Asymmetrical Information

Hi, Jane: What do you see as the short-term effects of removing these trade barriers? Are you comfortable with the long-term possibility of our major food crops coming from overseas? From a homefront defense standpoint, I can see where it seems unwise.

Invocation of Kaus-ian "to be sure" stuff: (yes, yes, free trade is good, yes, I'm willing to compete with Chinese chemists, Indian farmers, etc., etc.)

"...it's even better news for the world's poor, who are locked out of the only market where they might be competitive by the high agricultural trade barriers put in place by pretty much every developed economy."

hmmm, welll, over half of developing countries are net food importers. Removal of subsidies will likely increase world prices, at least for a while, and make them worse off. "Middle class" countries such as Brazil will laugh all the way to the bank, but the truly poor will quietly (probably) starve.

hi back40,
i wonder if one efect of raising world prices for agriculture will be that farmers in thos poor countries who don't currently farm those goods, might actually start farming those goods, and getting some much needed currency. of course, we can expect cycles, but its been downward bound all the way with the subsidies we and the europeans have been pouring in...

i think its great news! perhaps we can put the money saved from these subsidies into something else-tax cuts, deficit reduction, paying for the war in iraq...

Hi cas,

Prediction IS a fool's game but we do need to anticipate the consequences of policies. As you suggest, changes in world prices will likely result in farmers altering their crop decisions, seeking margins in whatever crop promises cash, that they can grow in their climate/soil/technological/capital circumstances.

Past experience with crops such as coffee and cocoa that are not grown in developed countries suggest that any premiums will be short lived as others enter the market. This will continue until over production lowers prices below current levels before failures bring things back into balance at about the same starvation levels we see now. The fair-trade birds have an unending supply of grist for their craws.

Face it. Agriculture is not a way to make money. Commodities are not the way to make money. Agriculture may be at the center of debate, but it is no where near the center of development. It's what people do to feel good about themselves while they ignore the real issues.

As a fourth generation cattle rancher and relatively new wheat farmer I say the sooner the subsidies are killed the better. They have enriched the incompetent, punished the ethical, caused unbelievable amounts of environmental destruction, and starved God only knows how many third world citizens. As a bonus they have made it difficult if not impossible for young, new blood to enter agriculture.

We can talk about food supply / security issues when the USDA stops paying farmers kings wages to not farm hundreds of thousands if not millions of acres. The idea of the US ever having to be dependent on foreign suppliers for the bulk of our essential ag commodities is laughable.

Why do third world farmers not produce as much food as they could? Because in the past they have done the work, produced the food, and taken it to market just in time to have "free" US surplus product crater the commodity markets in their country. Leaving the third world farmers broke and possibly starved. Or the "free" US surplus commodities kept the prices so low the third world farmer could never afford to raise crops in the first place.

back40,

If subsidies were not causing huge surpluses and driving input costs through the roof it would be possible to make money in agriculture.

Um, Klug, you do realize that we don't actually eat cotton, don't you.

Sitting down to a late-night snack of
wool and mohair now...

--Dave

back40--

The subsidies are a complicated mix of subsidies, price supports, and tariffs that generally result in raising the domestic price of cotton (and other things) more than any effect of lowering it.

Excellent news indeed, not least because a removal of the US's indefensible farm subsidies would increase pressure on the Europeans, who can currently point to the US as an excuse for doing nothing.

But Jane what do you mean by "In fact, the United States has pretty much the best (from a poor third world farmer's perspective) agricultural policy in the G-7." I assume you're being ironic but that's about as far as I can go with this.

The facts, as I'm sure you're aware are that only the Aussies (and I write as one) and the Kiwis are squeaky clean on agriculture. The seppos and the Europeans are probably overall equally sinful but on balance America I think is worse because you talk the talk on free trade whereas the French etc are unashamed protectionists.

Most developing countries have more people in agriculture (or at least, living in farming areas without other jobs) than in any other industry. And still they are often net food importers. The reasons for this:

1. Poor or non-existent road networks in the rural areas make food transportation costs high. Staple foods such as grain are very low value per pound, so they are hit especially hard by transportation costs. Perishable foods (meat and most vegetables) are hit even worse, since air transport costs more than they are worth and ground transport is too slow to get them very far before they spoil.

2. Capital cities and other seaports are where most of the money is in most developing countries. For bulk products like grain, shipping charges by rail and ship from US and Europe farms to a third-world seaport are often less than from farms a 100 miles away. In addition, first-world grain is low cost and high quality, because of use of mechanization, fertilizers, and pesticides, as well as because of subsidies.

3. Given the transportation costs and price structure, it makes sense for third-world farmers to use the little funds and education they can get for agricultural improvements on higher-value non-food crops like coffee, cotton, or cocaine. Without fertilizer, pesticides, and tractors, third-world food farmers might not be able to compete with subsidized South Dakota wheat even if a railroad was built right to their barn.

4. The farmers can still feed themselves most years, and far more cheaply than bringing imported food that last 100 miles of bad roads. They aren't shipping food around, so when crops fail in one area, the shipping network they need to bring food in from elsewhere isn't there and the farmers starve.

Removing subsidies would remove one part of the problem. That still leaves several other problems, but the subsidies are the only part that is under the control of wealthy nations. (Unless the war on some drugs is actually raising the demand and price at the farm for these non-food crops, rather than just making the importers rich.)

David --

Uh, yeah... I said "long-term."

TJIT:

I'm curious; you make noises like we have enough farmland. Is this an accurate assessment?

Cheers, Klug

This is interesting from another persepctive. Currently, the US government subsidizes the production of fuel ethanol (made from corn), in order to undercut its high production cost and make it more competitive with other oxygenates (such as MTBE, being phased out over environmental fears) in the production of gasoline.

The use of MTBE is mandated by the Clear Air Act Amendments of 1990 and is due to be replaced by a mandate for the use of fuel ethanol in gasoline production in some of the legsislation congress is looking at now. (California, Connecticut and New York have already banned MTBE and mandated the use of ethanol in gasoline, effective at the beginning of this year.)

Cutting the subsidy on ethanol will make gasoline more expensive, moving forward. The only hope for the US consumer is that when the subsidies are lifted, so to will be the ban on sugar-based ethanol, so at least their will be some competition. By the way, Brazil is the largest producer of sugar-base ethanol in this hemipshere.

"I'm curious; you make noises like we have enough farmland. Is this an accurate assessment?"

I assume by "we" you mean the USA. Large parts of the world probably have a real shortage of farmland, but they've either got several times the population density (Europe, Japan, India), or a much higher proportion of desert and mountains (Australia, Somalia, etc.). I think we've got more than enough farmland to feed our population, considering,

1. On the average, we're fat as hogs.

2. We're a net food exporter.

3. Where I live (the northern part of Michigan's lower peninsula) I see abandoned farms all around me. A few potato farmers and orchardists are hanging on, there's one cattle ranch a couple of miles across, there's some tree farming, but half the once-plowed land is being let grow up in jackpines & poplars. (Trees that are barely usable even as firewood - but scrubland does make good deer hunting.)

It's not optimal farmland. The soil quality is closer to sand dunes than to my uncle's hog farm in Iowa. The growing seasons are short and cool, but it can't be as bad as Minnesota and the Dakotas. It rains and snows too much most of the year, but the critical first six weeks of summer are often rather dry for seedlings, although less dry than the great grain-growing states. Farmers once made a living on this land. They can't make a living now because farms with slightly better soil have cranked up their productivity until the market is flooded. The farm per-acre [1] productivity increases involve chemicals, irrigation when and where needed, and superior seed. If we double the population without more large increases in productivity, this land will be needed again, but until then I wouldn't worry.

Note [1] The farm productivity increase per manhour is even more impressive. In two centuries, we've gone from needing most of the population on the farm growing small surpluses to feed the rest to only about 2% of the population growing too much food. This was accomplished by massive mechanization plus the per-acre increases.

Hi, Jane: What do you see as the short-term effects of removing these trade barriers? Are you comfortable with the long-term possibility of our major food crops coming from overseas? From a homefront defense standpoint, I can see where it seems unwise.

I don't think this is a major issue. Logistically you would need to get into the US with either a little bit of BAD STUFF(tm) that did a lot of damage or a real lot of NOT GOOD STUFF(tm).

If you are doing BAD STUFF, like anthrax or other bio agent then you can smuggle it in a very small container. Agri-Tariffs won't stop you. If you are trying to smuggle tons of NOT GOOD STUFF (say tons of lettuce that is poisened) then you are likely to get caught because your operation is so large.

I am surprised to realize some people argue in favour of keeping subsidizing agriculture. To me, it seems evident that a bust of all subsidies would be benefecial to all developing countries as well to consumers in developed nations.
But I don´t think this is something for the near future. After WTO decision is released, there will be a long negotiation process of how to modify the system.

Klug,

I think there is plenty of farmground, in fact we are paying farmers to do nothing on over 32 million acres of farmground.

Do you have information that we have a shortage of farmground?

TJIT

Agreed that it's good news--and in this case it's helpful to GWB that the WTO is the bad cop: it keeps the Democrats from effectively using it as a campaign issue against him in the farm states.

mauro
"I am surprised to realize some people argue in favour of keeping subsidizing agriculture."

On one hand, you have: farmers who want money to protect themselves against more efficient producers, administrators whose jobs depend on handing out the funds, executives who lobby for trade protection against other companies, politicians who use their turn at the public trough to enhance their prestige and bureaucrats who control the money and power...

On the other hand, you have the millions of consumers who quietly pay their taxes and say nothing.

The consumers don't have a chance.

They will just find another way to spend the money. They'll call it 'strategic', 'in the national interest' or 'protecting our jobs'.

TJIT:

Actually, no. But conventional wisdom (especially in Oregon, where I'm from) is that farmland needs to be protected from the clutches of developers. I also have frequent conversations with people who are under the impression that "prime farmland" (elsewhere, not Oregon) is being destroyed in favor of homes. Is this a case where facts have been spun in favor of environmentalism?

What do you think? Cheers, Klug

EarlW:

Or, as I have also heard it put --

If a dollar of your taxes goes into a farm subsidy, who is going to fight harder for possession of that dollar: You, or a farmer receiving it and thousands more in the public kitty's equivalent of a nondescript briefcase?

Klug:

One could make exactly that argument here in Colorado. OTOH, one would also have to explain how continuing the agricultural use makes any better application of scarce water. (Oregon, of course, doesn't have that particular problem, at least not until you get on the eastern plateau...but then Oregon also won't let you pump your own stupid gas. Blasted hippies.)

.but then Oregon also won't let you pump your own stupid gas. Blasted hippies.

Hey, I wouldn't want hippies pumping gas, either. Who knows how that could turn out?

Developers are not a serious threat to farmland. Human habitation just doesn't eat up all that much land relative to the size of the country or the amount of arable land in it. "Saving farmland" is just a convenient cover for people who don't like the automobiles necessary for "sprawl" areas.

In the United States, the per-acre farm productivity growth rate exceeds the population growth rate. Even assuming a plateau, we're food-secure for decades, barring a truly monumental unforseen disaster or the government actively outlawing the growing of crops. And that's even if you don't factor in poorly-defended Canadian farmland ripe for the taking ;-)

For those who don't read newspapers and draw reality on their own, economic estimates of the loss to third world countries caused by trade barriers and subsidies range from 100 to 200 billion dollars, significantly more than the total of foreign aid.

I've followed the discussion here, and it's been lively, and even better, intelligent.

The termination of agricultural subsidies is one of the quickest ways to stop 'corporate welfare'. The susidies that were intended to help individual farmers are now being sent to large agri-business. I will not weep that ADM, Carghill, or any other agri-biz is not getting my tax dollars.

An example from www.ewg.org - Corn subsidies from 1995-2002 - the largest receipiant was Cenes Harvest States Coop totalling $40M - a little under $6M/year to (from http://www.chsinc.com/) "... a Fortune 500 company that supplies many of the food, grain and energy products behind life's simple pleasures. In fact, we have one of the fastest-growing convenience store chains."

Why am I, or anyone else, susidizing convience stores?

The termination of agricultural subsidies is one of the quickest ways to stop 'corporate welfare'. The susidies that were intended to help individual farmers are now being sent to large agri-business. I will not weep that ADM, Carghill, or any other agri-biz is not getting my tax dollars.

An example from www.ewg.org - Corn subsidies from 1995-2002 - the largest receipiant was Cenes Harvest States Coop totalling $40M - a little under $6M/year to (from http://www.chsinc.com/) "... a Fortune 500 company that supplies many of the food, grain and energy products behind life's simple pleasures. In fact, we have one of the fastest-growing convenience store chains."

Actually since Cenex Harvest States is a cooperative (1) and therefore owned by its members, we are in fact subsidizing farmers – probably in a more efficient manner than if we were to try and subsidize them one at a time. I agree that agricultural subsidies are a bad thing, just as I did when I was an agricultural economics student, but they bad for various reasons (2) which have little to do with misleading statistics about who benefits from them.

TW

(1) See: http://www.mbrservices.com/cooppartners/aboutourcooperativesystem.cfm

(2) They distort economic incentives by artificially raising the cost of commodities and value-added products, keeping inefficient operations in place, distorting the comparative advantages of trade, and misallocate assets (including labor and land) that could be used for more productive purposes. Some are environmentally harmful (e.g. sugar subsidies) and others have the effect of counter-acting each other. It is always wrong (and expensive) for the government to rob Peter to pay Paul an unearned, unpaid for subsidy. I would also prefer that persons living in developing nations had a fairer footing to earn capital for their own development through trade (which would be easier but for developed nation’s agricultural subsidies) than receiving our tax dollars via “foreign aid” and subsidized loans.

Krug,

I agree with Steven Ehrbar, complaints about protecting farmground are mostly based on people who don't like to see tract housing fill what was once open space. I don't like to see that happen either. If the environmental groups had focused on smart conservation easements and done some planning they could have had a positive impact on open space issues. Too late in Colorado and a lot of the West to do much good now.

I tried to get the Sierra Club and others interested in farm subsidies and their negative impact on the environment in the mid to late 1980s. They weren't interested bluntly because it was not a good sexy issue that helped with fund raising and membership recrutiment.

TJIT

Two questions:

1) Does this not have the potential to impact other nations that heavily subsidize agriculture, such as pretty much all the G7 and Europe? I heard a Canadian Ag commenter this morning who seemed please that the US was getting taste of its own protectionist medicine, which seems premature at best.

2) Does this ruling have any real teeth? What are the implications if the US and other countries decide to continue their Ag subsidies? Retaliatory tariffs from Brazil? If this is widely ignored, could it hurt the credibility of the WTO, possibly hurting the cause of free trade in the long run?

Jen Larson,

That is a one way calculation. There is also trade barriers and subsidies by other countries against us. That would be more than 100 to 200 billion.

Many think that is why we have a trade "deficit". Less people by our stuff than we buy of others people's. The same with food. We are a net exporter because we HELP others that need food. Sure we have some tariffs. But many are trying to lower those "small" tariffs "compared" to "other" countries.

Hope this helps.

BTW. The U.S. is generally good. I hope you have that perspective. :) :) :) :)

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1) Does this not have the potential to impact other nations that heavily subsidize agriculture, such as pretty much all the G7 and Europe?
Unquote
I believe it does have this potential. By the way, Brazil also claimed against EU sugar subsidies in a WTO panel,which I believe will also rule against the subsidies. If this is so, both USA and EU should , at least in theory, modify their agricultural subsidies programs.

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