Arizona Debate Institute 2008 FellowsObjectivism Aff
America's agricultural policies have remained fundamentally unchanged for nearly three-quarters of a century.
The U.S.government continues to subsidize the production of rice, milk, sugar, cotton,
and other commodities,while restricting imports to maintain artificially high domestic prices.
The competition and innovation that have changed theface of the planet have been effectively locked out of America's farm economy by politicians who fear farm voters more than thedispersed consumers who subsidize them.
The time is ripe for unilaterally removing those distorting trade policies.
In 2006Congress will begin to write a new farm bill to replace the protectionist and subsidy-laden 2002 legislation that is set to expire in2007. Meanwhile, the Bush administration will be negotiating with 147 other members of the World Trade Organization toconclude the Doha Round before the president's trade promotion authority expires in mid-2007. Congress and the administrationshould seize the opportunity to do ourselves a big favor by eliminating farm subsidies and trade barriers,
wouldbenefit all Americans
in six important ways. 1. Lower Food Prices for American Families The foremost reason to curtail farm protectionism is to benefitAmerican consumers. By shielding the domestic market from global competition, government farm programs raise the cost of food and with it the overall cost of living. According to the Organization for Economic Co-operation and Development, the higher domestic food prices caused by U.S. farm programs transferred$16.2 billion from American consumers to domestic agricultural producers in 2004. That amounts to an annual "food tax" per household of $146. This consumer tax is paid over and above what we dole out to farmers through the federal budget. American consumers pay more than double the world price for sugar. Thefederal sugar program guarantees domestic producers a take of 22.9 cents per pound for beet sugar and 18 cents for cane sugar, while the world spot price for rawcane sugar is currently about 10 cents per pound. A 2000 study by the General Accounting Office estimated that Americans paid an extra $1.9 billion a year for sugar due to import quotas alone. American families also pay more for their milk, butter, and cheese, thanks to federal dairy price supports and trade barriers.The federal government administers a byzantine system of domestic price supports, marketing orders, import controls, export subsidies, and domestic andinternational giveaway programs. According to the U.S. International Trade Commission, between 2000 and 2002 the average domestic price of nonfat dry milk was 23 percent higher than the world price, cheese 37 percent higher, and butter more than double. Trade policies also drive up prices for peanuts, cotton, beef,orange juice, canned tuna, and other products. These costs are compounded by escalating tariffs based on the amount of processing embodied in a product. If thegovernment allowed lower, market prices for commodity inputs, processed foods would be substantially cheaper. Lifting sugar protection, for example, wouldapply downward pressure on the prices we pay for candy, soft drinks, bakery goods, and other sugar-containing products. The burden of higher domestic foodcosts falls disproportionately on poor households. Farm protections act as a regressive tax, with higher prices at the grocery store negating some or all of theincome support the government seeks to deliver via programs such as food stamps. If American farm subsidies and trade barriers were significantly reduced,millions of American households would enjoy higher real incomes. 2. Lower Costs and Increased Exports for American Companies Producers who export goodsto the rest of the world and manufacturers who use agricultural inputs would also stand to benefit significantly from farm reform. So would their employees.
When government intervention raises domestic prices for raw materials and other commodities, it imposes higher costson "downstream" users in the supply chain.
Those higher costs
higher prices for consumers, reduced globalcompetitiveness for American exporters, lower sales, less investment, and
ultimately fewer employment opportunities andlower pay in the affected industries.
Artificially high commodity prices drive domestic producers
abroad to seek cheaper inputs--or
out of business
In the last two decades, the number of sugar refineries in the U.S. has dwindled from 23 to eight, largely becauseof the doubled price of domestic raw sugar. During the last decade thousands of jobs have been lost in the confectionary industry, with losses especially heavy inthe Chicago area. Expensive food also hurts restaurants. Enterprises outside the food business would benefit from farm reform as well. Rich countries'agricultural trade barriers remain the single greatest obstacle to a comprehensive World Trade Organization (WTO) agreement on trade liberalization. The currentround of talks, the Doha Development Round, came to a halt in Cancun in 2003 when the Group of 20 developing countries demanded more serious farm reform by the rich countries as an essential pre-condition. Any progress at the December 2005 meeting in Hong Kong and beyond will depend on real progress in cuttingU.S. farm subsidies and trade barriers. A successful Doha Round would lower trade barriers for a whole swath of industrial products and services. A 2001 study by Drusilla Brown at Tufts University and Alan Deardorff and Robert Stern at the University of Michigan estimated that even a one-third cut in tariffs onagriculture, industry, and services would boost annual global production by $613 billion, including $177 billion in the United States--or about $1,700 per American household. Some of the country's most competitive sectors, including information technology, financial services, insurance, and consulting, probablywould increase their share of global markets if the Doha Round were successful. Farm reform remains the key. A common argument against liberalization is thatthe U.S. should hold onto its agricultural tariffs as "bargaining chips" in WTO negotiations. The worry is that if we were to dismantle our barriers unilaterally,other countries would lose any incentive to give up theirs. But reducing protectionism would not primarily be a "concession" to other countries. It would be afavor to ourselves. In the process we would set a good example and create good will in global negotiations, inviting other countries to join us in realizing the benefits of lower domestic food costs. 3. Budget Savings and Equity for U.S. Taxpayers Agricultural reform also would reduce the cost of government. TheOffice of Management and Budget estimates that taxpayers shelled out an expected $26 billion in direct agricultural subsidies in fiscal year 2005--the biggestsingle-year subsidy bill since 1986. Just nine years ago, Congress promised to phase out farm subsidies by 2003. Instead they've reached near-record highs.Subsidy levels before 1996 were set by a formula that triggered an increase when crop prices fell. Starting in 1995, crop prices began to rise, resulting in lower payments from the federal government. The Freedom to Farm Act, passed in 1996 when commodity prices were high and demand for subsidies low, ended the price support program and replaced it with a declining fixed payment unrelated to market prices. Payouts were scheduled to drop from $5.6 billion in 1996 to $4 billion by 2002 and then disappear. But Congress reversed course in 1998, when crop prices began to decline, passing an "emergency" supplemental bill thatraised total farm subsidies to $12.4 billion. Subsequent supplementals hiked handouts to new heights, totaling more than $76 billion between 1999 and 2002, awhopping $57 billion more than the Freedom to Farm Act originally mandated. In May 2002, President George W. Bush hammered the final nail into Freedomto Farm, signing a six-year appropriation that revived the old price support program. Taxpayers have coughed up $55.5 billion in the three fiscal years since. For the same money Congress paid to farmers during the "phase-out" period between 1995 and 2003, the federal government could have purchased outright morethan a quarter of the country's farms.
two-thirds of American farmers don't even receive subsidies. So where does all that taxmoney go?
Mainly to large agribusinesses and the richest family farmers
In 2003, the most recent year for which comprehensivestatistics are available, the top 10 percent of all subsidy recipients gobbled up 68 percent of the money, and the top 5 percent got 55 percent. Take, for instance,Riceland Foods in Stuttgart, Arkansas, the largest single recipient of farm welfare. In 2003 it received $68.9 million in subsidies for producing rice, soybeans,wheat, and corn--more than all the farmers in Rhode Island, Hawaii, Alaska, New Hampshire, Connecticut, Massachusetts, Maine, Nevada, and New Jerseycombined. The second-largest recipient of farm welfare in 2003 was Producers Rice Mill, also in Stuttgart, Arkansas, which received $51.4 million. Theagricultural welfare rolls also include many Fortune 500 companies, such as Archer Daniels Midland and International Paper, plus corporations most people don'tassociate with farming, such as Chevron, Caterpillar, and Electronic Data Systems.
From the taxpayer's perspective, there is no good reasonwhy the federal government should continue to subsidize farmers
or companies, especially those that can remain profitable on their own. 4.More Environmentally Friendly Land Use The distortions and perverse incentives of U.S. agricultural policies have encouraged practices that damage theenvironment. Trade barriers and subsidies stimulate production on marginal land, leading to overuse of pesticides, fertilizers, and other effluents. A central if unstated purpose of American farm policy is to promote production of commodities that would not be economical under competitive, free market conditions.