Agricultural subsidy

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An agricultural subsidy is a subsidy in favor of agriculture . Agricultural subsidies encompass a wide range of policy instruments in the agricultural and food sector. Agricultural subsidies are partly justified with market failure , and on the other hand, they are intended to serve the interests of certain farmers, companies or consumers. Agricultural subsidies can be understood as government interventions that change agricultural prices, corporate profits or household incomes in favor of certain groups. Examples are trade barriers , the subsidization of agricultural inputs , income transfers to agricultural households, monetary compensation in the event of a disaster , or the cheaper food for poor consumers.

Farmers are supported much more in industrialized countries than in developing countries . The agricultural subsidies of the OECD countries have a wide range of effects on domestic and international markets. One of the most important of these is the preference given to domestic producers at the expense of domestic consumers (for example in the case of protective tariffs), the state treasury and foreign producers (by depressing world market prices). In the past few decades, agricultural subsidies have been reduced significantly as a result of these market distortions and in the context of the world trade rounds. You still remain at a high level; Reforms are considered difficult to implement politically.

Agricultural subsidies in industrialized countries

General and overview

Producer Support Estimate in the OECD (absolute and in relation to agricultural income), 1986–2009
country PSE (€ million), 1986 PSE (%), 1986 PSE (€ million), 2009 PSE (%), 2009
Australia 1,548 13.0 667 2.7
Canada 6.241 38.1 5,610 20.2
Iceland 162 75.6 83 47.8
Japan 46,946 65.1 33,465 47.8
Korea 9,237 62.9 12,609 51.7
Mexico 560 3.6 4,190 12.5
New Zealand 803 19.6 25th 0.4
Norway 2,443 69.1 2,671 66.3
Switzerland 4,485 74.5 4,469 62.9
Turkey 3,245 17.4 16,269 36.9
United States 38,743 24.0 22,025 9.8
EU-27 86,613 38.6 86,980 23.5
OECD total 226.286 37.5 181.765 22.4

In 2009, farmers in the OECD countries were supported with over € 180 billion or 0.93% of the OECD GDP (PSE). On average, farmers received 22% of their income through the subsidy policy. This proportion has been reduced significantly in the last few decades; In 1986 it was 37%.

Goals and tools

Export subsidies and import restrictions lead to higher domestic market prices, which benefits farmers and harms consumers (Grain loading in Seattle , 2004).

The goals of agricultural subsidies can be divided into economic efficiency and redistribution .

Agricultural production is characterized by unpredictability and instability due to the weather . For example, favorable weather can lower agricultural prices through good harvests and thus cause producers to lose income. Farmers could insure themselves against such risks , but market failures can occur in insurance markets ( adverse selection and moral hazard ). Government subsidies for crop insurance can therefore increase efficiency.

In addition to efficiency, agricultural subsidies should also bring about redistribution in order to secure a livelihood for people in need. Many OECD countries began to subsidize agriculture when agricultural incomes were below non-agricultural incomes. Another rationale behind the redistribution policy is strong political influence from farmers.

Increasing agricultural incomes has always been an important goal of agricultural policy and, according to Anderson et al. (2006) came to the fore over time. This goal can be achieved in different ways: Governments can raise the prices of agricultural products and lower those of inputs, they can also initiate direct transfers and provide services.

Trade barriers play an important role in influencing agricultural prices. Without trade barriers, the domestic price corresponds to the world market price (including transport costs ). If a country is a net importer of an agricultural product , an import duty can raise the domestic price above the world market price. This tariff raises the price of imported quantities of goods, which creates additional income for the domestic producers of the goods. If a country is a net exporter of an agricultural product , an export subsidy can provide additional income for domestic producers. The costs of such measures are partially or completely borne by domestic consumers through higher prices.

Another form of agricultural subsidies to raise agricultural incomes are income transfers from the state treasury. An important distinction here is between transfers that are linked to production volumes and those that are decoupled from it. The instrument of loan deficiency payments used in the United States, for example, awards an income transfer linked to the marketed volume if the marketing price is below a certain level. In the EU , direct payments have been decoupled from production volumes since 2005, which represents a reduction in trade distortions within the framework of the Agreement on Agriculture .

Governments can support farmers with additional measures that are financed from tax revenues. In the USA , for example, the living quarters of farm workers or the marketing of agricultural products abroad are subsidized. Public agricultural research can promote the development of new agricultural technologies that reduce production costs. Since the agricultural production and marketing chains are usually characterized by functioning competition, such cost reductions are ultimately passed on to consumers via lower consumer prices. Public agricultural research is also justified with market failure: Since agricultural research is often a public good (an innovation can be copied or adopted by those who did not contribute to its creation), private research investments are below the social optimum. Most research suggests social returns from agricultural research ranging from 25% to over 100%.

scope

OECD agricultural subsidies in the regions with the highest subsidies (2007)
OECD United States EU Japan Rest of the OECD
TSE, US $ billion 365.1 100.8 153.4 45.3 69.7
% of TSE of the OECD 100.0 27.6 42.0 12.4 18.8
PSE, US $ billion 258.2 32.7 134.3 35.2 59.8
% of the country's TSE 70.7 32.4 87.5 77.7 85.8
GSSE, US $ billion 77.6 41.9 16.2 10.1 10.0
% of the country's TSE 21.3 41.6 10.6 22.3 14.2
CSE, US $ billion 29.2 26.2 2.9 0.0 0.1
% of the country's TSE 8.0 26.0 1.9 - 0.2
% TSE from taxpayers 61.9 87.1 68.6 28.0 -
% TSE from consumers 38.1 12.9 31.4 72.0 -
Number of lw. Establishments (million, 2005) - 2.1 10.0 2.6 -
TSE per company - 20,333 13,386 18,231 -

The OECD's annual publication Producer and Consumer Support Estimates offers the most comprehensive database for agricultural subsidies. In addition to agricultural subsidies in the OECD countries, it also includes agricultural subsidies in Brazil , the People's Republic of China , Russia , South Africa and the Ukraine .

In addition to income support for farmers ( producer support estimate , PSE ), transfers to consumers are listed ( consumer support estimate , CSE ). In addition, the OECD shows figures on other support for the agricultural sector, such as agricultural research or agricultural marketing ( General Services Support Estimate , GSSE ). The total support estimate ( TSE ) indicates the total support for farmers and is divided into transfers from taxpayers and transfers from consumers, minus the government revenue resulting from the policy measures .

The PSE forms the most important part of the TSE; In 2007, the OECD average was 71%. Market price support through trade barriers accounted for roughly half of the PSE and 35% of the TSE in the same year. It is calculated on the basis of the difference between the domestic and world market prices of individual goods. Import tariffs provide domestic producers with a subsidy equal to the amount of goods produced and marketed domestically, multiplied by this price difference. This subsidy is paid by the consumers and therefore appears as a negative amount in the CSE. Consumers also pay the higher price for imported goods; this amount goes to the state treasury. Export subsidies also increase the domestic price. The quantity of goods produced and marketed domestically multiplied by the price difference is also a subsidy from consumers to producers. The amount of goods exported multiplied by the price difference is a subsidy from taxpayers to producers.

The other half (OECD average) of the PSE make up various direct payments from the government to producers. This share has risen sharply in the past, which is primarily due to the reduction of trade barriers in the EU.

The CSE in 2007 was US $ 116 billion. The number is negative as consumers pay higher prices due to trade barriers. The subsidy burden is significantly lower than in 1986 (−151 billion). The CSE shows subsidies from taxpayers to consumers, which in 2007 amounted to almost 30 billion US $.

The TSE is not the sum of PSE, CSE and GSSE, but the sum of PSE, GSSE and the subsidies from taxpayers to consumers contained in the CSE. These subsidies come primarily in the form of food support for low-income consumers, such as the Supplemental Nutrition Assistance Program (Food Stamps), the National School Lunch Act (school meals) or the Child nutrition programs (child nutrition programs ) in the USA. The reason these subsidies are partly included in the TSE (the sum of subsidies to producers) is that they raise demand and prices, which benefit producers.

In some industrialized countries such as Switzerland, a farmer receives on average more than half of his income from subsidies (Betrieb bei Wettingen , 2010).

The USA, the EU and Japan provided 81% of the agricultural subsidies in the OECD in 2007. The origin of these subsidies differs significantly between these regions. In Japan, agricultural subsidies are largely borne by consumers, in the EU and the USA by taxpayers. The share of the PSE in the TSE in the USA is almost a third, well below that in the EU and Japan. On the other hand, in the USA the GSE has a significantly larger share of the TSE. Trade barriers are responsible for almost all of the PSE in Japan, while they make up a significantly smaller proportion in the US and the EU.

The TSE in the EU is - as an absolute value - around 50% more than in the USA and more than three times as much as in Japan. At ten million, the number of farms in the EU is significantly higher than in the USA and Japan with two to three million each. In the USA and Japan, a farm receives on average significantly more subsidies than a farm in the EU. The distribution of the subsidies allocated to the individual farms can also differ considerably between the regions. The Environmental Working Group (EWG) estimated for 2006 that the top 10% of US recipients received 62% of the subsidy.

The share of PSE in total agricultural income was 23% in the OECD in 2007. This proportion was 10% in the US, 26% in the EU and 45% in Japan. The industrialized countries with the lowest share of PSE in income were Australia (6%) and New Zealand (1%) in the same year. In 2007, more than half of agricultural income in Korea, Iceland, Norway and Switzerland was subsidized.

The policy instruments managed in the GSSE include food aid to developing countries. About 60% of the world's food aid comes from the US, 25% from the EU, and smaller proportions from Japan, Canada and Australia. Food aid has effects similar to export subsidies. In addition to agricultural marketing and research expenditure, the GSSE also includes many general services for farmers, such as subsidies for rural electrification , housing , roads and irrigation systems . Such subsidies represent a significantly higher proportion of the TSE in the USA than in the EU.

Effects

Agricultural subsidies have a wide range of effects, some of which can also contradict one another. For example, subsidies for agricultural research lead to lower agricultural prices in the long term, while trade barriers raise domestic prices. Some agricultural subsidies correct market failures, like public agricultural research. Others serve to redistribute income to households in need. An important argument in favor of the initial introduction of agricultural subsidies was the lower standard of living of farmers compared to the rest of society. Today, however, this difference in income is seldom present in industrialized countries. In the United States, the median farm household income in the United States has increased above that of non-farm households in recent years. The maintenance of such subsidies is seen by many agricultural economists as a reaction to influential interest groups .

Income support for farmers is often justified by the concept of multifunctionality in agriculture, particularly in the EU and Japan. According to this argument, farmers receive the cultural landscape , but are not rewarded for it through the market. In Austria, high milk prices are sometimes justified by the sight of cows grazing on mountain pastures . One problem with this line of reasoning, according to Peterson (2009), is that farmers also cause negative externalities (e.g. eutrophication ) and that these can more than outweigh the positive ones. In addition, it would cost consumers and taxpayers significantly less if, for example, Austrian alpine farmers were paid directly for such services, instead of supporting many other farmers who do not provide these services via trade barriers and unspecific direct payments.

Price effects on the world market as a result of reforms (%)
product OECD (2007) World Bank (2006) FAPRI (2002)
wheat −0.014 to −0.27 5.0 4.77 to 7.60 | -
rice 1.61 to 1.92 4.2 10.32 to 10.65
Other cereals 1.73 to 1.83 7.0 5.67 to 6.23
Oilseeds −0.14 to −0.25 15.1 2.83 to 3.14
Oilseed flour −2.49 to −2.70 - 3.83 to 4.16
Vegetable oils 2.64 to 2.78 1.9 6.17 to 6.98
cotton - 20.8 2.93 to 11.44
sugar - 2.5 -
beef 0.86 to 2.86 - 3.28 to 3.77
pork meat 0.72 to 1.26 - 10.30 to 10.92
Dairy products 4.87 to 13.55 11.9 22.34 to 39.56

Agricultural subsidies can also have an impact on the world market . Agricultural economists (especially those of the OECD, the World Bank and FAPRI) have carried out many studies in recent years that measure such effects. Usually general equilibrium models are used for this purpose , in which the effects of policy instruments are simulated. An OECD study (2007) simulated a number of scenarios over the period 2004–2013 in which the OECD agricultural subsidies and / or trade barriers are each reduced by 50%. A study by the World Bank (2006) simulated the complete abolition of all agricultural subsidies and trade barriers over the period 2001–2015. A study by FAPRI examined a reduction over the period 2001–2011. The results show that liberalization would only result in major price changes in a few cases ( cotton , dairy products ). The World Bank's estimates for the sugar market are significantly lower than those from other studies. Elobei and Beghin (2006) come up with price increases of 27% to 48%; van der Mensbrugghe et al. (2003) to 21%. Cotton and sugar are important export goods in many developing countries, while grain and oilseeds are of significance for both producers and consumers in these countries.

All three groups agree that import tariffs and export subsidies have a greater impact on world market prices than the subsidies that do not directly affect trade. Van der Menbrugghe and Beghin (2004) estimate that complete liberalization of the world goods market (including agricultural products) would generate global income growth of US $ 385 billion, of which developing countries accounted for 196 billion. 265 of the 385 billion would come from the liberalization of agricultural trade, as the rest of the goods market is already more liberalized. Martin and Anderson (2006) come to the conclusion that 63% of the income growth (US $ 287 billion) to be created by a complete liberalization of world goods trade would come from the liberalization of agricultural trade.

Van der Menbrugghe and Beghin (2004) estimate that global income growth would only amount to 102 billion if only the industrialized countries reformed their agricultural policy. Developing countries would then only gain 10 billion. According to Martin and Anderson (2006), the benefits of trade liberalization in industrialized countries are just as great as those of liberalization in developing countries. Hertel and Ivanic (2006) estimate that removing trade barriers in developing countries would result in a greater reduction in global poverty than removing them in industrialized countries. These results imply that removing barriers to trade in agriculture in industrialized countries would generate profits primarily for industrialized countries. According to Peterson (2009), these studies also show that preferential treatment for developing countries (special and differential treatment) in the context of WTO negotiations to reduce trade barriers is not a good idea.

Peterson (2009) also suggests that the benefits of low agricultural prices for poor consumers in developing countries are often overlooked. Swinnen et al. (2011) compared statements by non-governmental organizations such as FAO , Oxfam or IFPRI regarding the importance of food prices for developing countries before the food price crisis 2007–2008 with corresponding statements after the crisis. It was found that, before the crisis, the negative consequences of low prices for producers in developing countries were emphasized and, after the crisis, the negative consequences of high prices for consumers in developing countries were emphasized.

United States of America

Agricultural subsidies in the US (US $ billion)
1986 1995 2007
Agricultural production 132.6 191.1 310.6
PSE 38.4 20.8 32.7
PSE / agricultural income (%) 24.0 10.0 10.0
Market price support in the PSE 12.4 9.3 11.8
GSSE 18.3 29.8 41.9
Marketing support in the GSSE 10.5 23.1 32.1
CSE −4.6 6.9 13.0
TSE 66.4 67.9 100.8
TSE from consumers 14.7 10.5 13.2
TSE from taxpayers 53.4 58.6 88.9
Government revenue −1.6 −1.1 −1.4

In 2007, the TSE in the USA was a good 100 billion US $. The PSE accounted for almost a third of this. The share of market price support in the PSE fluctuates depending on world market prices and was 36% in 2007. The share of PSE in agricultural income also varies with the economic conditions in the agricultural sector; since 1986 it has always been between 10% and 26%, and in 2007 it was 10%.

history

The general economic policies of the US government had indeed always impact on the agricultural sector, but only in the 20th century , a targeted agricultural policy emerged, which grew into a complex system of price supports, trade barriers, production restrictions and other measures. Agricultural subsidies were justified with the so-called farm problem . As a result, incomes in agriculture are lower and less stable than in other sectors due to weather fluctuations, slow growth in demand ( Engel's law ) and increases in agricultural productivity .

According to Effland (2000), US agricultural policy can be divided into four overlapping phases:

  • Land distribution (1785–1890)
  • Education and Research (1830-1914)
  • Information and marketing support (1870–1933)
  • Income support (1924-)
Since Thomas Jefferson (1743–1826) family businesses have been given special importance in the USA.

In the first phase, agricultural policy consisted primarily of land distribution measures, such as the Homestead Act (1862), which allowed people to take possession of unpopulated land. Political debates centered around the question of whether the government should sell land at high prices to bolster its budget, or whether the land should be divided up to a broad mass of family businesses at lower prices. The second idea goes back to Thomas Jefferson (1743–1826), who believed that democracy was safer when it was based on a large class of independent landowners. This theme of special concern for family farms runs through the history of US agricultural policy and has been used repeatedly as a justification for farm subsidies.

The second phase was characterized by public funding for agricultural research and education. Effland (2000) assumes that the established farmers in New England wanted to maintain their competitiveness, which was threatened by the new farms in the west, by increasing productivity. The Morrill Land-Grant Colleges Act (1862) created the basis for the Land-Grant Universities , in which in particular agricultural science was promoted in the states . Numerous agricultural research stations and information services have been established under the Hatch Act of 1887 and the Smith-Lever Act of 1914. This system was very effective in developing and disseminating new agricultural technologies.

The third phase was marked by growing concerns about income inequality between the agricultural sector and the rest of the economy. Towards the end of the 19th century , agricultural prices and incomes fell due to sharp increases in production. In addition, there was a wave of consolidation in other sectors, as a result of which monopolistic price behavior emerged. The Sherman Antitrust Act (1890) was passed to counteract these tendencies. Still, upstream and downstream companies were able to impose prices on farmers. In 1922 politicians responded with the Capper-Volstead Act to demands from farmers to exempt cooperatives from antitrust legislation in order to give them more market power . As a result, the number of procurement and marketing cooperatives rose from just under 7,400 to 10,800 between 1921 and 1926.

Effland's fourth phase was heralded with the collapse in agricultural prices after the First World War . The 1924 McNary-Haugen Farm Relief Bill was designed to support domestic agricultural prices through import tariffs and export subsidies. The draft failed despite several attempts, but elements from it were implemented in the Agricultural Adjustment Act (AAA) (1933). The concept of the “fair price” became central (doctrine of parity). According to this view, the parity index (ratio of prices that farmers receive for their products to the prices of means of production and other goods) should not decrease over time, simplified: a kilogram of wheat should always be able to buy a certain amount of non-agricultural goods. The doctrine of parity remained popular until the 1970s.

Agricultural subsidies since 1930

For decades, fallow land to restrict production and raise prices was part of US subsidy policy (field in Hardin County, Ohio ).

The AAA introduced the instrument of the nonrecourse loan , which is an effective minimum price . Farmers can take out a loan under this program at low market prices. If market prices rise again and the farmers then sell their produce, they would repay the loan, it was expected. If market prices do not rise, farmers could forego a repayment without losing their credit rating ; the government would then receive the harvest.

The AAA also introduced limits on arable land and animal numbers to raise the prices of grain, cotton and animal products. Originally, the management for such measures should be financed through a separate taxation of the food industry, but this was declared unconstitutional by the Supreme Court in 1936. Instead, payments were made to farmers who were tied to planting legumes and green manure in order to reduce the production of grain and row crops and to increase their prices. By the 1960s, these set-aside and soil conservation programs were an established part of US agricultural policy. Farmers have had to take parts of their land out of production in order to benefit from the government's price and income support programs. However, the attempt to control production volumes and prices by means of such closures has not proven to be very effective, since farmers mainly left marginal areas fallow and the remaining areas were cultivated more intensively. A reduction of 10% of the arable land only led to a decrease in the production volume of 2-3%.

In 1954, the Public Law 480 (Food for Peace) systematically stimulated the demand for agricultural products for the first time. Public Law 480 exports surplus food (often accumulated through loan programs) to developing countries at subsidized prices or as food aid in times of crisis. The Food Stamp Program to support poor domestic consumers became permanent in 1964 after an earlier instance (1939–1943).

Food aid at home and abroad not only helps poor consumers, but also US farmers, as it stimulates demand (Food Stamps of 1939).

Export markets became increasingly important in eliminating surpluses while keeping prices constant. In order to maintain these exports, the loans could no longer remain in parity, as world market prices were well below domestic prices. The loans were able to compensate for seasonal fluctuations, but no longer support income. In 1973 the Loan Deficiency Payments were therefore introduced. These were associated with lower loans. The amount of deficiency payments was based on the comparison of a fixed minimum price with the market price. This price difference was multiplied by a complexly calculated production volume, the product of which the farmers received as payment (in addition to the loans if the market prices were below the prices specified therein). Thus, low market prices could prevail, but at the same time agricultural incomes could be kept high. To the extent that the minimum prices caused a higher output, this instrument represented a subsidy from taxpayers to producers and consumers.

Loans, deficiency payments, land restrictions and demand stimulations remained in force until the Farm Bill 1996, although they have been varied several times in the meantime. Reform attempts were made in the 1990s because of concerns that agricultural policy was significantly distorting farmers' production decisions. In 1996 the production restriction programs were therefore suspended and the deficiency payments were replaced with decoupled direct payments, which were later to expire.

Agricultural prices were relatively high when the Farm Bill was passed in 1996, but fell again due to subsequent increases in production. In the Farm Bill 2002, some decisions from 1996 were therefore revised. The decoupled direct payments were not reduced and instead made permanent. Loans with higher minimum prices and counter-cyclical payments (CCP) were introduced, similar to loan deficiency payments, which were abolished in 1996. The 2002 Farm Bill received a lot of criticism. It was argued that the subsidies would mainly benefit large farms, but not smaller family farms. Others said that the subsidies it agreed on would lead to surpluses and low prices that would harm producers in developing countries, and that the focus on agricultural products would neglect broader rural development and nature conservation .

The 2008 Farm Bill contained only minor changes compared to 2002. Ranks of critics suggested limiting the maximum amount of subsidies that a farm could claim (according to the Environmental Working Group, the 20 largest farms each received more than 1.5 million euros in 2005). US $ in payments). While President Bush called for lower maximum amounts, Congressmen advocated significantly higher amounts. The loan programs, direct payments and CCP all continued with minimal changes. Farmers could choose between CCP and a new income-based program. This new program grants farmers payments when their income falls below a historical average. For the first time, horticulture was also subsidized. A mandatory designation of origin and improved monitoring of production contracts were introduced in the livestock sector. Direct payments are also made when market prices are above a level that would trigger loan deficiency payments or CCP. In addition to proposals to limit payments, the public debate surrounding the 2008 Farm Bill also contained proposals to expand the Food Stamp Program and other nutrition programs, to increase support for rural development and to replace traditional subsidies on goods with income insurance. According to the World Public Opinion (2007), most US citizens in agricultural and non-agricultural states prefer support for small farmers in crisis situations, but not support for large farms or support on a permanent basis.

Effects

The US cotton subsidies harm cotton producers in developing countries like Mali (2002).

The overall impact of US farm subsidies has not yet been estimated using general equilibrium models. However, there are studies on the effects of individual programs. Beghin et al. (2003) come to the conclusion that the world market price of sugar would be 13% higher if the sugar subsidies in the USA were abolished. Several studies found similar price effects from the US cotton subsidy, although one study found a smaller effect. There is also evidence that lower cotton prices in West African cotton exporting countries such as Benin and Mali are lowering producers' incomes and increasing rural poverty. Apart from sugar and cotton, several studies have shown that US farm subsidies have a smaller impact on world prices than EU and Japanese farm subsidies. This is because the US uses less trade barriers in its subsidies than the EU and Japan, for example.

In addition to these effects on the world market, the US agricultural subsidies also have effects in the USA. The original justification of the subsidies, the relatively low agricultural incomes, are no longer given. The median income of an agricultural household is now higher than that of a non-agricultural household. 72% of agricultural households (defined as having an agricultural turnover of more than US $ 1000) had an income above the non-economic median in 2004. 16% of all agricultural households received 73% of state income transfers in the same year. Key and Roberts (2007) found that agricultural subsidies, along with other factors such as technological progress , contributed to the growth of the average farm size. There are conflicting results on the effects of subsidies on income. This also means that subsidies increase the value of land, which is more useful to landowners than to tenants . Some instruments (e.g. loan deficiency payments) lower agricultural prices, while others (e.g. sugar and milk programs) increase them, so that according to Pasour and Rucker (2005) the effect on consumer prices is not clear either. In contrast, the 2006 government payments to producers cost taxpayers US $ 24 billion (less than 1% of total government spending). In addition, efficiency losses result from the market-distorting effects of the subsidies. The Government Accountability Office estimated the effect of sugar subsidies on income growth of US $ 1.05 billion for producers and costs of US $ 1.94 billion for consumers in 1998. With direct income transfers instead of sugar market policy, 890 could be achieved with the same income effects for producers Save US $ million. Babcock and Hart (2005) recommend replacing the various subsidy instruments with income insurance, as this would save considerable costs with the same effect on producer income.

Some commentators have linked the farm subsidies to obesity . According to this theory, subsidies to farmers lead to higher consumption of fattening foods by promoting the production of these foods and lowering their prices. According to a summarizing analysis by Alston et al. (2008), however, the subsidies have only very limited effects on the prices of sugar, starch and fat compared to fruits and vegetables . Second, small relative price changes in agricultural goods would mean even smaller changes in consumer prices. Third, food consumption is relatively price inelastic . The prices of food such as sugar, dairy products, orange juice , and beef are also supported by trade barriers in the USA, rather than being lowered. International comparisons show that the countries with the highest agricultural subsidies have relatively low obesity rates. In contrast, subsidies for agricultural research can have significant effects on relative prices. They thus have the potential to influence obesity rates, but they are a very blunt tool for combating obesity.

New Political Economy

Farmers are over-represented in the US Senate. As small groups with strong interests, they can also lobby effectively.

In the face of costly and distorting subsidies that tend to benefit larger farms and whose original justification (agricultural income disadvantage) no longer exists, scientists have investigated possible reasons for continuing this policy. For Pasour and Rucker (2005), some elements of the US political system are jointly responsible. In the Senate , the states are equally represented, which means that states with a small population and a large agricultural sector are overrepresented. According to Olson (1971), relatively small groups with strong interests find it easier to solve the free rider problem of collective action . With the decrease in the number of companies, the political organization of the group has further improved. The groups of taxpayers and consumers, on the other hand, are significantly larger and less organized. In addition, the individual consumer or taxpayer incurs significantly lower costs through subsidies than the individual farmer benefits from them. From this point of view, the continued agricultural subsidies are the result of successful lobbying .

Lobbying alone cannot explain why inefficient trade barriers and market interventions have so far not been replaced by direct income transfers. As chairman of the Council of Economic Advisers , Stiglitz proposed in the 1990s that the milk program (which is based on quantity restrictions) should be replaced by a system of direct payments that would not reduce the income gains of milk producers, but instead would lower consumer prices. The proposal was not accepted by the milk producers. One possible reason is that direct payments are more visible and therefore more difficult to justify politically.

Grossman and Helpman published a theoretical model in 1994 that can explain the political preference for trade barriers in support of a small group at the expense of the vast majority. In this model, politicians try to maximize the donations received and to be re-elected. Producers try to bring about political measures to protect against foreign competition through donations. The model has been successfully tested in several empirical studies. While Goldberg and Maggi (1999) found a relatively large influence of voters, Lopez (2001) and Gawande and Hoekman (2006) came to the conclusion that the influence of donations is significantly greater. Lopez estimated that one US $ in donation results in US $ 2,000 in subsidies. Gawande and Hoekman conclude that established US agricultural policy is difficult to change.

European Union

Agricultural subsidies in the EU (€ billion)
1986 1995 2007
Agricultural production 212.8 232.2 318.8
PSE 95.0 96.9 98.1
PSE / agricultural income (%) 42.0 36.0 26.0
Market price support in the PSE 83.5 56.6 35.4
GSSE 9.0 5.8 11.9
Marketing support in the GSSE 1.6 1.8 3.1
CSE −72.8 −50.5 −33.5
TSE 108.1 106.8 112.0
TSE from consumers 85.8 57.8 37.0
TSE from taxpayers 24.5 50.6 76.7
Government revenue −2.2 −1.6 −1.8

In 2007, the TSE in the EU was € 112 billion and has hardly changed compared to 1986, even though other states joined the EU during this period. Almost 100 billion of the TSE went to the PSE. The share of the PSE in agricultural income was 26% in 2007. As a result of reforms of the Common Agricultural Policy (CAP), the share of market price support in the PSE has declined significantly in recent decades; In 1986 it was 88%, in 2007 it was 36%. For the same reasons, the contribution of taxpayers to subsidies has increased significantly compared to the 1980s and that of consumers has decreased significantly. The CSE is strongly negative compared to the USA because the EU has no programs to support consumers similar to the Food Stamp Program.

history

When agricultural exports from North and South America as well as Australia and New Zealand entered the world market at the end of the 19th century , European agriculture was faced with stiff competition from these countries. Since land was less scarce in these exporting countries than in Europe, grain could be produced there cheaper. In some cases, there were adaptive reactions by European producers, such as switching to more labor-intensive goods (fruit and vegetables, animal products) in England , Denmark and the Netherlands , but mainly the Europeans reacted by setting up trade barriers. This protectionist policy was established through the Great Depression and the Second World War .

In the Federal Republic of Germany, extensive agricultural subsidies were decided in 1954 as part of the Green Plan .

Agricultural subsidies since 1962

With the signing of the Treaty of Rome in 1957, the six founding members of the European Communities agreed on the communitarisation of agricultural policy, which came into force in 1962.

The first phase of the Common Agricultural Policy (CAP) from 1962 to 1992 was characterized by price supports that were enforced with the help of intervention prices , import levies and export refunds . These policies created excess production and high costs. The MacSharry reform (1992) changed the CAP significantly and replaced many price supports with direct payments. These steps were also motivated by the Uruguay Round , although protectionism remained high. The Agenda 2000 (1999) and the mid-term review (2003) more walked market price support to direct payments into decoupled. The mid-term review also allowed the member states more leeway in implementation than previous reforms.

Effects

The sugar beet cultivation in the EU would be adversely affected by reforms, since sugar more efficiently from sugarcane can win (picture from the West Flanders , 2010).

The CAP is particularly damaging to producers in some exporting countries. At the beginning of the CAP, 72% of the food imported into EU countries came from outside the EU (mainly Canada , USA, Australia and New Zealand); In 2006 it was 18.2% due to the CAP. In the early 1960s, the EU-15 imported more grain, oilseeds, sugar and animal products than they exported. In the 1980s, the EU was a net exporter of these goods with the exception of oilseeds, which the CAP exempted from protectionism. Canadian, US, Australian and New Zealand producers in particular recorded losses due to EU agricultural subsidies.

Producers in developing countries were less affected by the CAP than producers in Canada, the USA, Australia and New Zealand and have benefited in part from it. ACP producers have mostly benefited little from preferential trade agreements, but the benefits for some sugar exporters have been clear. The CAP also had indirect benefits for some developing countries, as it put trade barriers on imports of grain but not on oilseeds and products such as corn gluten and other by-products or cassava flour . These products replaced some of the more expensive grain in animal feed due to the trade barriers in the EU. Producers of these goods in developing countries such as Indonesia and Thailand benefited from this .

Winters (2005) estimates that the complete elimination of EU agricultural subsidies would have relatively minor price effects. Producers in some developing countries would benefit from the elimination of the CAP, while rising food prices would hurt consumers in other developing countries. According to other analyzes, the effects on global production and prices would also be small.

The effects of the CAP are most significant within the EU. Anderson et al. (2006) estimated that a complete elimination of global agricultural subsidies would lead to a 12.3% decrease in agricultural production in the EU by 2015. Agricultural employment and land prices would also decline. According to Berghin and Aksoy (2003), breaking down trade barriers would primarily harm producers of cotton, dairy products and sugar, while consumers would benefit from sugar and dairy products. Similar shifts in benefits would result for cereals, oilseeds and beef, although the strength of the effects would be less. According to most analyzes, the gains made by consumers would be greater than the losses made by producers.

New Political Economy

The fact that the EU agricultural subsidies exist despite social costs is partly explained by lobbyism on the part of producers. Several analyzes have characterized the political process on two successive levels. First, a policy direction is determined at the national level, which is then represented at the European level. At the European level, agreements are usually based on the lowest common denominator (i.e. the smallest reform steps). This was evident at the beginning of the CAP. Henning (2004) argues that the Council for Agriculture and Fisheries always makes rather protectionist decisions, since every minister has a right of veto. Ministers with a less protectionist stance would not reject more protectionist proposals, as protectionism secures the political backing of producers in their own country.

Japan and Korea

With the argument of food sovereignty , Japanese farmers protest against the dismantling of import barriers during the 2005 WTO ministerial conference in Hong Kong . Japan's agricultural trade barriers are among the largest in the OECD.
Agricultural subsidies in Japan (billion yen )
1986 1995 2007
Agricultural production 11,171 10,388 8,504
PSE 7,726 6,841 4.149
PSE / agricultural income (%) 65 62 45
Market price support in the PSE 6,973 6.228 3,533
GSSE 1,164 2,314 1,187
Infrastructure in the GSSE 1.004 2,085 981
CSE −9.013 −8,778 −4,642
TSE 8,877 9,182 5,338
TSE from consumers 9,028 8,801 4,646
TSE from taxpayers 2,171 3,045 1,806
Government revenue −2,322 −2,664 −1,114

Japan and Korea's agricultural subsidies consist primarily of trade barriers, especially in rice . The price of rice in Japan and Korea was more than three times the world market price in 2007, and more than six times in 2000. At the same time, Japan was the largest net importer of agricultural products in 2007.

Rice has an important cultural meaning. According to Ohnuki-Tierney (2004), the Japanese consider rice to be a central foundation of Japanese civilization and a symbol of beauty, peace, the human soul and the divine. In addition, self-sufficiency is seen as an important element of food security. Many Japanese and Korean analysts see a risk in a low or falling level of self-sufficiency. Kako (2000) fears that Japan and Korea could experience food crises during military, political and economic conflicts. A hostile power could relatively easily block the import of food because of its geographical location.

Rice accounted for 36% of market price support and 30% of PSE in Japan in 2007. In Korea the proportions were 26% and 24%, respectively. In addition to rice, animal products, other grains, oilseeds, and fruit and vegetables are subsidized. In the 1970s, there was a trade dispute between the US and Japan over Japanese import restrictions. The US eventually filed a complaint. In the late 1980s these were recognized as violations of the GATT and Japan significantly reduced its barriers to some agricultural products. As a result, Japanese beef imports increased by 130% between 1988 and 1996, while milk, tomato and apple juice increased even more. Korea also lowered its substantial import barriers significantly in the 1980s. In the case of rice, both countries maintained de facto import bans until they granted a certain market access (below 10% each) with the Agreement on Agriculture.

Market price support accounts for between 85% and 100% of the PSE in both countries. The costs are borne primarily by consumers and not taxpayers. The share of the GSSE in the TSE was relatively low in 2007 with 22% (Japan) and 15% (Korea). Japan's PSE has been falling since the 1980s, while Korea's PSE increased sharply in the 1980s and 1990s.

Australia and New Zealand

New Zealand Farm Subsidies ( NZ $ million )
1986 1995 2007
Agricultural production 6.322 9,215 15,683
PSE 1,511 142 112
PSE / agricultural income (%) 20th 2 1
Market price support in the PSE 130 84 51
GSSE 230 150 267
Research and development in the GSSE 108 108 92
CSE −139 −75 −55
TSE 1,741 292 379
TSE from consumers 139 75 55
TSE from taxpayers 1.611 217 329
Government revenue −10 0 −4

Australia and New Zealand have almost completely eliminated their agricultural subsidies since the 1980s and now have the lowest subsidies of any OECD country. The reforms have led to increased incomes, increased productivity and lower risks for farmers. Both countries have comparative cost advantages in dairy products, beef and lamb , wool and wheat .

Historically, both countries have had close ties to the United Kingdom , which used to take up the majority of agricultural exports. In 1940 Britain bought 90% of New Zealand's goods exports. With the entry of Great Britain into the European Community , the close trade ties began to weaken. In 2006 Britain's share of New Zealand's agricultural exports was 6%. In the second half of the 20th century, Australia and New Zealand began to develop new markets in Asia and North America . In 2006, 33% of Australia's goods exports went to the People's Republic of China and Japan.

An Australian farmer receives on average less than 5% of his income from subsidies (tillage in the Western Australian Wheat Belt ).

Due to the great importance of agricultural exports in both countries, their agricultural policy traditionally aimed at efficiency and competitiveness as well as income stability with fluctuating world market prices. Before the reforms in the 1970s and 1980s, agriculture was heavily regulated in both countries. An analysis by Anderson et al. (2007), Australia's low economic growth in the post-war period was partly a result of the disadvantage of the export-oriented agricultural sector compared to the industrial sector. New Zealand began with a protectionist agricultural policy in the 1930s, which resulted in heavily distorted input and product markets. Both countries made considerable use of marketing boards. These state-owned organizations are legal monopolies to stabilize revenues when prices fluctuate. They were founded in Australia and New Zealand in the 1920s and 1930s and for a long time controlled the trade in dairy products, wool, lamb and beef, and wheat. For example, in 1939 the Australian Wheat Board (AWB) received the right to buy and market the entire Australian wheat crop. The AWB set the purchase prices on the basis of production cost estimates and saved possible profits to support prices in years with low world market prices.

Australian reforms began in the 1970s and proceeded gradually. In 1989 the internal marketing of wheat was privatized (but not exports) and in 1999 the AWB was privatized . The reform of the dairy sector began in 1986. In 2000 the milk price support ended. To cushion the restructuring, milk producers received financial support. In 2007, decoupled direct payments made up about half of the direct payments; there was no market price support.

In New Zealand, reforms came about very abruptly after the economic crisis of 1984. Input subsidies and price supports were eliminated, although some of the state export organizations remained for the time being. Today only the exports of dairy products and kiwi fruits are regulated. The main part of the TSE in New Zealand consists of GSSE, mainly agricultural research, inspection and infrastructure.

Effects of the reforms

New Zealand's reforms have led to an increase in cattle farming and a decrease in sheep farming (Cattle in Taranaki , 2009).

The substantial cuts in agricultural subsidies resulted in structural changes in agriculture in Australia and New Zealand. Resources migrated from less competitive branches of production to those with comparative cost advantages. The number of Australian dairy farms decreased, the average farm size grew, operators diversified their sources of income and productivity gains resulted in an increase in milk yield per cow of nearly 50%. In New Zealand, sheep production decreased in favor of cattle and milk production . The exports of wool and sheep meat decreased and all other export goods increased - sometimes strongly -.

McCorriston and MacLaren (2007) argue that the reforms of the Australian wheat market have been incomplete and therefore have not increased the competitiveness of Australian wheat production or brought social benefits. Overall, most scholars see a positive overall benefit from the reforms in both countries. Some farmers have had to give up agriculture, but those who remain have achieved significant increases in productivity and at the same time reduced negative environmental impacts, as fewer chemical means of production were used and the cultivation of marginal areas declined. In New Zealand the number of farms increased and new branches of production emerged that took advantage of market niches, such as the farming of deer , ostrich and emus , the production of ornamental plants , fresh fruit, wine and olives . Wine production in the two countries has more than tripled since the 1970s.

Agricultural subsidies in developing countries

Many developing countries subsidize imports and tax exports to keep food prices down. Here, Argentine farmers protest against an increase in export taxes (2008).

In developing countries, the focus of agricultural policy has traditionally been on subsidizing food prices. When prices are high, there is a risk of unrest, especially in cities. Food exporting developing countries (e.g. Argentina , Brazil , Thailand and Indonesia ) have introduced export restrictions with a view to keeping prices low . Food- importing developing countries (e.g. Algeria , Egypt , Namibia , Mozambique , Bolivia and Haiti ) resort to import subsidies, overvaluation and food aid. Many of these policies create inefficiencies and lower the incomes of local farmers. The 1986 World Development Report stated that poor countries tend to do the opposite of rich countries: They tax agriculture, promote imports and curb exports. As their economic development progresses, developing countries reduce this taxation and start subsidizing agriculture. In Brazil, this process reached its tipping point in 2000 when the PSE first turned positive.

Some emerging economies like China have switched from taxation to subsidizing agriculture (fields near Beijing ).

Overvaluations make imports cheaper and exports more expensive for other countries. Overvaluation leads to unsustainable imbalances and led to financial crises in many developing countries in the 1980s and 1990s. In addition to overvaluation, food aid from industrialized countries contributed to low agricultural prices in developing countries. Some countries (e.g. Tunisia ) also use import subsidies. The import-substituting industrialization increased the disadvantage of domestic agriculture. Last but not least, farmers in many developing countries were heavily taxed, especially through export taxes on food (e.g. in Thailand or Argentina). State marketing organizations for export goods such as bananas , coffee , tea , cocoa and palm oil also serve this purpose . On the other hand, the governments of many developing countries tried to stimulate domestic agricultural production . Since goods prices were heavily skewed downwards, states made use of subsidies for inputs such as irrigation, fertilizer and loans . In the 1980s, fertilizer subsidies of 30% to 90% of the price were common in developing countries. These subsidies have not only put a strain on national budgets, but have also led to the overuse of chemical inputs and unsuitable technologies and the inefficient use of scarce resources.

In the 1980s, a reform of agricultural taxation in many developing countries began as part of the structural adjustment programs. The 2008 World Development Report estimates that net taxation in a representative group of food-importing developing countries was cut in half between the early 1980s and the early 2000s. Export taxes fell from 46% to 19%. Macroeconomic reforms have raised producer prices for exporters. Similar trends can be observed in less agriculturally based economies. In many urbanized countries (e.g. Brazil, Mexico , Malaysia , Ukraine) agricultural taxation has been replaced by agricultural protectionism. Brazil and China taxed agriculture until the early 1990s, but then began subsidizing farmers and taxing consumers. Farmers in South Africa, Turkey , Ukraine and Russia have been subsidized since the 1980s. In all of these countries the share of subsidies in agricultural income is relatively low at 6–21%. Turkey, Russia and South Africa primarily use trade barriers in the PSE, while these are less important in Brazil and China.

Like the governments of industrialized countries at the beginning of the 20th century, the Chinese leadership sees a key problem in the beginning of the 21st century in a slower growth in agricultural incomes compared to non-agricultural incomes ( San Nong ). In addition, grain production is to be boosted. According to an analysis by Yu and Jensen (2010), the most recent policy changes have already contributed to the achievement of the two goals of agricultural income growth and increasing grain production. In the future, China could pursue both goals by exhausting all the support measures permitted under the WTO rules; the alternative of a subsidy policy based on decoupled direct payments would only affect income, but not production and trade.

Agricultural subsidies in emerging economies, 2005 (million)
Brazil ( Real ) China ( Yuán ) South Africa ( Rand ) Turkey ( Lira ) Russia ( ruble ) Ukraine ( hryvnia )
Agricultural production 170.966 3,292,420 71,816 75,150 1,210,507 91,429
PSE 10,607 291,777 6,560 17,468 197.051 11,256
PSE / agricultural income (%) 6th 8th 9 21st 15th 12
Market price support in the PSE 2,941 103,407 5,501 11,278 133,568 4,949
GSSE 4,878 137.021 3,857 804 28,112 3,259
Research and development in the GSSE 787 4,679 1.997 44 2,792 191
CSE −3.507 −128,654 −5.503 −8,340 −128,556 −6,298
TSE 15,979 428,892 10,417 18,272 225.163 14,514
TSE from consumers 6.361 146.220 5,503 8,723 115,747 6.094
TSE from taxpayers 10,180 302.011 5,667 9,031 107,350 9,739
Government revenue −562 −19,339 -753 517 2,066 −1,319

India reduced agricultural taxation in the 1990s and was already slightly protectionist in 2002. A similar trend from taxation to subsidization was evident in Vietnam . Agriculture has been subsidized in Indonesia since 1990, and similar developments have been recorded in Malaysia. Chile liberalized its trade and agricultural policies in the 1970s. In addition, there is considerable variation in the group of developing countries in terms of agricultural subsidies. Overall, however, net taxation has declined over the last 30 years, from 28% to 10% in agricultural economies and from 15% to 4% in countries in the process of urbanization. Urbanized developing countries subsidize an average of 9%.

Reform scenarios and welfare gains

The developing countries as a whole would benefit from a further reduction in trade barriers, as farmers could obtain higher prices (rice farmers in Halong Bay ).

Trade barriers create more distortions than direct payments. This knowledge, together with the world trade rounds, have resulted in comprehensive analyzes of the consequences of possible liberalization scenarios for agricultural trade. Full trade liberalization would bring the greatest global welfare gains. Rosegrant and Meijer (2007) and Dimaran et al. (2007) agree that industrialized countries would also reap great welfare gains if only developing countries were to liberalize their trade policy, although developing countries would also benefit from such a scenario. The reverse is also true: If only the industrialized countries were to liberalize their trade policy, there would be greater profits for the group of developing countries, but at the same time - albeit smaller - profits for the industrialized countries. On the other hand, according to Vanzetti and Sharma (2007), the developing countries would lose overall if only the industrialized countries were to liberalize, since in this scenario the preferred trade agreements would also disappear. According to this study, developing countries would benefit most from a scenario in which they simply remove their trade barriers. According to the analysis by van der Menbrugghe and Beghin (2004), trade liberalization in a given country would benefit that country most. The benefit gain for the developing countries would be US $ 129 billion if all countries were to liberalize, but only US $ 10 billion if only the industrialized countries were to liberalize. Huff et al. (2007) cite several studies that come up with similar results in terms of global welfare gains through the dismantling of agricultural trade barriers of over 100 billion, which are similarly divided between developing and industrialized countries. Studies by Anderson, Martin and van der Mensbrugghe show welfare gains of US $ 287 billion in 2015 as a result of the complete abolition of all global barriers to trade in goods, of which 60% came from the liberalization of agricultural trade. The greatest benefit would be for the developed world. In developing countries net profits of US $ 85 billion would arise: Consumers would lose 30 billion due to higher prices, farmers and exporters would gain 115 billion.

Taxpayers and consumers in industrialized countries would benefit from the abolition of agricultural subsidies (milk in a Japanese supermarket).

Although the group of developing countries as a whole would benefit from a liberalization of global agricultural trade, the profits would not be evenly distributed. With trade liberalization, prices would rise, particularly for cotton, sugar and dairy products. The argument that farm subsidies in rich countries help poor consumers in food insecure developing countries is sometimes used in defense of these subsidies. Thompson, Smith, and Elasri (2003) estimate that a further decrease in OECD agricultural export subsidies would lead to a 0.1% to 0.3% decrease in calorie availability in food insecure developing countries. According to a simulation also carried out by the authors using a general equilibrium model, however, food security would increase slightly in food-insecure developing countries. Hertel et al. (2006) estimate that the liberalization of agricultural trade in rich countries would significantly reduce poverty in 13 of the 15 developing countries studied despite rising food prices. According to the authors, the only losers from liberalization would be farmers in rich countries.

Nevertheless, increases in food prices as a result of the liberalization of agricultural trade in rich countries can, at least in the short term, lead to problems for poor consumers in developing countries. On the other hand, many poor in developing countries are themselves agricultural producers who can benefit from rising agricultural prices as a result of liberalization. Peterson (2009) also points out that there are more effective measures to reduce poverty and hunger than agricultural subsidies in industrialized countries. If the OECD countries were to use their agricultural subsidy expenditure to directly support food-insecure population groups in developing countries, this could possibly have a greater effect on poverty and hunger-reducing than by supporting farmers in industrialized countries.

In contrast to the trade and incentive-distorting support for agricultural incomes in industrialized countries, the state provision of public goods and the fight against market failures are often inadequate, especially in developing countries. The authors of the World Development Report 2008 called for higher spending on agricultural research, infrastructure, information, education and health . Inadequate property rights , corruption and weak legal systems also hampered agricultural development.

literature

Web links

Individual evidence

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  117. ↑ Peterson, pp. 228-9