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From the National Post re: subsidies

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    From the National Post re: subsidies

    The leaky subsidy bucket

    William Watson
    National Post


    Wednesday, January 22, 2003


    In small towns in the French Alps, near where I'm spending the academic year, they have a festival every fall -- in one local town they were running it for the 405th year in a row -- in which ruddy-faced dairy farmers march their herds down from summer pastures high in the hills and gather them in the biggest parking lot in town to show off their best milkers, drink wine, eat greasy sausage and catch up on the local gossip. Watching the cows being paraded down the main street of a nearby town one sunny Saturday in September, I was seized with a sudden urge to shout out "OMC! OMC! OMC!," which is French for "WTO! WTO! WTO!" I can only imagine how the local paper would have described the dénouement if I had: "Visiting free-market economist trampled to death by the world's most subsidized cows." For my family's sake, I bit my tongue.

    French farmers are famously well treated. A new OECD study on farm incomes shows that the average French farm household has an annual income more than 50% higher than the average French household. (In Canada, by contrast, average farm incomes are only slightly higher than average non-farm incomes.) The study doesn't actually break out how well French dairy farmers do, but it does show that in the European Union as a whole, dairy farmers make more than 50% more than the average farmer. That confirms all of our worst expectations about pampered European farmers -- except that the same section of the report shows Canadian dairy farmers with farm income almost five times average Canadian farm income, and U.S. dairy farmers with farm income more than 10 times the U.S. average.

    Europe's dairy farms aren't actually its most subsidized farms. That dubious honour belongs to the continent's cattle farms. Dairy farms make almost half their income from sales, with the rest coming from public support of one kind or another. Cattle farms, by contrast, make only about 40% of their farm income in the market. The report doesn't provide numbers for Canadian dairy farming, but although Canadian farmers in general receive comparatively little largesse, our dairy farmers get lots of help from the marketing board system, which keeps milk prices high.

    The new OECD report's message is that farm subsidies are extremely inefficient, not in the economist's sense -- that they encourage too much farm production -- but in the layman's sense that they are very leaky buckets: The money just doesn't get through to the people it's meant for.

    On average in the OECD, deficiency payments -- making up the difference between market prices and a target price -- deliver to farmers just 25¢ of every subsidy dollar paid out. Market price supports, like those used in our dairy industry, deliver 24¢ on the dollar. Payments by acre do better: 47¢ on the dollar paid out. But subsidies to farmers' inputs do worst of all: just 17¢ on the dollar.

    What's the problem? Where do the leakages come from? Several places. Part of the benefit gets capitalized in land values. If the farmer owns the land, good for him or her. But in France, only a third of farmed land is owned by farmers, so there's a big leakage. In Canada, farmers own more than 80% of the land they farm, which is higher even than in the United States (61.4%), so more of the money may stick. But if the farmer sells the land, he or she pockets the increase in its value created by the subsidy and the next owner gets no benefit at all, which creates a big fairness problem if you want to withdraw subsidies that have been in place for a while. It also means that in the long run, subsidies to land may not be as efficient as the numbers cited would suggest.

    If farmers respond to subsidies by boosting production and buying more inputs, then some of the benefit of the subsidy is passed along to various farm suppliers. They might be good people, too, but if the goal of policy is to get money to farmers, subsidizing suppliers defeats the purpose.

    Then there's the problem of induced costs. If the subsidies persuade farmers to grow more, produce a different combination of crops or work more on the farm and earn less money away from the farm, that consumes farmers' resources, so the net benefit of the subsidy falls further.

    And none of this takes into account the cost to the taxpayer of raising the extra dollar that in the end will deliver only 25¢ to the farmer.

    A farmer who had such a leaky bucket would either get a new bucket or stop hauling subsidies. Getting a new bucket means giving money directly to low-income farmers. But then the question arises: why special help for poor farmers that poor pizza-makers or beauticians or cab drivers don't get, too? In the end, it may be best just to stop hauling subsidies.

    © Copyright 2003 National Post

    #2
    Wedino;

    I wonder what this reporter will do if we run short of food on the grocery shelf... where ever he and his family buys food?

    The most basic requirement of a civilised society... is to create and maintain a stable healthy supply of food for everyone.

    What will the folks with nukes in North Korea, Iran, India, Pakistan, China, Russia, Indonesia, or where ever else a terrorist group is easily established and hidden... government based or motivated....

    what will happen when their food runs short... and we had the capacity and capibility to save their lives by providing good healthy food...

    But for political and selfish reasons we in the western world decide to starve these people... we just reduce production... when we all know how close to the edge of a famine never before believed possible... in just one year...

    How close to the destruction of humanity are we?

    Are we not in a global village... are people not 100's of millions of people starving and hungry today?

    What if these people decide they are entitled to a good meal ONCE a day... would they not be justified in disturbing this fine person's educational sabatical... with... a nuke aimed at his living room?

    Comment


      #3
      TOM4CWB,

      I've got a number of comments about the issues you raised.

      Why do you believe that eliminating subsidies will cause food shortages? Why is it not possible to "create and maintain a stable healthy supply of food" without subsidies? We create and maintain a stable and growing supply of computers, for instance, not to mention a whole host of other goods, without any subsidies at all.

      Yes, there will be less production overall without subsidies. But by most estimates there is vastly more than enough food to feed everyone in the world, so a cutback in production does not automatically mean famine. The problem is not that western nations are "selfish"; the problem is that many third world countries lack truly productive (market driven) economies, and therefore can't afford to buy much food. Countries that have moved to a more market driven system, such as India and China, no longer experience famine unlike thirty or so years ago when they laboured under overtly socialist governments.

      There is also the argument that subsidies help to ruin the fortunes of third world farmers who cannot compete with the treasuries of the West. What about the resentment that this creates?

      Concerning your final point about some disgruntled third world terrorist nuking William Watson's living room: what would they gain by this? How would destroying the economies of the wealth-producing west benefit them? That sort of defeats the goal of procuring food.

      A Chicken Little, "Sky is falling" approach to this issue only undermines the credibility of farmers with the general public.

      Comment


        #4
        This is a question often discussed in UK the real effect of our subsidies.

        We have free education and health care and a cheap food all payed for from taxes.

        Most countries try to achieve this when they can afford too. To me it seems resonable that in a civilised society everyone should have a right to basic health education and FOOD.

        Each country has its own way of going about this and that also seems resonable to me.

        However the problem seems to arise when subsidised food is exported.

        Perhaps exports should have to repay the taxpayer the subsidy paid on them. I wonder what that would do to world trade.

        Would the low cost production the go to poor and hungry instead of making the well off fat?

        Comment


          #5
          Liberty;

          The "Western World" has much to answer for... the high % of energy we consume VS. the rest of the world... the resourses we consume...

          The EU has a social policy regarding farming and food production... a policy not to destroy the rural areas of their countries... and this does take wealth and a commitment by all people in a nation to work.

          Now what is fair?

          Responsible people,, no matter where they are... help their neighbour... and till I walk a mile in my fellow farmer's shoes... no matter where they are.... I have no right to judge.

          However... I do know this past year has brought us to the brink of a huge famine... in many of this planets regions...

          Can you say with assurance that famine is not a possibility in the next couple of years?

          Comment


            #6
            Liberty;

            The threat of destruction from nukes is no different than what the US and England are doing with Iraq in forcing change today...

            Raw power can do terrible things... especially when a nation is starving to death. Dead is dead.


            If someone is about to die anyway,... I see ample opportunity especially with the "infidel" issue...(we are considered infidels by many of them)to threaten to disrupt our quaint lifestyle in whatever possible method these people can get their hands on...

            It is very easy to judge others... but we must expect to be judged when we become armchair judges!

            Comment


              #7
              TOM4CWB,

              The West consumes vast amounts of resources because we produce vast amounts of wealth. Ethiopia, on the other hand, consumes very little because it has in place an economy which produces next to nothing. Why should the West apologize for being productive and innovative? These are positive values which have made the world a much better place to live in than it was forty or fifty years ago.

              Subsidies have nothing to do with "helping" one's neighbours. "Helping" implies a voluntary gift. Subsidies are anything but voluntary as far as taxpayers are concerned. Taxpayers are the one group in society that no one seems to care about.

              Comment


                #8
                I agree with liberty on this one. Our
                "lifestyle" didn't just drop in our lap. It was
                bought and paid for by our forefathers. The
                Protestant work ethic has and still does give
                western counries a superior standard of
                living. If this is the terrorists excuse for
                bombing, than surely this shows how evil
                they truly are.
                On the famine issue, I would say that grain
                stocks are definately not at a high level.
                However, witness the flood of cheap wheat
                from eastern Europe. Famine implies that
                you can not buy food at any price. Since
                1997 wheat stocks have been lower than
                normal, the excuse givin is that this is a "new
                reality", that countries don't have to keep
                such large stocks. BS! This reason is givin
                to keep the price down. I don't think we'll
                ever see famine in North America, but due to
                bad policy decisions several parts of the
                world will live with this for quite a while I'm
                afraid.

                Comment


                  #9
                  My wife survey fresh veg in our supermarkets over christmas period Zimbarbwe was sending baby sweetcorn and mange-toute for our must lave society to consume.
                  There is reported to be 6milion starvimg there, So why are they selling baby sweetcorn wich could feed their children?
                  Our crickerers are urged not to play there but it alright to import their food????
                  Mugarbwe is a ruthless leader but will the guy who sent food abroad to pay for oil or debt know who to blame if his children die of starvation?
                  Work ethic can only achieve so much where we are born makes a big difference
                  i think

                  Comment

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