Aid To Farmers A Poor Substitute For Farm Trade
November 16, 1998
by Dennis T. Avery
CHURCHVILLE, Va.—Just before the elections, American farmers got a present of about $6 billion in cash from the federal government. Congress cited this year's low world farm prices in generously deciding to give farmers the aid.
Since farmers have about $1.2 trillion invested in land, livestock, machinery and buildings, the $6 billion "gift" represents a tiny, one-time return on assets of about 0.5 percent.
What Congress didn't give farmers was free trade in farm products, which is the only real solution to the farm price problem.
IRONICALLY, current world farm prices aren't even "low." They're at a depressed level, but one we've come to think of as normal. Markets around the globe are closed to agricultural imports while, at the same time, Europe subsidizes exports.
Because of these trade barriers and this export dumping, the current low world prices are exactly what farmers can expect again next year.
Will Congress ride to another inadequate rescue then? And every year after that?
FREE TRADE would raise the world market's farm prices by about 25 percent to 35 percent. In some heavily depressed commodities, like dairy products, prices might rise 50 percent.
Free trade would allow export farmers to sell all the output they could cost-effectively produce at the higher prices. This would be worth perhaps $50 billion to $60 billion to U.S. farmers every year as far as we can foresee.
Free trade would also be a major boon to Australian and Ukrainian wheat growers, Polish dairy farmers, Brazilian sugar growers, Thai poultry producers and so on around the world.
EVEN SUBSIDIZED farmers are losing now. They've had to buy expensive marketing quotas or land that's more expensive because of the subsidies.
Farmers who were in business when the subsidies started got a windfall gain, but they're long retired. Today's farmers aren't getting any gift from the politicians; they just having to support a higher cost structure.
And over coming the decades, they'll be shut out of the biggest market growth in farming history.
CONGRESS didn't even seek free trade in farm products. It failed to give the nation's special trade representative the authority to negotiate farm trade liberalization at next year's World Trade Organization talks. Congress voted its little one-time "gift" instead.
Farmers are caught in the "poor but grateful" political trap.
It's the same game the politicos play with old-age pensions. They've largely refused to let people invest a part of their earnings in tax-free pension funds. Thanks to the miracle of compound interest, those funds would turn into really attractive retirement incomes over the years, history shows.
Instead, the politicos have trapped people in a pension system that earns no annual return on the investment at all, because nobody invests anything.
THE POLITICOS pay today's retirees with the taxes on today's workers. Then the workers are supposed to feel grateful when the government gives them a pension that is more a token than a safety net.
Today, such pension schemes are bankrupt because so many of us are living so long. Legislators know they can solve the problem in an instant—whenever they are willing to give up the "grateful voter" game and let people really invest in their pensions.
The politicos' problem is that voters who earn their pensions might not feel grateful to their legislators.
Farmers are trapped by the same poor-but-grateful strategy. The politicos are trying to keep farmers on the public dole with relatively small doses of federal cash rather than letting them march off into the sunset with increased profits earned from more farm exports.
THE WORLD will demand three times as much farm output over the next 40 years. Densely populated Third World countries will have trouble producing the food they'll need.
Members of Congress once stated that they were ending the price supports and cropland diversion program because the United States couldn't gain export markets so long as it was subsidizing its farmers.
Now legislators say they can't seek free trade for farmers because U.S. unions are afraid that free trade would export nonfarm jobs. But if this is the real concern, Congress could simply give the special trade representative the authority to negotiate free trade only in farming.
NOT ONLY would this make America's farms more profitable, it would also add a couple of hundred thousand blue-collar nonfarm jobs. Those jobs couldn't be exported unless someone could find a way to export America's prime cropland, climate and big rivers.
The political objections to free farm trade are fraudulent. Clearly, the politicians are more interested in buying the votes of farmers than in allowing them to earn true prosperity. When will farmers stop settling for being "poor but grateful?"
Dennis T. Avery is based in Churchville, VA, and is director of the Hudson Institute's Center for Global Food Issues.