17 Jul 2005
Subsidize Me, ASAP!

Much ink has been spilled (and many bits magnetized) recently over the large agricultural subsidies granted to farmers in Western nations. Most of this ink has been rather scathing - it seems as though the current idea is that agricultural subsidies in the West are the root cause of African poverty. This is pretty much uncritically accepted by Left and Right. It's also dead wrong...

Think about it ... the way they're set up, classic subsidies guarantee that farmers get paid a set price for their production, irrespective of the market price. This is not an exclusively Western system, either, even India has price supports. What is the net effect of a subsidy? To increase production, and drive the market price even lower.

Lower prices mean food is cheaper. Cheaper food means more people can afford more food. In the developing world, nearly half of the nations are net food importers: these Western subsidies lower their costs dramatically.

One way to think of subsidies is that they're a direct transfer of wealth from the taxpayers of the rich West to the urban poor of the Third World. Eliminating them would be a wash for the taxpayers in the West: their increased food costs would be offset by lower taxes (in theory). In the Third World, all people would see is increased food costs - even for locally produced food. That's why they can't sell their local produce now: it's too costly compared to Western products which are subsidized. Which of course would lead to increased demands for Western aid to prevent a humanitarian disaster, which would raise the taxes in the West that eliminating subsidies lowered!

I'm certainly not subsidized, and getting rid of them would benefit me economically by bringing prices more into line with the actual cost of production, especially since I don't buy many of my inputs. There are plenty of other good reasons why we should get rid of agricultural subsidies, but eliminating poverty in the developing world isn't one of them.

00:00 /Agriculture | 0 comments | permanent link