Friday, April 24, 2009

Get rid of Agricultural Subsidies!

As we come to the end of the semester I feel like I’ve gained a transformational perspective on the global and, more to my interest, the American food system. We’ve covered everything from the indirect effects American fast food has on the Amazonian rain forest to the gender division of labor characteristic of most every agricultural system in the world. We’ve explored the effects of using petrochemical fertilizers and how an unfair trade atmosphere makes a high value product like Starbucks coffee nearly unprofitable to the farmers that actually grow the beans. Through the many pages of reading and hours of discussion involved in this class and borrowing from my background as an economist, I am convinced that one of the most problematic characteristics of the world food system is the American agricultural subsidy program. Granted, the Green Revolution’s products of petrochemicals and fossil energy requirements possibly present a more serious ecological problem, but the fact that the subsidization of agriculture is easily reversible and highly inefficient, yet continued in the face of economists’ derision makes it my target for this post at least.

I’ll dive right in. Agricultural subsidies and guaranteed price floors distort the food market by encouraging farmers to produce as much food as they can possibly extract from their land. Farmers have no incentive to heed market signals that, in the absence of the artificial distortions, would dictate the efficient level of production. Without price signals, there is no way for the market to suggest to farmers making poor production decisions that they should change their practices or to reward farmers employing efficient practices. Farmers without the blinding net of subsidization have to choose between profitability and going bankrupt—prices clearly tell them what consumers are demanding. This goes a long way to explaining why corn has become so ubiquitous in our supermarkets: the excess corn had to go somewhere so food engineers got creative.

One of the “benefits” that subsidization supposedly provides consumers is lower prices at the supermarket checkout. These are false savings because consumers pay for the subsidization through their taxes. Furthermore, there is what is called the marginal excess tax burden resulting from the taxes paid for the subsidy; taxation causes a deadweight loss to society over and above the total amount paid out to farmers in subsidy.

The incentive to produce as much as possible causes environmental harms on biblical scales. The Gulf of Mexico has a growing dead zone resulting from hyper fertilization due to the over applied chemical fertilizers flowing down the Mississippi from a huge proportion of America’s total agricultural lands. Farmers are monetarily encouraged to over apply chemical inputs to boost yields. This is not only a cost to the environment in terms of excess chemicals; it is also a significant component in the crescendo of fossil fuel consumption and carbon emissions.

Cheap food devoid of real nutritional content, largely derived from corn, has made Americans fat. Huge proportions of American adults and growing numbers of children are now considered overweight or obese. Cheap calories provide a means of sustenance of life, but the quality thereof is greatly diminished. Subsidies reduce food prices, but the social good of that result is highly debatable.

Agricultural subsidies in the United States promote rising inequality and poverty in developing and third world nations. Due to WTO, IMF, World Bank, and purely budgetary restrictions, the poorer nations of the world cannot institute a system of protections similar to that enjoyed by American farmers. These same countries are largely unindustrialized, drawing most or all of their exports from agricultural commodities. American subsidies lower the world price for these commodities and make developing nations’ production uncompetitive. These characteristics cause small farmers to lose their farms, increasingly leading to landowner concentration, especially in Latin America. Fair trade movements attempt to correct some of these problems, but to limited effect.

Agricultural subsidization should be completely eliminated from the American production system. It causes deadweight losses to our own society, increased environmental harms, and poverty across the world. Subsidies distort an otherwise highly competitive market with good price signals and cause inefficiencies at the most basic economic level.

Sources:

“Save the farms—End the subsidies”. Cato Institute: http://www.cato.org/pub_display.php?pub_id=3411

Cassel, Andrew. “Why U.S. Farm Subsidies Are Bad for the World”. Philadelphia Inquirer. http://www.commondreams.org/views02/0506-09.htm

Pollan, Michael. “THE WAY WE LIVE NOW: 10-12-03; The (Agri)Cultural Contradictions Of Obesity”. New York Times. http://www.nytimes.com/2003/10/12/magazine/the-way-we-live-now-10-12-03-the-agri-cultural-contradictions-of-obesity.html?sec=health

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