Possible course projects: Agricultural subsidies in the U.S.

At this point in the semester, students start formulating their project topics. Here’s an initial description of a potential topic from MNSP student Jieun Wrigley:

The US farm bill is the primary agricultural and food policy tool of the federal government. In 2020 alone, US farmers are likely to receive as much as $23.5Bn of subsidies to a broad sweep of agriculture related agencies. Agriculture subsidies include crop insurance premiums, agricultural risk coverage, marketing loans, export promotions, disaster aid, direct payments and much more.  US agriculture subsidies may optimize benefits for individual US farmers but these subsidies have far-reaching negative impacts beyond US farm borders.

As we learned in this week’s lecture, policies subsidizing production shift the supply curve to the right without directly impacting domestic demand.  Subsidies often encourage over production and increase export quantities.  From a snapshot view of this economic model, this would seem a favorable solution for individual US farmers and US society at large; US consumer surplus isn’t affected; US producer surplus expands; surplus is exported.  It all sounds positive but what if the impact of these subsidies is actually negative for the broader societal equilibrium? For developing countries, the influx of cheaper products distorts their own economic models.  What may appear to be a short-term benefit turns out to be, in the medium to long-term, an economic trap of poverty. 

According to the Carnegie Endowment for International Peace, as the US is such a large player in world agricultural trade due to the amount of its exports, its agricultural policies do significantly affect the world market for food…certain commodities in the US, that when exported, lower the international price of goods from which low-income country farmers derive their incomes.  Countries like the US can generate funding for large subsidy programs from a large taxpayer base.  But developing countries lack this ability. With subsidies serving as a safety net, US farmers can undercut pricing.  This ultimately undermines domestic production in developing countries and they become dependent buyers of food from wealthier countries that have subsidized agricultural products.

In 2002 the UN Development Program estimated that farm subsidies cost poor countries about US$50 billion a year in lost agricultural exports. In 2006, WTO trade negotiations stalled because the US refused to cut subsidies to a level where other countries’ non-subsidized exports would have been competitive.  It is no surprise agricultural subsidies often are stumbling blocks in trade negotiations.  The economic models we consider assume a competitive market driven by comparative advantage.  But this assumption seems to fail when one country holds most of the advantages.

In the 1970s, Haiti was self-sufficient in rice production.  Today, Haiti imports over 80% of its rice from the US, primarily the state of Arkansas.  Haiti’s drop in economic productivity has paralleled its increase in food dependency leaving the country vulnerable to many follow-on economic woes.  Such high food insecurity is unsustainable leading to a rise in malnutrition as well as environmental degradation.  Unfortunately, Haiti isn’t the only country affected by US farm subsidies. This economic scenario is visible across products (such as corn, sugar, cotton, tobacco) in many developing countries.  While many international organizations aim to support food and nutrition policies in Haiti, until the linchpin issue of US agriculture subsidies is addressed, efforts are placatory.

One of the limitations with the basic supply-demand model is that it is a snapshot in time, often viewed from a single perspective.  It is difficult to glean the heavy costs to Haitian farmers, the rise in malnutrition, the environmental degradation and the benefits to US farmers within the same model.  Although these issues are fundamentally intertwined, we view the impacts as separate issues. But it begs the question, why does agriculture have an industry wide safety net when other industries run similar risks? I wonder if the average US federal taxpayer is aware of the safety net their dollars provide the agriculture industry?  And can we continue to call these subsidies safety nets when they are economic traps for others?