Re: Case for reducing agricultural subsidies
From: Pete Turk (Pete_at_ragtag.demon.co.uk)
Date: 01/14/05
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Date: Fri, 14 Jan 2005 18:38:31 +0000
Ilya,
Just _what_ is romantic about whether or not
the U.S should reduce agricultural subsidies?
I'm curious to know ...
In article <1104949443.038989.273150@c13g2000cwb.googlegroups.com>,
ilya_shambat2004@yahoo.com writes
>Liberalizing Agriculture: Why the U.S. Should Look to New Zealand and
>Australia
>by Sara J. Fitzgerald
>
>February, 19 2003
>
>In the past several years, U.S. farm policy has taken a turn for the
>worse with Congress dramatically increasing agricultural subsidies at
>the behest of the farm lobby. This trend must be reversed. As the
>world's largest agricultural exporter, the United States should lower
>its own subsidies before urging members of the World Trade Organization
>(WTO) to adopt reforms. In doing this, the United States should
>consider the examples of New Zealand and Australia, which demonstrate
>the benefits of free-market policies when applied to agriculture.
>
>In July 2002, the Bush Administration announced the U.S. Agricultural
>Proposal for WTO Negotiations, which seeks greater global access for
>agricultural exports. The Administration advocates reducing domestic
>subsidies and lowering tariffs worldwide to 25 percent or less. The
>proposal is ambitious, but the excesses of U.S. farm policy have left
>the United States with little credibility in agricultural
>liberalization.
>
>WTO members are skeptical of the Bush Administration's proposal and
>view it as hypocritical. Critics cite the U.S. Congress's reluctance to
>initiate domestic reforms, as well as high tariffs on imports such as
>sugar, farm lobbyists who insist on subsidies, and the 2002 farm bill,
>which increased subsidies by 70 percent.2
>
>In order to regain credibility, Congress needs to cut subsidies by
>amending the farm bill. The U.S. Trade Representative, Ambassador
>Robert Zoellick, should urge Congress to remove U.S. tariffs on
>agricultural imports as well. Once U.S. tariff and non-tariff barriers
>have been lowered, Zoellick should urge his colleagues in the WTO to do
>the same.
>
>The Importance of Agricultural Exports
>The United States has a keen interest in global free markets because
>exports account for more than 25 percent of farm income. The production
>from one in every three cultivated acres is exported.
>
>According to Secretary of Agriculture Ann Veneman, "on average, each
>week American processors and producers ship a billion dollars in food
>and farm products to foreign customers."3 Agriculture is one of the few
>U.S. industries that enjoys a positive trade balance.4 With 96 percent
>of world consumers living outside the United States, the future of U.S.
>farmers and ranchers depends on access to foreign markets.
>
>Past trade agreements have opened markets by lowering tariff and
>non-tariff barriers. Under the North American Free Trade Agreement
>(NAFTA), for example, Mexico lowered or eliminated many tariffs and has
>become the fastest-growing market for U.S. beef. Specifically, Mexico
>eliminated its 15 percent tariff on live slaughter cattle, its 20
>percent tariff on chilled beef, and its 25 percent tariff on frozen
>beef.5 These are only a few examples of the many products that have
>benefited from past trade agreements.
>
>These agreements notwithstanding, the average global tariff on
>agricultural products remains at 62 percent. The Bush Administration's
>proposal would cut global tariff rates to 25 percent or below (to
>achieve an average tariff rate of 15 percent) and would cut
>trade-distorting domestic support to 5 percent of a country's total
>value of agricultural production. To cite only two effects on U.S.
>policy, U.S. tariffs on imported peanuts--now 140 percent--would have
>to be reduced to 25 percent. At the same time, domestic subsidies would
>also be reduced from $19 billion to $10 billion a year.
>
>The Farm Bill and U.S. Credibility
>While this ambitious proposal promotes the WTO's goal of agricultural
>liberalization, it has been received warily by other countries, partly
>because of the U.S. farm bill. This bill, with its large subsidies, has
>crippled American credibility on trade.
>
>Specifically, under the farm bill, U.S. farmers gained a 70 percent
>increase in subsidies compared to previous levels as part of a 10-year,
>$180 billion package.6 According to one analyst, "Nearly three-quarters
>of these funds will go to the wealthiest 10 percent of farmers--most of
>whom earn more than $250,000 per year."7 The U.S. Department of
>Agriculture (USDA) reports, for instance, that "47 percent of crop
>payments in 1999 went to large commercial farms with an average
>household income of $135,000."8
>
>Since the Great Depression, U.S. farmers have received ever-larger
>amounts of assistance from the federal government. Although the 1996
>Freedom to Farm law was intended to make farmers less dependent on
>subsidies, crop surpluses in the late 1990s led to dropping crop
>prices, and Congress overreacted by passing a series of large
>"emergency" bailouts, which the 2002 farm bill locked into place.
>Farmers have grown accustomed to receiving a check in the mail and
>depend on subsidies, instead of relying on the free market. This leaves
>consumers out of the equation.
>
>A prime example is the U.S. sugar subsidy program. Rather than promote
>trade, this program protects domestic producers and maintains high
>sugar prices that are paid by U.S. consumers. According to the USDA,
>raw sugar prices in the United States are almost three times the world
>price.
>
>Instead of using the European Union's massive agricultural subsidies
>(almost 40 billion euros in 1999)9 as an excuse, the United States
>should reform its own system. In doing this, the United States should
>look beyond the European Union to the positive examples of New Zealand
>and Australia.
>
>Reform in New Zealand and Australia
>Australia and New Zealand drastically reformed their farm sectors in
>the 1980s. Australia's reforms were introduced in the early 1980s and
>were implemented over a longer period of time than in New Zealand. In
>New Zealand, farm subsidies "were gradually introduced in the early
>sixties, and steadily increased until 1984 when it was announced that
>most of them would be eliminated. By 1987, they had been phased out and
>the era was over."10
>
>In New Zealand, according to New Zealand Ambassador to the U.S. John
>Wood, subsidies peaked in 1984, "contributing to 30 percent of total
>agricultural output."11 The Federated Farmers of New Zealand reports
>that in 1984, "nearly 40 percent of the average sheep and beef farmer's
>gross income came from government subsidies."12 In fact, New Zealand
>farmers were more dependent on subsidies then than U.S farmers are now.
>They survived the subsidy cuts by slashing their own spending,
>purchasing only essentials, and implementing more efficient methods.
>Without subsidies, they began to operate on the basis of market demand.
>
>For instance, "farmers moved into new forms of farming such as wine,
>venison, and dairy"13 and reduced the number of sheep while increasing
>the number of cattle.14 Additionally, suppliers were forced to cut
>prices, knowing that farmers were no longer on the government dole. By
>pursuing these cost-effective measures, New Zealand farmers were able
>to keep their heads above water. Although "official predictions were
>that 8,000 farms would fail, in the end, only about 800 farms, or 1
>percent of the total number, faced forced sales."15
>
>Like New Zealand's farmers, Australia's farmers survived reforms
>through diversification. The market encouraged Australian farmers to
>diversify according to their comparative advantage, not to produce
>according to the receipt of a government check. They expanded beyond
>wheat, beef, and wool into "increased production of products and
>varieties more suited to Australian conditions."16 While wheat, beef,
>and wool exports accounted for 55 percent of agricultural exports
>during 1989-1990, their combined share of exports fell to 38 percent
>during 2000-2001. During the same period, exports of cotton, wine,
>non-beef meats, seafood, oilseeds, dairy products, rice, fruit, and
>vegetables surged from 17 percent to 38 percent.17
>
>In Australia, the tale of subsidies is similar to the current situation
>in the United States. In the words of Bernard Wonder, then of
>Australia's Department of Primary Industries and Energy,
>
>Input subsidies would often be of most benefit to those least in need,
>that is those on higher incomes or operating larger farm enterprises.
>They also tended to distort the input mix used by farmers through their
>encouragement of decisions based on assistance rather than commercial
>or production criteria.18
>But while the situation has clearly changed in Australia, the United
>States continues to lag behind by increasing subsidies instead of
>reforming. Agriculture has expanded in Australia and New Zealand
>precisely because subsidies were cut. In fact, in New Zealand, growth
>in this sector has outpaced growth in the economy as a whole,19 and the
>advantages of reform extend beyond economic growth to include
>significant environmental benefits, resulting from more efficient use
>of land, irrigation, and fertilizer.20
>
>Moving U.S. Agriculture Forward
>The record shows that reforms have improved the farm economies in
>Australia and New Zealand. In the United States, meanwhile, things have
>worsened. In order to become more efficient, and to benefit both
>farmers and consumers, U.S. agriculture must be made less dependent on
>government support.
>
>The current system emphasizes production to obtain subsidies, not
>market consumption to attract consumers. As Adam Smith noted, "in the
>mercantile system, the interest of the consumer is almost constantly
>sacrificed to that of the producer; and it seems to consider
>production, and not consumption, as the ultimate end and object of all
>industry and commerce."21 Subsidies and tariffs maintain artificially
>high prices that consumers must pay.
>
>While the U.S. proposal to the WTO is a positive step, much more should
>be done. The Bush Administration and Congress must lead by voluntarily
>implementing the proposal before asking the rest of the world to accept
>it. Specifically, in order to regain credibility and expand market
>access for U.S. agricultural exporters, they should take the following
>actions:
>
>The U.S. Congress should amend the farm bill and cut subsidies.
>Congress should amend the farm bill, looking to the policies of New
>Zealand and Australia as models for reform . This would demonstrate to
>the world that the United States is serious about its proposal to the
>WTO.
>Ambassador Robert Zoellick should seek to remove U.S. tariffs on
>agricultural imports. Ambassador Zoellick has already begun the process
>by asking the U.S. International Trade Commission to "estimate the
>effects on the economy of eliminating duties on hundreds of farm
>products."22 It is hypocritical for the United States to ask other
>countries to lower tariffs while maintaining its own high tariffs.
>Upon lowering tariffs and cutting subsidies, the United States should
>continue to push WTO members to do the same. The average global
>agricultural tariff is 62 percent, and according to the Organization
>for Economic Cooperation and Development, "Support to agricultural
>producers accounted for 31 percent of total farm receipts in the OECD
>area [in 2001]."23 These are unacceptably high levels.
>As the world's largest agricultural exporter, the United States should
>take the lead in implementing agricultural reform. This will be
>politically difficult, but reforms will produce greater prosperity in
>the U.S. agricultural industry, give consumers better prices and
>expanded choice, and revive American credibility in the global
>marketplace. This renewal of credibility will give the United States
>the additional leverage it needs in trade negotiations.
>Sara J. Fitzgerald is a Trade Policy Analyst in the Center
>
'Gin a body meet a body
Comin thro' the rye,
Gin a body kiss a body
Need a body cry?'
-- Robert Burns 'Comin thro' the rye' 1796
Pete Turk <Pete@ragtag.demon.co.uk> ICQ# 11981084
RFA President and Moonshadow
-- May your doorstep ever be dirty. -- Romany blessing
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