Timothy T. Taylor Home Page
Journal of Economic Perspectives
Articles and Writing
Economics Textbook
Classroom Teaching
The Teaching Company
High School Pedagogy

Articles and Writing

December 13, 1988
"Farm Subsidy Brinkmanship"
San Jose Mercury News
By Timothy Taylor
<< Back to 1988 menu

GOVERNMENT subsidies for agriculture have become a sort of arms race on the farm: Every country spends just to keep from falling behind. The subsidized U.S. rice growers complain that they can't sell rice in Japan, where the rice growers are even more heavily subsidized. Heavily subsidized U.S. dairy farmers (a few years ago, one study estimated U.S. dairy subsidies at $835 per cow) worry that the heavily subsidized European dairy farmers will take over part of their market.

Every country is afraid of unilateral agricultural disarmament, of reducing its subsidies and being swamped in the world agricultural markets. The obvious answer is for all countries to reduce their subsidies simultaneously, which is why farm subsidies were one of the major issues for the trade ministers of over 100 countries who gathered in Montreal last week for the most recent installment of the GATT (General Agreement on Trades and Tariffs) talks.

But after four days of bitter, ineffectual talks, the trade ministers postponed any further discussion until April 1989.

Frankly, if farm subsidies were just another case of taxpayers and consumers subsidizing a special interest group, I could bear their existence with a certain cynical equanimity. At least the federal tax code and food stamp program help to assure that America's poor aren't hurt too much by farm subsidies, either as taxpayers or as consumers.

But in fact, farm subsidies are far worse than most other pork barrel subsidies, because they are a harsh blow to the economic prospects of poor families around the world. Their plight is the reason it is desperately important that when the GATT talks reconvene, they reduce agricultural subsidies dramatically.

While Japan and Europe and the United States play "I'll see that subsidy and raise you another," poor farmers in less- developed countries can't put up the ante. When wealthy nations subsidize overproduction and then try to sell the surplus below cost on world markets, it becomes impossible for farmers in poor countries to compete. In addition, when a wealthy nation subsidizes its own farmers, it must also act to shut out foreign competition. Otherwise, the government could end up paying for the entire domestic crop, while consumers ate the less expensive imports.

Thus, while Japan and the United States play dueling subsidies in the rice markets, rice producers in poor countries like Thailand suffer. While Europe and the U.S. struggle to expand sugar production, farmers in Central American countries, in the Philippines, and in Brazil must suffer the consequences. Because the United States subsidizes cotton production with price supports and water subsidies, farmers in countries like Mexico, Guatemala, Bangladesh, Egypt and Paraguay suffer.

In most of these less developed countries, per capita income hovers at around $1,000 per year. These countries are too poor and too indebted to have unemployment insurance or food stamps or welfare.

When farmers in countries like Thailand or the Dominican Republic or Bangladesh cannot sell their traditional products, they have no other options. No one gives rock concerts or holds congressional hearings to save their land or feed their children. The rest of the local economy is too weak to offer alternative ways to make a living. If these farmers cannot grow products for export, they are forced ever deeper into a grinding and hopeless poverty.

Of course, reducing farm subsidies will hurt some farmers who are used to slurping from the public trough. But it appears likely that eliminating world agricultural subsidies would not hurt the U.S. farm sector as a whole.

Robert L. Paarlberg summarizes a number of the relevant economic studies in his recent book, "Fixing Farm Trade" (Ballinger Publishing Co.). He finds that U.S. farmers who produce heavily subsidized crops like sugar and dairy products would suffer if all agricultural subsidies were removed, but farmers who grow wheat, coarse grains and other less-subsidized crops would be able to expand production enough to offset those losses.

Paarlberg also finds that if all agricultural subsidies were lifted, losses would outweigh gains for farmers in Europe and Japan. That's probably why, at the GATT talks, U.S. negotiators were insisting on a long-term goal of eliminating all agricultural subsidies, while European negotiators were unwilling to make such a commitment.

Agricultural subsidies now cost citizens of developed countries about $150 billion every year in higher taxes and food prices. In the United States, subsidies to each commercial farm average about $40,000 a year. Costs of that magnitude should be sufficient reason to put a muzzle on the farm lobby.

But if citizens in wealthy countries want to keep spending their tax and grocery money on subsidizing farmers, they can afford it. It's the farmers in less-developed countries who can't afford it. For many of them, the eventual outcome of the GATT talks will determine whether they have a chance to improve their lives, or not.

<< Back to 1988 menu