures on American products and the United States ended its subsidies to the American cotton farmer – not exactly. Instead of dropping subsidies or at least diminishing subsidies, US trade officials negotiated an annual $147 million subsidy to the Brazilian cotton industry. This subsidy would continue until the United States could satisfy Brazil’s original dispute of artificially propping up the American cotton farmer.
The ludicrousness of American agricultural policies is not limited by recent trade deals orchestrated with Brazil; the broader implications of market distorting policies on agriculture are present in the current food crisis. The Obama Administration continues the Bush-era policies to encourage, through subsidies, the allocation of maize production for biofuels. Much was touted about biofuels in the wake of September 11th. [15]They were deemed necessary to remove the dependence of the United States on oil from the Middle East. Under the theory that “authoritarianism breeds terrorism,” funneling money to Middle East autocrats who oversee the production of a significant share of the world’s proven oil reserves was counterintuitive to national security. Our national security was preserved by rerouting money from Middle Eastern despots to the American corn farmer for corn-ethanol production.
Ethanol from maize production inherently limits the amount of corn for food consumption. Last year twelve billions of gallons of corn ethanol were produced in the United States, which made a vast share of the biofuel production in the country. Currently, the government mandates that gasoline contain ethanol. Roughly between thirty to forty percent of the maize production in the United States is used for corn-based ethanol.[16] Unlike the Brazilian ethanol market based largely off sugar cane, the US ethanol market conflicts with a food staple for energy production. Brazilian sugarcane is more efficient than corn ethanol in terms of energy production; it uses less land and does not compete with food.[17] In order to preserve the indigenous corn-ethanol market, the United States placed a tariff of $0.54-a-gallon on Brazilian sugarcane-based ethanol. There are no such tariffs on imported gasoline, for example. Not only are corn-based biofuels less efficient than gasoline, more expensive than sugarcane and compete with food production land, the subsidization of corn-based biofuels by the United States raises the overall price of corn. Corn prices no longer reflect than price set by supply and demand, but reflect a higher price as a result of market distorting policies by the USDA.
Beyond any Brazilian-American trade disputes, there are serious policy implications from shifts to protectionism that have been witnessed in the United States since September 11. Every policy enacted has to pass the national security test. The difficulty with certifying whether or not something poses a threat to national security is that it is difficult to ascertain a common definition of national security across a broad range of interests. It may be in the interests of the American corn farmer for energy production to be done domestically via corn-ethanol, it may be in the interest for the American cotton farmer to maintain its market share of the global market at the expense of West African cotton producers and it may be advantageous for corn, rice, maize, soy and wheat farmers to receive disproportionate protection from the volatility of the commodities market, but is it advantageous for the American people? Is it advantageous for the world?
As stated previously, the benefits to limiting or eliminating agricultural support in developed countries float between a couple hundred billion to a half trillion dollars in increased growth of trade. These figures are disputed, as is determined by the breadth of their range. Mainly, because the arguments against the figures deal with what can be defined and what cannot be defined as a subsidy. Since, developed countries, like the United States, offer a broad range of support programs to agricultural producers beyond mere “subsidies” it is difficult to predict if x is cut, then y will occur when the proposed x cuts do not deal with full spectrum issues, i.e. total agricultural support, as opposed to subsidies, or direct payments in USDA terms.
Keeping this in mind, it is nonetheless tantamount that the United States, as well as the European Union and Japan reconsider their hostility towards diminishing and ending market distorting agricultural support programs. Farmers from developing countries cannot compete against a glut of subsidized agricultural products from the United States and other developed countries. The dire nature of the global food crisis requires governments of developed countries to restart and resurrect the Doha Talks.
The realities are such that there are no logical arguments for broad range agricultural support.[18] The population of the world will reach nine billion by the year 2050 at current fertility rates. The Green Revolution in agriculture of the 1970’s will have to be repeated again in order to feed more people in the coming decades. Agriculture is a culprit and a victim of climate change. Methane emissions from cattle contribute the majority of agriculture’s 14% share of the total greenhouse gas emissions.[19] Climate change, by creating more extremes in weather cycles, is going to put pressure on future agriculture yields. A few multinational corporations that work as an oligopoly in the agriculture market are holding back reform in agriculture policy. The idea that domestic agricultural production needs subsidies in order to combat national security threats is a falsehood and grave misleading of the public. In this age of globalization, the tenuous holds to some American cultural phenomenon like the small, hard-working farmer need be relegated with the likes of the American steelworker. If Republicans and the Tea Party Caucus are sincere on austerity that they should start by curbing funding of these policies do not embody the free market spirit. The removal of agricultural subsidies and the shrinking of agricultural support programs; import tariffs, export subsidies, insurance guarantees and marketing aid, are a place where environmentalists, human rights advocates, free market libertarians and global trade advocates can unite. We should take advantage of this opportunity and remove this 20th century policy from our globalized world.
[1]http://aic.ucdavis.edu/research/farmbill07/aeibriefs/20070515_sumnerRationalesfinal.pdf
[2]http://online.wsj.com/article/SB10001424052748703805004575606643067587042.html
[3] http://www.downsizinggovernment.org/agriculture/subsidies
[4] http://www.politico.com/news/stories/0111/48097.html#ixzz1C3grT2kL
[5] http://reason.org/news/show/is-there-a-global-food-crisis
[6] http://marketplace.publicradio.org/display/web/2011/02/18/pm-high-food-prices-cause-concern-in-middle-east-/
[7] http://www.npr.org/blogs/money/2011/02/16/133744524/why-are-food-prices-going-crazy
[8] http://www.npr.org/blogs/money/2011/02/16/133744524/why-are-food-prices-going-crazy
[9] http://www.cfr.org/trade/doha-trade-talks/p10555
[10] http://prospectjournal.ucsd.edu/index.php/2010/04/nafta-and-u-s-corn-subsidies-explaining-the-displacement-of-mexicos-corn-farmers/
[11] http://www.reuters.com/article/2009/08/16/us-trade-doha-forecast-idUSTRE57F0KD20090816
[12] http://www.cfr.org/india/food-crisis-could-solve-doha-round/p16614
[13] http://www.cato.org/pub_display.php?pub_id=12771
[14] http://www.npr.org/templates/transcript/transcript.php?storyId=131192182
[15] http://www.nytimes.com/2005/01/22/opinion/22patterson.1.html
[16] http://www.npr.org/2011/02/25/134054231/what-recession-its-boom-time-for-nebraska-farms
[17] http://www.cato.org/pub_display.php?pub_id=12623
[18] http://freakonomics.blogs.nytimes.com/2008/07/24/the-illogic-of-farm-subsidies-and-other-agricultural-truths/
[19] http://animals.howstuffworks.com/mammals/methane-cow.htm
Bibliography
Daniel A. Summer, Farm Subsidy Tradition and Modern Agricultural Realities, Paper prepared for American Enterprise Institute project on Agricultural Policy for the 2007 Farm Bill and Beyond
Timothy A. Wise, The Paradox of Agricultural Subsidies: Measurement Issues, Agricultural Dumping, and Policy Reform. GDAE Working Paper No. 04-02: The Paradox of Agricultural Subsidies, May 2004
Cato Handbook for Policymakers, 7th Edition, Section 18. Agricultural Policy.
C. Fred Bergsten, “Resurrecting Doha Round.” Foreign Affairs, December 2005 – WTO Edition.
Kym Anderson, Will Martin, and Ernesto Valenzuela, “ The relative importance of global agricultural subsidies and market access.” World Bank,World Trade Review (2006), 5: 3, 357–376
Rick Rellinger, “NAFTA and U.S. Corn Subsidies: Explaining the Dispacement of Mexico’s Corn Farmers.” Prospect: Journal of International Affairs at UCSD. San Diego, April 2010
Suggested Reading
Daniel A. Summer, Agricultural Trade Policy: Letting Markets Work Washington D.C.: AEI Press, 2005.
“World Food,” Financial Times Special Report, Financial Times, 25 October 2010
“The 9 billion-people question: A special report on feeding the world” The Economist 24 February 2011
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