Farm subsidies and their economic impacts

¶ … Farm Subsidies by David Hosansky in the CQ Researcher of May 17, 2002 (Pages 433-456). The article is a 23-page report on the $249 billion U.S. Farm Bill signed into law by President Bush on May 13, 2002 that drastically increases farm subsidies over the next 10 years. It covers topics such as the Issues, Background, Current Situation & Outlook, and Sidebars and Graphics. The report is a fairly comprehensive and informative write-up on the issue, which is to be expected as the author is a two-time Pulitzer Prize nominee. However, in my opinion it lacks an international perspective of the issue and the author (perhaps in an effort to give both sides of the picture) does not take a clear-cut stand on the merits or demerits of Farm Subsidies.

International Implications

The signing into law of the U.S. Farm Bill in May 2002 has serious and profound international implications. These effects have only been mentioned in passing by the author and have not been analyzed or explained in sufficient depth. For example, the subsidies that have been built into the Bill (a massive 70% hike over the current levels) would result in overproduction of such food products as corn, wheat, cotton, rice and soybeans. This would drive down the market prices of these commodities and create huge surpluses in the United States. These products would then be exported to the poor countries of the world where the farmers cannot possibly compete with such low prices. So, the biggest losers of the multi-billion dollar handout (perhaps even more than the American taxpayer who would be paying for the subsidies directly) would be the poor farmers in the third world countries. The extent of damage to poor countries of such trade barriers is reflected in a World Bank estimate that the annual cost to poor countries of industrial-country trade barriers is six times the amount developed countries spend on aid. This point deserved greater emphasis than is provided by Mr. Hosansky in his report.

Damage to U.S. Position in Global Trade Talks

Another related point that has not been sufficiently highlighted in the article is the enormous damage the boosting of subsidies would cause to the U.S. position in global trade talks where America is the leading proponent of reducing state subsidies. This point has been mentioned as a quotation from a Senate Committee member in the Issues section of the article but has not been sufficiently highlighted or discussed. Supporters of farm subsidies in the U.S. often point out to the even greater agricultural subsidies provided to farmers in the European Union, Japan and other OECD countries. This is true. It is also exactly why the United States, if it had not followed their lead in increasing its own subsidies, could have been in a position to persuade these countries to lower their subsidies. Now it would be an uphill (almost impossible) task for the U.S. To influence these richer countries to lower their farm subsidies in world trade talks. The losers would again be the poorest farmers in third world countries. These countries are already under pressure of the international monetary agencies to keep low tariffs as a trade-off against their huge debt burdens and are in no position to compete against the onslaught of cheap, subsidized farm products from the richer countries. President Mbeki of South Africa remarked after hearing of the signing of the Farm Bill, "You couldn't be this great proponent of free trade and take decisions of this kind, and say you are committed to the development of developing countries and take actions that clearly block that development."

Absence of a Clear-Cut Stand by the Author

In the report on Farm Subsidies that is the topic of this paper, the author avoids to take a clear-cut stand on the issue of farm subsidies. This is probably because of his effort to present both sides of the picture, which is not a bad thing in principle. Taking such a middle-of-the-road stance on the topic, however, also results in omission of some important arguments. For example, the CQ Researcher report fails to mention that the U.S. government and policy makers are also being penny wise and pound foolish while opting for their policy of enhancing. How could that be? As it has been mentioned earlier, in certain EU and OECD countries as well as Japan, the farm products are even more heavily subsidized than envisaged in the recent $249 billion U.S. Farm Bill. By persuading these countries (it would probably not be possible now) to lower their trade protective barriers and agricultural subsidies, the United States could have sold more of their own farm products to these relatively rich countries, besides enabling the poorer to countries to sell their products in a free market situation.