Farm subsidies in the United States and the European Union benefit few and hurt many. These are government payments that increase the income of some farmers. In practice, they encourage farmers to grow more than they otherwise would. This sounds good, right? Why shouldn't we support the American farmer? Because it's bad for the country and bad for the world.
Farm subsidies are expensive, and they only help a tiny section of society. Over the past 10 years, U.S. taxpayers paid an average of $11 billion annually to support the program. Despite its widespread cost, only 25 percent of farms receive its benefits. Half of recipient farms had incomes at least $30,000 more than the average American household in 2003. Subsidies also drive up the land value of farms, creating an artificially high barrier to entry for new, small farmers. Worse, unsubsidized family farms still have to compete against these subsidized mega farms. We are subsidizing the Goldman Sachs-es of the farming world.
The disastrous effects, however, are in the developing world. Farm subsidies increase production of subsidized crops that developed nations then sell on the world market. The higher supply significantly lowers the world price of these goods, and the competitive nature of agricultural markets means all farmers sell at that price. This includes poorer farmers whose governments can't afford to subsidize them. Their profits are thus slashed by the farm subsidies of the developed world. For example, Oxfam estimated that U.S. cotton subsidies lower the world price of cotton by approximately 10 percent. In Africa, where over 60 percent of the population is agricultural, lower prices cripple these countries' ability to collect revenue and improve infrastructure, healthcare, and schools.
Subsidies in the United States and the European Union keep poorer nations from making the most of their natural resources. Prices of commodities like cotton and sugar are artificially low, so poorer nations are unable to profit from their comparative advantages. For example, it costs France twice as much to produce sugar as Africa or the Caribbean, yet French sugar subsidies make it the largest exporter of sugar in Europe. International aid often risks bolstering a country artificially, leaving it dependent on erratic funding. Reducing farm subsidies in the developed world would allow poorer nations to develop instead through free trade and the strength of their natural resources. It would also increase world economic efficiency, moving production to the countries that economically make sense.
Farm subsidies are also illegal. In 2005, the World Trade Organization ruled in favor of Brazil that U.S. cotton subsidies illegally distort trade. There's even less ambiguity about E.U. farm subsidies; these are tied to exports and are explicitly illegal under WTO law. Subsidies allow farmers to sell their crops below normal value, a practice called dumping that is illegal because it lowers the world price and hurts farmers around the world.
Some people worry that if we get rid of farm subsidies, the price of food will rise, and poor Americans will be seriously hurt. This isn't true. Farm subsidies support major commodities — 90 percent go to corn, wheat, cotton, soybeans and rice — and these are mostly inputs, not final products. People eat bread, not wheat; they drink coffee, not coffee beans. These inputs are a tiny portion of the total cost. Oxfam estimates that a 5 percent increase in the price of wheat would lead to a penny increase in the cost of bread. The meat industry would be the hardest hit, but even though eliminating corn and soybean subsidies would raise the price of those crops by about 6 percent, meat prices would only increase about 1 percent.
Right now, there's a chance to change policy. The Farm Bill is on the floor of the U.S. Senate, and by reducing these unnecessary and harmful payments to farmers, senators could do something constructive for both the country and the world. By showing initiative at home, the Unites States could provide leadership at the WTO, bringing the E.U. into a bilateral agreement to lower subsidies. If it does, the United States might save the WTO Doha Round, which is currently falling apart over farm policy. Cynthia Barmore '09 is the president of Princeton Against Protectionism. She can be reached at cbarmore@princeton.edu.
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