Sunday, April 11, 2010

Agricultural/Farm Subsidies

Given our large federal government budget deficits and very high national debt level, which I've commented on in recent posts, it is definitely appropriate to look carefully at how and where we can reduce spending. It's not difficult to identify the answers, but largely for political reasons, it seems to be very difficult to get needed results. While the amounts involved are relatively small, one of many logical places to cut spending is for agricultural and farm subsidies.

In his first national address to a joint session of Congress in February last year, President Obama stated that approximately $5 billion of subsidies to large agribusinesses that don't need them were "wasteful" and should be eliminated. I agree with him, but I'm not sure that's happened yet. From 2003 to 2006 millionaire farmers reportedly got $49 million in subsidies, but it's not clear whether those have been stopped. My understanding is that subsidies of all types to this industry totaled $23 billion in 2005 and as much as $44 billion last year.

These subsidies represent unnecessary spending and are also often harmful to U. S. exports, which adversely affects our trade deficit or surplus with other countries. According to a report in the Wall Street Journal a few days ago, federal subsidies to U. S. cotton growers has allowed Brazil, under the rules of the World Trade Organization (WTO), to impose new tariffs on 102 U. S. products affecting approximately $1 billion in U. S. exports and thousands of American jobs. In an effort to get Brazil to delay imposition of the tariffs the U. S. government apparently has just proposed to Brazil that we make a $147 million payment to Brazilian cotton growers who compete with American growers in certain export markets. This is stupid! We as taxpayers would then be subsidizing U. S. growers as well as Brazilian growers.

We should eliminate all subsidies to the industry and negotiate an end to subsidies by our competitors abroad in coordination with the WTO. It is true that many smaller, less efficient family farms may find it hard to survive if subsidies are ended. That would be unfortunate for them. However, with knowledge of subsidies soon terminating, farmers would be very motivated to make needed changes to improve their financial prospects, by changing crops, becoming more efficient, acquiring more acreage, or even merging with another nearby farmer, similar to what other smaller businesses operating today in challenging operating environments are often needing to do. To facilitate transitions for these farmers, and as warranted by specific circumstances, the subsidies could be terminated gradually over a period of two or three years.

Like with the example of the cotton growers mentioned before, ending the subsidies should enable us in many cases to be more competitive with U. S. exports, including agricultural products, as foreign governments reduce or eliminate tariffs on imported U. S. products.

The large agribusinesses as well as the family farmers have a very well organized and effective lobby in Washington to protect their subsidies. The lobbyists are well compensated and, as one would suspect, their representatives and senators in Congress are well supported by substantial campaign contributions. Legislation to end subsidies will therefore be quite difficult, and we frankly shouldn't be optimistic about prospects, at least in the near term. As with many of these political issues, sustained pressure, compelling arguments, and patience from the voters and the media will be required.

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