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Agricultural subsidies: Paying twice for your food

Agricultural subsidies
Food production   State support: Yes or no?

Every government subsidizes a range of economic activities that it wants to promote, and most probably agricultural subsidies are the most important ones.




Most subsidies are paid in cash or they are loans that the government gives to farmers or agribusiness to encourage activities the government wishes to promote. Those subsidies depend on the amount of the goods or services provided.

By definition, there are five types of subsidies: cash subsidies, tax concessions, assumption of risk (loan guarantees), government policies that pay more than the market price, and stock purchases that keep a company's stock price higher than market levels.

And it makes sense: these are all subsidies because they reduce the cost of doing business for farmers or other companies involved in food production.

As always, there are two opposite sides and the third that's neutral: the market itself.

Proponents of agriculture subsidies start with one crucial point: the country's food supply is too critical to be governed by market forces. The government must have some control over the food production, thus they argue, it must ensure a safe and stable environment for farmers to work in peace.

Critics say that, while it's true that food is very important for every nation, the government should have a critical supply to cover unexpected events such as natural disasters or state of war. In all other situations farmers should be treated as any other company without having a privileged position in the society.

Proponents say that there are certain cultures that deserve subsidies because they are either staple food or are important for industry. So, corn, wheat and sunflowers should receive subsidies, and other cultures should not.

On the other hand, critics says that today's farms, at least in developed countries, are so advance that they can cope with rain, drought, and market movements. And they remind that agricultural subsidies were created to help farmers ravaged by huge natural disasters or economic crisis that we can see once in a century.

While both side go far and wide with their arguments, there are three basic problems with agricultural subsidies and, as you will see, they lead to the same, very clear conclusion.

First, if the state has some form of agricultural subsidies, it is very easy to expand it under pressure of interest groups. Let's expand it on meat. Done. Let's expand it on soy. Done. Let's expand it on sunflower. Done. And before you know it, all farming is covered.

That leads us to the second issue: all other companies from other industries are not protected with subsidies which means they depend on the market and the market only, without any state protection. That's something no modern constitution allows so how do you solve it? Enter subsidies to cover other industries.

Nice, but that leads us to the third problem: trade war. Other countries will start to complain why you are covering your industries and they will start cover theirs.

In the end, we have today's trade: everybody has agricultural and other subsidies and the whole world is entangled in trade negotiations fighting for a percent up or down - and we all lose.

So, what would happen if there were no agricultural subsidies?

The answer is unbelievable simple: take a look around.

Countries that canceled agricultural subsidies saw their farmers and agri-companies adapt and today they export food. Period. That's it. The market did its job and those rare countries are big food producers and nobody's crying "The state should cover us!"

And when you think about it, where the money for agricultural subsidies comes from? From the state budget. In other words, from taxes citizens and companies pay. When you realize that, one simple but enlightening though will come to mind: you pay twice for your food.

First, you pay taxes and part of that money goes to farmers. Then, you pay for your food in a grocery store. So, you paid twice.

Some would say "But, thanks to subsidies, food is cheaper!" It is cheaper in the store but I already paid some amount for it before it was even produced.

My money, and your money, goes from our pocket to farmers' pocket well before they start to grow that pig or work on that corn.

In the end that means just one thing: farmers can work without worries, while everybody else is left to fight for survival on the market. Those rare countries that were wise enough to see that, they canceled agricultural subsidies and they saw only positive side.

And their citizens don't pay twice for their food.

BIOGRAPHYJeff Butcher is a British pig farmer with more than 25 years in the business. He closely follows world agriculture and loves to work with people being happy when he finds time to work on farmers markets, educating people about meat, mainly pork.

Contact the Op-Ed editor Ted Blackwater at tedblackwater@poandpo.com

 
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