Agricultural policy

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Agricultural policy describes a set of laws relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving a specific outcome in the domestic agricultural product markets. Outcomes can range from guaranteed supply level, price stability, product quality, product selection, land use or employment.

Contents

[edit] Basic policy tools

[edit] Subsidies

main article: agricultural subsidy

Governments pay subsidies to encourage domestic production of a good. Such subsidies are necessary when a government wants to alter the free-market outcome in product markets. The subsidies transfer some costs of production from producers to the government, allowing production at above-market costs. The effect of Western food subsidies [360$ billion] is overwhelmingly to reduce world prices. For decades the 3rd world has earned only half the free market price for food, its primary product. Consumption subsidies can also be used to alter markets. A consumption subsidy offsets a portion of the purchase price of a product.

[edit] Price controls

Price floors or ceilings set a minimum or maximum price for a product. Price controls alter free-market outcomes by encouraging over-production by a price floor or over-consumption by a price ceiling.


[edit] Import barriers

A government can erect trade barriers to limit the quantity of goods imported (in the case of a quota) or enact tariffs to raise the domestic price of imported products. These barriers give preference to domestic producers.

[edit] Objectives of market intervention

[edit] National security

Some argue that nations have an interest in assuring there is sufficient domestic production capability to meet domestic needs in the event of a global supply disruption. Significant dependence on foreign food producers makes a country strategically vulnerable in the event of war, blockade or embargo. Maintaining adequate domestic capability allows for food self-sufficiency that lessens the risk of supply shocks due to geopolitical events. Agricultural policies may be used to support domestic producers as they gain domestic and international market share. This may be a short term way of encouraging an industry until it is large enough to thrive without aid. Or it may be an ongoing subsidy designed to allow a product to compete with or undercut foreign competition. This may produce a net gain for a government despite the cost of interventions because it allows a country to build up an export industry or reduce imports.

[edit] Environmental Protection and Land Management

Farm or undeveloped land composes the majority of land in most countries. Policies may encourage some land uses rather than others in the interest of protecting the environment. For instance, subsidies may be given for particular farming methods, forestation, land clearance, or pollution abatement.

[edit] Rural poverty and unemployment relief

Subsidising farming may encourage people to remain on the land and obtain some income. This might be relevant to a third world country with many peasant farmers, but it may also be a consideration to more developed countries such as Poland. This has a very high unemployment rate, much farmland and retains a large rural population growing food for their own use. Price controls may be used to assist poor citizens. Many countries have used this method of welfare support as it delivers cheap food to the poorest without the need to assess people to give them financial aid.

[edit] Organic farming assistance

See green economists. Some argue that small gardens and greenhouses should be favored, especially if produce is consumed locally. Some argue for tax, tariff and trade rules to exempt such production for local use, especially family farm or farm co-op production, and strongly deny that agricultural and industrial policy should be linked, or should be subject to the same law. One rationale is that local production of organic produce by families in their own gardens for their own consumption is not taxed or regulated, and that little or no use of the energy-and-land-intensive transport system, or energy-and-labor intensive regulation system is required for these same people to sell the same product to neighbors.

  • Fair trade rules to ensure that poor farmers in underdeveloped nations that produce crops primarily for export are not exploited to put local farmers in developing nations out of work - which advocates consider a dangerous "race to the bottom" in agricultural labor and safety standards. Opponents point out that most agriculture in developed nations is produced by industrial corporations (agribusinesses) which are hardly deserving of sympathy, and that the alternative to exploitation is poverty.

[edit] Arguments against market intervention

[edit] Dumping is harmful to developing world farmers

When rich countries subsidize domestic production, excess output is often given to the developing world as foreign aid. This process eliminates the domestic market for agricultural products in the developing world, because the products can be obtained for free from western aid agencies. In developing nations where these effects are most severe, small farmers could no longer afford basic inputs and were forced to sell their land.

"Consider a farmer in Ghana who used to be able to make a living growing rice. Several years ago, Ghana was able to feed and export their surplus. Now, it imports rice. From where? Developed countries. Why? Because it's cheaper. Even if it costs the rice producer in the developed world much more to produce the rice, he doesn't have to make a profit from his crop. The government pays him to grow it, so he can sell it more cheaply to Ghana than the farmer in Ghana can. And that farmer in Ghana? He can't feed his family anymore."(Lyle Vanclief, Canadian Minister of Agriculture)

According to The Institute for Agriculture and Trade Policy, corn, soybeans, cotton, wheat and rice are sold below the cost of production, or dumped. Dumping rates are approximately forty percent for wheat, between twenty-five and thirty percent for corn (maize), approximately thirty percent for soybeans, fifty-seven percent for cotton, and approximately twenty percent for rice. For example, wheat is sold for forty percent below cost.

According to Oxfam, "If developed nations eliminated subsidy programs, the export value of agriculture in lesser developed nations would increase by 24 %, plus a further 5.5 % from tariff equilibrium. ... exporters can offer US surpluses for sale at prices around half the cost of production; destroying local agriculture and creating a captive market in the process."

Free trade advocates desire the elimination of all market distorting mechanisms (subsidies, tariffs, regulations) and argue that, as with free trade in all areas, this will result in aggregate benefit for all. This position is particularly popular in competitive agricultural exporting nations in both the developed and developing world, some of whom have banded together in the Cairns Group lobby. Canada's Department of Agriculture estimates that developing nations would benefit by about $4 billion annually if subsidies in the developed world were halved.

[edit] Agricultural Independence

Many countries don't grow enough food to feed their own populations. These nations must buy food from other countries. Lower prices and free food save the lives of millions of starving people, despite the drop in food sales of the local farmers.

A developing nation could use new improved farming methods to grow more food, with the ultimate goal of feeding their nation without outside help. New greenhouse methods, hydroponics, fertilizers, R/O Water Processors, hybrid crops, fast-growing hybrid trees for quick shade, interior temperature control, greenhouse or tent insulation, autonomous building gardens, sun lamps, mylar, fans, and other cheap tech can be used to grow crops on previously unarable land, such as rocky, mountainous, desert, and even arctic lands. More food can be grown, reducing dependency on other countries for food.

Replacement crops can also make nations agriculturally independent. Sugar, for example, comes from sugar cane imported from Polynesia. Instead of buying the sugar from Polynesia, a nation can make sugar from sugar beets, maple sap, or sweetener from stevia plant, keeping the profits circulating within the nation's economy. Paper and clothes can be made of hemp instead of trees and cotton. Tropical foods won't grow in many places in Europe, but they will grow in insulated greenhouses or tents in Europe. Soybean plant cellulose can replace plastic (made from oil). Lemon oil can replace car oil for lubrication. Ethanol from farm waste or hempseed oil can replace gasoline. Rainforest medicine plants grown locally can replace many imported medicines. This is why Thomas Jefferson said that the best thing you can do for your country is to grow a new crop species. Alternates of cash crops, like sugar and oil replacements, allow the farmer to make more money on the real market, reducing the farmer's dependency on subsidies in both developed and developing nations.

[edit] Higher Market Prices

The cost to consumers for agricultural products is increased, either via hidden wealth transfers via the government, or increased prices at the consumer level, such as for sugar and peanuts in the US. This has led to market distortions, such as food processors using high fructose corn syrup as a replacement for sugar. High fructose corn syrup may be an unhealthy food additive, and where sugar prices not inflated by government fiat, would be preferred over high fructose corn syrup in the marketplace.

[edit] Developed world cases

[edit] Overview: Europe and America

The farmer population is approximately five percent of the total population in the E.U. and 1.7 % in the U.S.

The total value of agricultural production amounted to 128 billion euros (1998). About forty-nine percent of this amount was accounted for by political measures: 37 billion euros due to direct payments and 43 billion euros from consumers due to the artificially high price. Eighty percent of European farmers receive a direct payment of 5,000 euros or less, while 2.2 % receive a direct payment above 50,000 euros, totaling forty percent of all direct subsidies.

The average U.S. farmer receives $16,000 in annual subsidies. Two-thirds of farmers receive no direct payments. Of those that do, the average amount amongst the lowest paid eighty percent was $7000 from 1995-2003. (http://www.ewg.org/farm/findings.php) Subsidies are a mix of tax reductions, direct cash payments and below-market prices on water and other inputs. Some claim that these aggregate figures are misleading because large agribusinesses, rather than individual farmers, receive a significant share of total subsidy spending. The Freedom to Farm Act of 1996 reduced farm subsidies, providing fixed payments over a period and replacing price supports and subsidies. The Farm Bill (2002) contains direct and countercyclical payments designed to limit the effects of low prices and yields.

[edit] Environmental programs

The U.S. Conservation Reserve Program leases land from producers that take marginal land out of production and convert it back to a near-natural state by planting native grasses and other plants. See [1] The U.S. Environmental Quality Incentives Program subsidizes improvements which promote water conservation and other measures. This program is conducted under a bidding process using a formula where farmers request a certain percentage of cost share for an improvement such as drip irrigation. Producers that offer the most environmental improvement based on a point system for the least cost are funded first. The process continues until that year's allocated funds are expended. See [2].

[edit] World Trade Organization Actions

In April 2004 the WTO ruled that 3-billion dollars in US cotton subsidies violate trade agreements and that almost 50% of EU sugar exports are illegal. In 1997-2003, US cotton exports were subsidized by an average of 48%.[3]

The World Trade Organization (WTO) has extracted commitments from the Philippines government, making it lower import barriers to half their present levels over a span of six years, and allowing in drastically increased competition from the industrialised and heavily subsidised farming systems of North America and Europe. A recent Oxfam report estimated that average household incomes of maize farmers will be reduced by as much as 30% over the six years as cheap imports from the US drive down prices in the local markets. The report estimates that in the absence of trade restrictions, US subsidised maize could be marketed at less than half the price of maize grown on the Philippine island of Mindanao; and that the livelihoods of up to half a million Filipino maize farmers (out of the total 1.2 million) are under immediate threat.

[edit] See also

[edit] External links

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