The case for and against farming subsidies

Farmers are living vulnerably, teetering above the poverty line and operating at severe and consistent losses. A producer of a good or service cannot continue to produce it for less than the price at which it is sold, but this is exactly what is happening to small- and medium-sized farms.

Governments do the bare minimum to support agricultural markets

As large-scale supermarkets dominate supply figures, they also dominate and set price levels. The situation in most developed nations is the same, providing a prime example of the failings of the oligopolistic conditions in which the few enforce their own favourable rulings on the many. The supermarkets’ large scale and prolonged egregious treatment of producers would be investigated in any other industry, but because of the misconception that agricultural markets are relatively stable – and have become less significant as economies become more advanced – governments do the bare minimum to support them.

Consider pulling subsidies, letting our producers fall by the wayside and allowing supply to move abroad. First, the countryside as we know it will become unrecognisable as seismic urbanisation processes take over. Sustaining our biodiversity has become an issue of the highest importance, and we must retain that concern at all costs.

Second, we will become extremely vulnerable to shortages and droughts in other countries without the safety net of subsidies and controlled long-term storage. This creates swings and imbalances in both supply and price. Of course, the effect of this will be felt on our own complementary and substitute goods, creating unpredictable changes in a variety of product prices.

Lastly, we have no control over quality. As most multinational organisations have learnt, standards vary from country to country, and importing from, and exporting to, foreign markets (used to certain ideals of quality) can be a dangerous business indeed. One need only think back to the UK’s horse meat scandal to realise the sensitivity and importance of the issue. By turning on our domestic producers, we’re admitting quality is no longer an issue. On an economic level, relying further on imports is madness – particularly given one of the prime resources of most countries is their land.

As a proponent of free market economics, it’s difficult to justify getting behind any policy that places the responsibility of markets in the hands of the government. But here is exactly where nations must rely on government intervention: when market failures – inherent in any system – force pressure on an otherwise stable economic structure.

If there’s a problem with current subsidies, it is in the infrastructure. Stories are rife of mismanagement across most developed nations, in which drought support has been provided when there’s been no drought, or when emergency support has been miscalculated. But the system should be reviewed and recalculated, not dismantled. Another aspect that should be considered is enforcing pricing changes on the buyers, rather than letting supermarkets force prices ever lower.

Between 2008 and 2010, the UK and US governments bailed out large swathes of the banking system. Turning our backs on agricultural industries would be just as destructive as the fall of any of our major financial institutions. The generation of wealth has gravitated toward the cities in recent years, granted, but to let agricultural output suffer would be uncompetitive, impractical and uneconomical.

Proponents of agricultural subsidies would have you believe that, for every pint of milk squeezed and captive animal slaughtered, farmers are given only an ever-so-small portion of what they’re actually owed. The fear for these people is that, without state intervention, the industry would struggle to make ends meet. The reality is far more complicated, and the case could even be made that the prescribed solution has actually introduced distortions into the market and succeeded only in sweeping the bigger issues under the rug.

What began as a simple incentive programme has since morphed into a wealth enabler

Modern subsidy programmes can be traced back to the US Agriculture Adjustment Act of ’33, which essentially paid farmers to hold fire on production and fight the issue of oversupply. What began as a simple incentive programme has since morphed into a wealth enabler, and the costs associated with it have been passed onto unsuspecting customers, small businesses and those in developing markets. Where once subsidies signalled a well-meaning attempt to protect food security and support agricultural development, their continuation is founded on a serious misconceptions about the state of the industry.

The underlying assumption is that any subsidies will alleviate farmer poverty and stabilise volatile prices, yet the system rewards commercial-sized farms over family farmers and applies external pressures on prices. As it stands, those with the most land are rewarded far and above those with smaller estates, and the system excludes lower earners and inflates already excessive land prices. In developing nations, meanwhile, competitive practices are too easily overlooked, given the handouts are less and the advantages hard to detect. The costs of farming have become increasingly detached from reality, with the price paid for in full by the taxpayer.

The EU alone spent an estimated €55bn on its maligned Common Agricultural Policy in 2012, and, by 2020, the figure is projected to inflate by another €8bn. To present a clearer picture of the costs, EU agricultural handouts in 2012 accounted for 47 percent of its total budgetary spend, despite its recipients representing only 5.4 percent of the population and a mere 1.6 percent of GDP.

Here it becomes clear the deficiencies in the system are manifold, not to mention that loss-making farm practices are sustained by artificial means, and areas in need of improvement made more difficult to detect. Effectively, offending governments are offering an arm to loss-making practices, which eliminates any incentive to invest in new technologies, such as vertical farming and waterless crops.

It’s true that, without farming subsidies, the agricultural industry as it exists today would struggle to maintain its current crop of success stories, but abolishing the handouts would likely boost growth in the long-term. Straying from the system and opting instead for a free market economy would create a more realistic picture of where farming stands, and make clear where changes must be made.

This is not to say there aren’t instances of hardship in the farming community – as indeed there are many – but the solution is not simply to quash the most immediate concerns and overlook the underlying issues. With subsidies in place, the regime will favour wealthy names and mature markets, while smaller operations in developing nations – where agriculture is of far greater importance – will be starved of the opportunities they’re due.