Agricultural policy

An agricultural policy or agricultural subsidy is an incentive to engage in a particular form of agriculture. It often takes the form of tax reductions, favorable deals on equipment, and so on.

Subsidies status

Currently, economic studies place the average farmer subsidy at $17,000/year for European farmers, and $16,000/year for U.S. farmers. The subsidies are mainly in the form of tax reductions and very low prices on the water needed to grow plants.

Arguments for subsidies

Most agricultural policy or subsidy has purposes other than profit. A very strong evidence for this is that huge amounts of excess food are often disposed of very cheaply, e.g. by export to developing nations as foreign aid, or as part of local food bank or food stamp programs. Agricultural economics studies these 'other purposes' to see what insights they provide into economics, and to help set such policies in the context of a larger economy in which most activity is not agricultural.

A key stated goal of agricultural subsidies is food self-suffiency to prevent the shock of rapid price rises in essential groceries. To submit the entire food supply of a nation to the whims of commodity markets is considered a poor idea. Another goal is to improve biosecurity by minimizing the amount of overall organic material imported, e.g. recent United States Food and Drug Administration rules applied to foreign exporters of food to the US.

Another stated goal is to encourage organic farming and precision agriculture, often combined in the idea of the "garden economy". When the USSR was unable to feed itself it was often observed that over half of the local food supply was coming from small private gardens growing native varieties with organic means, despite the fact that the government had done everything in its power to discourage such small-scale organic entrepreneurs.

Opposition to subsidies

However, many political observers argue that the true purpose of agricultural subsidies is in the end to protect farmers so that they will continue to vote for the politicians that vote for these subsidies. It should be noted, however, that only a small percentage of the population actually works in agriculture in the West (about 5% in the European Union in 1997 and 1.7% in the United States in 1990). On the other hand, a much larger percentage of the population is affected by the rise and fall of the farm economy. In many areas, agriculture comprises the primary economic base. Many economists regard farm subsidies as objectionable because they cause the economy to be less efficient than they would otherwise be. There have been well-publicized cases of large corporations receiving subsidies implying that all those receiving subsidies do not deserve much sympathy. Many farmers are opposed to subsidies because they tend to result in overproduction and lower prices, which then increases future reliance on subsidies. Thus a vicious downward spiral is formed, which like a drug addiction, becomes increasingly more difficult to escape from.

Another critique is that these subsidies prevent farmers in the third world from competing in local and export markets, thereby creating third world poverty. This line of reasoning is increasingly used as the main opposition to subsidies, as exemplified by the 2003 Cancun WTO ministerial conference, where 22 third-world nations strongly argued against agriculture subsidies in US and Europe. Their complaint is that the first world talks about free markets, but does not implement them when their agriculture products are subject to competition by cheaper products from the third world.

Other opinions

Most green economists argue that such measures ought to be strongly encouraged, and so consider agricultural policy that exempts small gardens and greenhouses from regulations to be desirable, especially if produce is consumed locally. They argue for tax, tariff and trade rules to exempt such production for local use, especially family farm or farm co-op production, and strongly deny that agricultural and industrial policy should be linked, or should be subject to the same law. One rationale is that local production of organic produce by families in their own gardens for their own consumption is not taxed or regulated, and that little or no use of the energy-and-land-intensive transport system, or energy-and-labor intensive regulation system is required for these same people to sell the same product to neighbors.

Rules for rural land ownership typically affect both agricultural policy and family farms. Some economists, e.g. Hernando de Soto, Joseph Stiglitz, argue that comprehensive land reform is more likely than any amount of tax, tariff and trade system, and more likely than any specifically agricultural policy, to improve life in developing nations.

Immigration policy in some developed nations has exceptions specifically to enable agricultural policy, e.g. migrant farm workers in Canada and the US.

U.S. initiatives

The United States has almost ended farm subsidies several times, most recently with the enactment of the "Freedom to Farm" act, which was intended to provide diminishing payments to farmers over a period of years in lieu of price supports and production subsidies. It was supplanted in 2002 by new legislation that contained direct subsidies and countercyclical payments designed to limit the effects of poor prices and yields in bad years. Grain crops are most heavily subsidized.

Another major U.S. subsidy program is the "conservation reserve program" (CRP) which leases land from producers who take marginal land out of production and convert it back to as near its natural state as possible, by planting native grasses and other plants. In addition, there are major regulatory frameworks that have environmental, safety, and food quality goals.

Another program is the "environmental quality incentives program" (EQIP) which subsidizes improvements which promote water conservation and other measures. This program is conducted under a bidding process using a formula where farmers request a certain percentage of cost share for an improvement such as drip irrigation or a LEPA conversion (Low energy precision irrigation). The producers which offer the most environmental improvement (based on a point system) for the least amount of government money are funded first. The process continues until that year's allocated funds are expended.

Other, more subtle measures enacted by the states and local governments affect farming, such as zoning and tax policy.

Since imported/exported agricultural produce is mostly traded and entirely priced on commodity markets, but presents special biosafety and biosecurity risks, there is a strong bias in all agricultural markets to compromise safety to achieve low prices.

International initiatives

Safe trade rules to encourage organic farming and self-reliance, led by opponents of genetically modified food and monoculture, e.g. Greenpeace.

Fair trade rules to ensure that poor farmers in underdeveloped nations that produce crops primarily for export are not exploited to put local farmers in developing nations out of work - which advocates consider a dangerous "race to the bottom" in agricultural labor and safety standards. Opponents point out that most agriculture in developed nations is produced by industrial corporations (or "agribusiness") which are hardly deserving of sympathy, and that the alternative to exploitation is poverty.

Free trade advocates desire the elimination of all market distorting mechanisms (subsidies, tariffs, regulations) and argue that, as with free trade in all areas, this will result in aggregate benefit for all. This position is particularly popular in competitive agricultural exporting nations in both the developed and developing world, some of whom have banded together in the Cairns Group lobby.

Plans to reduce or remove agricultural subsidies have led often to violent confrontations even in developed nations, e.g. very often in France. The issue is very politically loaded and there are strong constituencies both for and against agricultural reforms.