What kind of world are we living in???

July 14, 2007 12:16 PM

Why does the US (and EU?) so heavily subsidize crops specifically for export?

A good hypothesis I've heard goes something like... After having introduced cheap goods into a local market (because of government subsidies, cheaper than locals could ever produce themselves) long enough to drive local producers out of business, subsidies can than be lifted, leaving our new foreign consumers no choice but to continue to purchase US (EU) grown crops at market price.
Could this really be possible. Internet has helped some, anyone have any ideas about this?

(I hear the US and EU together spend something like $339 billion a year on just this type of subsidies)

posted by nintendo to law & government (24 comments total)

The answer in the US is pretty straightforward: there are a lot of farm states with two senators each.
posted by Steven C. Den Beste at 12:22 PM on July 14, 2007

One place to start is to read up on on what's called the Common Agricultural Policy^, which is the EU's system of agricultural subsidies.
posted by mdonley at 12:24 PM on July 14, 2007

Political pressure is important. Farm owners are land owners and land owners will always carry political weight.

The rest of it gets back to the fact that there's a barrier to entry in farming. For example, if you have land that was tilled, fertilized and grew crops for the last ten years, it's going to be cheap to till, fertilize and grow crops in it this year. If you have land that's lain fallow for the last ten years, or never cultivated, it's going to be much more difficult and expensive to get a good yield out of it this year. It won't start producing at its highest yield for a couple years.

So if foreign farmers can be driven out of business, prices can eventually be raised on US exports, as you say. But as you notice subsidies don't eventually vanish, as you might expect them to. The reason is something called 'food security,' which is a policy goal. The idea is that the U.S. should be able to feed everyone in the U.S. even if all other countries stop exporting us food; plus, if there's a famine in other countries, we should be able to feed our key allies too. If that famine happens we don't want to have to spend time and money ramping up our fallow farmland; we want it ready to go with crops already growing on it for the last 10 years and cultivators and harvesters gassed up and standing by. Subsidies guarantee this.

The debate over whether this policy reflects something that is a kind of necessary/useful insurance for the US taxpayer to buy; or whether it is all just pork that serves to benefit a tiny minority of wealthy farm landowners, is long-running. I don't have a particular opinion on it.
posted by ikkyu2 at 12:34 PM on July 14, 2007 [3 favorites]

I have friends that work for the Dept. of Agriculture, and here's pretty much the working theory within the government, if not official policy:

Do we really want to be dependent on a foreign country for food? By subsidizing farms in the US, the government is effectively paying an insurance on us not having liquidity shortages or being at the whim of foreign trade. Our farming is quite scientific at this point, and it is highly unlikely one event would destroy a cash crop. If it was outsourced, there's a whole host of variables that the government has no control of. Poor flood planning, natural disasters and all sorts of things that rarely happen in the agrarian states due to our advanced infrastructure.

Of course the dogmatic neo-classical approach to economics that everyone is taught would say that the markets would correct good. If we're better at producing something else, it is better as a whole for us to produce the most of that and have another country produce the best at what they produce. Very basically we should see a net increase of say, 5% microchip production now our resources are devoted to that and a 2% greater production in wheat from a country that does that better.

Of course that works great in theory, but try getting elected and explaining why Corn Flakes are $9 a box because of a war in Nigeria.

Also our country is agrarian in nature. France gives huge subsidies to its provincial living residents (I forget the specifics) with idea that such a way of life is uniquely French and should be preserved. More often than not this is the argument in the United States in regards to farming.

Now non-staple foods, in my opinion, should not be subsidized. While I may want oranges, I would rather deal with orange price volatility than have Florida have a monopoly on orange production. I read somewhere that if Brazil were allowed to export oranges we'd have a huge drop in price, but someone has a brother that is gov. of Florida or something ...
posted by geoff. at 12:47 PM on July 14, 2007 [2 favorites]

A lot of this is the result of rent seeking.

For example, the reason that your soda is sweetened with corn syrup instead of sugar is that this country has drastic ceilings on sugar imports, which keeps the price of sugar high. The reason for those ceilings is that Archer Daniels Midland wants your soda sweetened with corn syrup, which is a major product they sell. ADM knows a lot of senators and a lot of congressmen, and contributes a lot of money to them, and they do what ADM wants.

(ADM also wants your car to run on ethanol made from corn, even though it doesn't make any sense in either energy or economic terms.)

Geoff's comments notwithstanding, this has been going on for decades and both political parties do it. It doesn't have anything to do with Jeb Bush as such.
posted by Steven C. Den Beste at 12:57 PM on July 14, 2007 [1 favorite]

That hypothesis has a lot of explanatory power; in other words, we and the EU do this because it helps businesses within our borders make money, and they in turn use some of that money to buy enough political influence to keep the subsidies in place despite the human misery they result in.

But it does not go nearly far enough. When local farmers have been driven out of business sufficiently, the third world country in question can no longer feed its people without imports, and if its leadership wants to pull a Chavez, and use their natural resources for the benefit of their own people instead of our corporations (and never imagine most of them would not like to), it will be quickly brought to heel by the food riots which would follow from the sanctions we and the EU are now in a position to impose.

And as those farmers are driven out of business, they have no choice but to migrate to the cities and fill the slums, where the ones who survive will become the eager, compliant workforce for a new generation of slave labor factories to produce our goods.
posted by jamjam at 1:05 PM on July 14, 2007

Apart from economics, there is a sense of history needed to answer this question. And an insight in politics. Much of the European agricultural policies were set out early on in the 1950s, by the Dutch farmer/politician Sicco Mansholt. Whose ideas about food production were heavily influenced by what he had experienced during the Second World War, and especially the famine in the Netherlands during the last winter [the hunger winter]. In Mansholt's views the Netherlands, and after that the EEC, needed to be become completely independent from food imports. And in order to achieve that, basically all the little old farms needed to make way for better run and bigger farms. So, the small farms were bought out, and the bigger farms were heavily subsidized, because they got a good, yet fixed price for everything they produced.

Once a policy like that is successful, as it was in the first decades, it becomes immensely difficult to change it. And that's what we're we are experiencing right now.

Mansholt's agricultural policies produced masses of products that weren't needed [milk lakes, wine seas, butter mountains]. Those were dumped on the markets outside the EEC/EU, and are the heavily subsidized crops and produce you mentioned.

I am sure there is a simular tale to tell about the American efforts to protect its own farmers, and the reasons behind that.
posted by ijsbrand at 1:09 PM on July 14, 2007 [2 favorites]

Jamjam, it isn't necessary to resort to conspiracy theories about evil capitalists trying to exploit the downtrodden proletariat. Sorry, but there isn't any plot like that.
posted by Steven C. Den Beste at 1:12 PM on July 14, 2007 [1 favorite]

The first answer in this thread is really the most accurate.
posted by dagnyscott at 1:29 PM on July 14, 2007

It's not a plot, Steven, it's a simple, straightforward mechanism, plainly visible in operation and outcome all over the world, which is now so widely recognized and acknowledged, that I can only wonder at the judgment which could allow you to waste credibility and precious time bothering to attempt to deny it.
posted by jamjam at 1:30 PM on July 14, 2007

Geoff's comments notwithstanding, this has been going on for decades and both political parties do it. It doesn't have anything to do with Jeb Bush as such.

Obviously, but Brazil recently had a row with the US when they took this to the WTO. Florida citrus growers are a huge lobby without Bush, but you have to be naive that George Bush isn't paying special attention to this (it is, after all, his brother).

There's really two issues here, and they are not separate:

(1) Subsidies in their various forms that indirectly raise the price of various farm products so that more is produced -- even though the invisible hand of the market would dictate that the prices would be even cheaper than they are.

(2) Trade barriers that also raise the price of goods. Tariffs on agricultural products are one of the oldest taxed goods, there is a long history of protecting domestic agriculture. Right now, we dump corn and other staple goods on Africa. This effectively eliminates any economic incentive for the countries to grow domestically. I would hazard to guess in a free market environment we'd see a lot of third world countries use farming (which is essentially labor and arable land, both of which are in abundance in large parts of the world).

It is an incredibly complex issue and there a lot of unknowns if we were to go off or ease up on subsidies. I have a feeling we'll begin to see a gradual increase in imports if WTO pressure mounts. This is one of those issues that you can't really say is "left" or "right", as there's no real win-win solution.

Personally, I see nothing too wrong with what we're doing now. There are inefficiencies, but when was the last time we've had an actual food shortage? I realize that runs against the problem of induction, but we pay (theoretically) a higher price as a society, probably a lower price per person for the majority of Americans, and we have a stable commodity that is needed by all of society.
posted by geoff. at 1:31 PM on July 14, 2007

Occam's razor can be used to discard the wilder conspiracy theories out there. SCDB is correct that the primary reason is the power of the farm lobby in America and Europe, particularly France. The magnitude of the surpluses involved (the EU 'butter mountain' is legendary) show that food security is in no way the primary reason.

I can't understand geoff's complacency about this; sure, US farmers would be worse off if the corn subsidies were cut, but the positive effect on the third world far outweighs that, whatever the D of A thinks.
posted by Aloysius Bear at 1:52 PM on July 14, 2007

If a government wants to get elected, it has to please some groups of people.

Some groups, like schoolteachers, are evenly spread out across the country. They are therefore not a very useful voting bloc, as you cannot swing an election by targeting them.

Some groups, like farmers, are concentrated in certain geographic areas. If you can please them, you can guarantee the votes in their voting areas. They are therefore a powerful voting bloc.

The key to buying votes is to distribute the costs and concentrate the benefits. The overt costs of subsidies is spread out across the whole tax base, and isn't enough to really be painful. The hidden cost of higher food prices (due to protectionism) is either invisible, or blamed on the retailer.

The benefits however are highly visible to certain industries and regions, and popular among their workers.
posted by TheophileEscargot at 2:06 PM on July 14, 2007 [1 favorite]

As I understand it, your question is about export subsidies in particular, not general agriculture subsidies. General subsidies are sometimes justified by the "infant industry" argument: The industry just needs help getting off the ground, and once the industry is mature the subsidies will no longer be necessary.

It would be hard to argue that western agriculture is an infant industry so an interested politician might argue that US agriculture needs assistance to enter foreign markets. That is, the export subsidies could offset the costs of entry to foreign markets. Possible costs of entry would include introducing the foreign consumers to the export and learning how to run an efficient export operation. In this case the subsidies are not aimed at destroying foreign introduction (as in your scenario), but just getting the US
producers established in the market. In your scenario the the foreign consumers ultimately end up paying the US market price, in my scenario they still have the choice of buying from there own national producers.

And even if there really aren't any barriers to entry export subsidies could be the more politically feasible way to court farm state votes.

Also you may want to check that $339 billion figure, page 11 of this paper (pdf) puts the number around $6 billion.
posted by thrako at 2:14 PM on July 14, 2007

I can't understand geoff's complacency about this; sure, US farmers would be worse off if the corn subsidies were cut, but the positive effect on the third world far outweighs that, whatever the D of A thinks.

I agree with this statement, but there's a huge amount of uncertainty with this. I think the poor in the United States would be hurt by this (with greater volatility coming from the unknown versus US government insured subsidies). If I may make a somewhat fumbling point: The risk carried by moving into non-insured markets (I consider subsidies a form of insurance) will carry an amount of risk. I have no doubt the intrinsic value of whatever we're talking about will be cheaper if we import it, but without the government paying for that risk as they do now the consumers will pay for it. That may not mean a lot to most of Americans, but like always this would mean the poor get screwed. In any situation, I see the poor getting screwed somewhere. The question is who and how much for each situation.
posted by geoff. at 2:23 PM on July 14, 2007

will carry an amount of premium in price ...
posted by geoff. at 2:27 PM on July 14, 2007

I can't understand geoff's complacency about this; sure, US farmers would be worse off if the corn subsidies were cut, but the positive effect on the third world far outweighs that, whatever the D of A thinks.

Is there a consensus on whether the benefit to third world producers would outweigh the higher costs to third world consumers?
posted by thrako at 2:54 PM on July 14, 2007

The debate over whether this policy reflects something that is a kind of necessary/useful insurance for the US taxpayer to buy; or whether it is all just pork that serves to benefit a tiny minority of wealthy farm landowners, is long-running. I don't have a particular opinion on it.

Dude, we have subsidies for tobbaco. I live in Iowa and I've never heard anyone suggest that the subsides are anything other then pork.
posted by delmoi at 3:04 PM on July 14, 2007

geoff: Of course, the sensible thing would be to subsidize food for poor people, which we do in the form of food stamps.
posted by delmoi at 3:06 PM on July 14, 2007

The key to buying votes is to distribute the costs and concentrate the benefits. The overt costs of subsidies is spread out across the whole tax base, and isn't enough to really be painful. The hidden cost of higher food prices (due to protectionism) is either invisible, or blamed on the retailer.

higher food costs? It seems to me that farm subsides would lower food costs greatly, and that seems to be what happens.
posted by delmoi at 3:08 PM on July 14, 2007

Farm subsidies don't work without trade protectionism. In combination they prevent much cheaper food from being imported. One example was mentioned already: that shit they're putting in your soda is absolutely not cheaper than sugar.
posted by genghis at 4:24 PM on July 14, 2007

Delmoi, would that it were so, but, unfortunately most American "subsidies" of domestic agriculture production take the form of price supports of one form or another. We sustain domestic producers by keeping their unit prices high which maintains their profitability.

Much of the effort increases prices by reducing unit supply -- supports that pay people not to produce, tariffs which reduce commodity important. Some of the effort increases prices by increasing unit demand -- food stamps and "buy USA" requirements for foreign aid and overseas military operations, for example.

Some of the effort, like providing Western cattle operations with ultracheap grazing on federal land, has the theoretical potential to increase unit supply, but in practice just increases the unit profit margin of a producer.
posted by MattD at 4:31 PM on July 14, 2007

delmoi, obviously tobacco has nothing to do with food security. Why do you bring it into this discussion? Are you even aware that you're discussing food security when you choose to excerpt my comment that way?

Also, I don't think living in Iowa qualifies you to be privy to policy discussions. Most policy in this country is set in Washington, New York and Boston. If you want to paint your neighbors as completely ignorant of the policy debates that inform the subsidies they receive, that's one thing; but it doesn't mean those debates aren't taking place.
posted by ikkyu2 at 4:32 PM on July 14, 2007

Like any political issue, there are multiple dimensions and multiple reasons for a policy. Is food security a reason? Yes, but that doesn't mean that pork barrel spending and political influence from farming states *isn't* a reason.
posted by electroboy at 1:21 PM on July 16, 2007