Be thankful for small favors. The European Community now faces a budgetary crisis as a result of skyrocketing farm subsidies. Cost overruns are estimated at $4.4 billion this year. But that's good news. In fact, you should pray that things get worse. The only hope for ending the ruinous farm policies practiced by most industrial nations -- including the United States -- is for them to become oppressively expensive.
In Europe, the United States and Japan, farm policies raise retail food prices, generate surplus production and require huge government subsidies. Even farmers don't ultimately benefit because subsidies perversely raise their costs by increasing land prices. The United States suffers doubly. Our policies cost too much at home, and other countries' policies hurt our farm exports. Developing countries that export food are also losers.
But absurd as all this is, reforming world farm policies has always seemed a pipe dream. Now, there's a glimmer of hope. Next week, the United States will propose at world trade negotiations that almost all farm subsidies be phased out over a l0-year period. Although almost no one thinks the U.S. plan will be completely adopted, the mere possibility of major reforms is a radical change from three years ago.
For the United States, the stakes are huge. The 1980s' collapse in farm prices (a bushel of wheat has dropped from nearly $4 in 1980 to about $2.50) and export markets have left many farmers heavily dependent on government subsidies. In 1987, these subsidies may account for a third of farmers' profits and cost the government $25 billion. The best hope of reducing the subsidies without worsening the farm crisis is an expansion of exports and a recovery of world prices. Both require policy changes by other countries.
Resistance is sure to be fierce. "Every country regards its farmers as noble and its food security as vital -- and the two are linked in the public mind," writes State Department agricultural analyst Dennis Avery. Even in the United States, any reform agreement would face opposition from the least efficient farmers who might be forced out of business. There are also serious technical problems in negotiating worldwide cuts in farm subsidies and trade barriers. Because national policies vary, comparing concessions by different countries can be difficult.
In Japan and Europe, for example, import restrictions are critical. Japan imports almost no rice and only small amounts of beef. The European Community imposes variable import levies that adjust so that less expensive food imports can't underprice local farm products. The import restrictions raise consumer food prices. Wheat prices in Europe are more than twice the world level; Japanese rice prices are 6-10 times world levels.
The U.S. system is basically different. We have a few import restrictions; sugar, dairy products and meat are the most important. But farmers generally receive market prices for their products, and then the incomes of many farmers -- mainly grain, cotton and rice producers -- are supplemented by direct subsidies. One good omen for global farm talks is a new accounting system that compares the value of different subsidies and, thereby, may make the negotiations easier.
The new system converts all government payments, import restrictions and price supports into a "producer subsidy equivalent," or PSE. A PSE of 10 percent means that government subsidies are equal to 10 percent of a farmer's income. Estimates of PSEs done by the Agriculture Department show that Japan's farmers are the most subsidized, deriving nearly three-quarters of their income from government policies. For the 1982-84 period, Japan's PSE was 72 percent compared with 33 percent for the European Community, 22 percent for the United States and 9 percent for Australia.
The main impetus for the world farm talks, of course, is agriculture's altered economics. In the 1970s, the costs of farm subsidies seemed tolerable. Strong global economic growth and high inflation buoyed food exports and kept farmers' incomes high. The 1980s' slower economic growth has changed the picture completely. Increases in world grain exports have ceased. Import restrictions close markets that are now desperately desired, while subsidies and high support prices abet overproduction.
The United States is hardly blameless. Along with the Europeans, we've kept out cheap sugar and hurt the Philippines and Caribbean nations that are big exporters. Our sugar support price is roughly three times the world level. But the Europeans are the worst offenders. The European Community buys the excess production of its farmers at high prices and then dumps the surpluses at subsidized prices onto world markets. It's these costs that are bankrupting the Community. Meanwhile, the dumping depresses world prices and penalizes more efficient exporters: the United States, Australia, Canada, Argentina and Brazil.
We are now fighting Europe's export subsidies with our own. It's an expensive war that could be ended by abolishing import restrictions, domestic subsidies and support prices. Less efficient farmers -- some European wheat producers, Japanese rice farmers and U.S. sugar producers -- would fail. Food prices in protected markets (Europe and Japan) would fall, while world export prices would rise. Because some countries would become more dependent on imports, an agreement on world food reserves to ease fears about possible shortages would also be logical.
The problem is not figuring out what should be done but, as usual, doing it. So contentious are these issues that the food negotiations will last at least until the end of 1988 -- and probably longer. What's at stake is whether most of the world's farmers can be weaned from their private welfare state. So take cheer in the European Community's budget crisis: It's just possible that the shock of today's rising subsidies will lead to falling subsidies tomorrow.