The Endless Food Fight

By Robert J. Samuelson
Wednesday, December 14, 2005

"No country gets rich by keeping its people in agriculture."

-- David Orden, agricultural economist

Few economic laws are so clear. Cheap and efficiently produced food relieves poverty. As farming becomes more productive, people eat better; workers move into better-paying industrial and service jobs. In 1820 about 70 percent of the U.S. labor force was in farming; in 2003 that was 1.7 percent. Comparable figures for France, Britain and Japan were 3.6 percent, 1.2 percent and 4.6 percent. Farms use better seeds and more fertilizer; they consolidate and mechanize.

Considering the benefits, you'd think that liberalizing world trade in farm products would be a snap. In rich countries, farm lobbies have shriveled in importance. As for poor countries, they'd want to shift from subsistence farming toward specialization -- and abundance. Well, you'd be spectacularly wrong. Since World War II, there have been eight successful rounds of global trade negotiations. Farm trade is so controversial that it was ignored until the last round, concluded in 1994. Now farm issues are paralyzing the Doha Round (so named because it started in Doha, Qatar, in 2001). Trade ministers meeting this week in Hong Kong probably won't bridge the differences.

The blame for the impasse lies heavily with the European Union. The Bush administration has proposed sharp cuts in U.S. farm payments and tariffs. Although its plan doesn't go far enough -- subsidies should be eliminated -- the European Union hasn't matched it. Nor have some big Asian countries with high tariffs (China, Japan, Korea). Many developing countries and food exporters (Brazil, Argentina) are unhappy. Economist David Orden and colleagues at the International Food Policy Research Institute compared the U.S. and E.U. proposals. The U.S. approach would expand global food trade by twice as much. Abolishing all subsidies would increase trade even more.

Subsidies come in two forms -- tariffs and direct payments. With tariffs, shoppers pay prices above world levels. The United States has a few stratospheric tariffs, notably on sugar. Direct U.S. payments to farmers, including export subsidies, average about $20 billion annually. In Europe, tariffs and payments are much higher. The Organization for Economic Cooperation and Development estimates all subsidy costs for its 30 rich member countries. In 2004 the subsidies totaled $297 billion. In Japan and Korea, they represented 60 percent of farm revenue. For the European Union and the United States, the figures were 34 percent and 20 percent.

Poorer countries rely mostly on tariffs. In a study, the Australian Bureau of Agriculture and Resource Economics cited these examples: China, 65 percent on wheat and rice; India, 50 percent on wheat and 30 percent on soybeans; the Philippines, 50 percent on rice; and Indonesia, 23.7 percent on rice.

With time, the justifications for subsidies have weakened. One is that farm incomes should be increased, because they're lower than city incomes and the flow of labor from farm to factory should slow. But in richer countries, the flow has already occurred, and farm incomes now often exceed urban incomes. In the United States, the Agriculture Department puts average farm household income in 2005 at $83,660. Subsidies also go to the biggest farms, because they're the biggest producers.

Another argument for subsidies is the need for food self-sufficiency. But as countries grow richer, self-sufficiency erodes. Many countries can't produce enough feed grains to meet their citizens' rising demand for meat. Elsewhere, including the United States, affluent shoppers want more specialized products that only imports can provide.

Given these realities, farm subsidies have outlived their usefulness. Even in poorer countries, their abolition would reduce food prices and raise the purchasing power of urban workers, stimulating demand for industrial goods and absorbing workers leaving rural areas. Because some poor countries have huge agricultural workforces (40 percent of the total in China), a case can be made for phasing out tariffs over 10 to 20 years. But the transition for rich countries should be shorter.

In these countries, farm subsidies survive on symbolism -- nostalgia for the rural past -- and farmers' sense of entitlement. One French official recently defended subsidies as safeguarding the country's "gastronomic sovereignty." Unsurprisingly, France receives the fattest share of the European Union's subsidies, about 20 percent. Without subsidies, some French farms would fail; but many would survive and expand. Consumers could still satisfy their distinctive tastes. In Japan, Korea and some other Asian countries, the same process would occur.

As for the United States, it's a low-cost producer. Abolishing worldwide subsidies would raise exports and reduce government spending. Some heavily protected crops (sugar, cotton) would decline, but "much of this land is going to stay in [other] crops," says agricultural economist Daniel Sumner of the University of California at Davis. Many poorer countries are also low-cost producers. Greater food exports and more efficient farmers won't solve their development problems, but they would help.

Except politically, this food fight makes no sense. There are more potential economic winners than losers. But so far the losers have prevailed, imperiling agreement on food and a broader trade accord. Globalization's most effective opponents are not intellectual objectors but powerful political interests.

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