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The demonization of agricultural subsidies

October 13, 2010

I am currently in a development class in which it has become very fashionable to bash rich-country agricultural subsidies as a major cause of developing-country poverty. While I don’t think this anger is misplaced, I do think there is some unacknowledged complexity here, and that simply getting rid of all rich-country subsidies is a dangerous thing to wish for. Today I spoke up to briefly highlight that I don’t think we should be saying all rich-country subsidies should be completely eliminated. It was not a popular thing to say. I wrote a follow-up to clarify my point and I thought it might be instructive to cross-post it here. So, here goes:

I wanted to clarify what I said about agricultural subsidies today, which was perhaps a bit too controversial to present in a 15-second soundbite at the end of class. I was not in any way trying to defend U.S. ag subsidies as they exist today, nor the U.S. farm lobby, nor the various methods the North has used to keep the global South from implementing their own subsidies or tariffs. We tend to demonize subsidies, but I don’t think the problem is that they are inherently bad, but instead that they’ve been implemented poorly, in ways that are hugely harmful. Even worse, the global North has prevented the global South from using many of these kinds of subsidies. But implemented properly, subsidies can and should be useful policy tools – just like tariffs and industrial policy.

I think the extended argument about just how subsidies should be used (which I was foolishly trying to make in two sentences earlier today) is summed up best in this paper: Rethinking U.S. Agricultural Policy: Changing Course to Secure Farmer Livelihoods Worldwide. The basic problem statement here is that low ag commodity prices are currently benefiting agribusiness but hurting farmers everywhere. U.S. direct-payment subsidies are an attempt to make up for these depressed prices (a misguided and harmful attempt, since they are a reinforcing mechanism that keeps prices artificially low), but the global South either cannot afford such subsidies or are inhibited from implementing them. So low ag prices are trouble for farmers in the North but a matter of life and death for those in the South.

But the solution isn’t to get rid of all ag subsidies in the North – this is a fundamentally free-market approach that will not actually significantly increase prices, because many agricultural commodities don’t respond to market signals in a traditional way. (Farmers don’t quickly respond to a drop in price by producing less; instead, they often produce more to try to make up for lost income.) By this logic, getting rid of subsidies wouldn’t help those in the South, it would seriously hurt those in the North, and it would turn the entire ag sector over to the mercy of free-market forces, which we know don’t work particularly well for either the global South or for farmers anywhere. The paper goes on to outline alternative subsidy programs (not direct payments to farmers) which would manage production and return ag prices to a more reasonable level.

I’d encourage anyone interested in the issue to take a look at that paper, which is pretty unique in that it not only provides a diagnosis of the problem but also gives concrete policy recommendations. It’s been a major force in shaping how progressive activists think about agricultural trade in the neoliberal era.

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