Bush to Drop Farm Subsidies if EU Does the Same

[Lestat]

@ Fiona: I'm not reacting for the moment, cause I'd like to read first the linked text and I'm preparing tests for recruitment of a driver. Discussion will be continued.
Food for thought though: remember that the CAP does not cover all agricultural products (notable exception: potatoes), and does include some non-food products as tobacco...
I'll try to find some up to date info on the Commission's site (though it is notoriously difficult to navigate).

Edit: I'm not so sure about the potatoes anymore (though some important price fluctuations are clearly allowed), but found that some other crops oh so typical for our temperate climates are included: rice & cotton. Alas no real time google and search around.

[Luis Antonio]

Don't even get me started on Europe's agricultural subsidies. Unfortunately I am convinced we will never learn whether Shrub bluffs or or not since I believe the EU would prefer to sink in the Atlantic rather than allowing a free market for agricultural products.

Why? Both economies are known to subside their agricultures to insane levels. Brazil has a serious lack of competitivity because of the european subsides, and we have been trying to disrupt this... lets call "habit" for years, without success. If Shrub can do that, it'll be the only good thing he did in his whole government.

Agreed. Too many votes in certain nations that have gotten used to those agricultural subsidies over the years. I'm sure Bush knows that as sensitive as the EU is right now to the recent constitution rejection, they're not about to drop farm subsidies.

Yeah, Shrub knows. And EU wont drop the subside without a major change in the market policies for commodities. But that COULD be good for both, if other economical barriers were lowered. I'm not an EU economy expert but I'm sure that tons of agreements could happen to lower those "habits" and, lets say, unlock many barriers for the whole world. And I'll add my personal opinion here: were not EU so conservative about their own commodities barrier, we would not have such problems when diseases are spread in the fields and shorten the supply of food to their own table.

The EU will not get rid of the CAP for the next 20 or 30 years. Plus Bush knows that. Even though Bush is pro-free trade, his vote base is agriculture. So he won't do it. Plus with CAFTA he has knocked out the US sugar industry so he won't be dumb enough to eliminate 20 billion dollars in subsidies. Plus this flies in the face of WTO negotiations that were conducted just last year.

Fas, I cant disagree with your comment regarding the market, but see, BUSH IS COMPLETELY PROTECTIONIST. He'd close US market if he could. We're lucky he's not Emperor of the US. Alas, when he was elected, between us economists there was the rumor of bad news for commerce. Then he was re-elected, and we were certain that those were bad news for commerce.

[Lestat]

Oh well another quick contribution: for those who want to know more about the effects the CAP has in developing countries, check out Oxfam's site (http://www.oxfam.org) and use their search function with the terms CAP or Common Agricultural Policy, and you'll get a wealth of information. Since internet is rather slow here, I do not have the time to parse through it, but if you need any convincing, look there.

And just as a little extra, I looked in my cupboard and what did I see on my can of NIDO? "Prepared in the UK".
So if you were wondering what happens to those surpluses of milk and wheat and such: subsidised by European taxpayers they are transported to developing countries and dumped on their markets, neatly undercutting (or annihilating) local production. And in the case of milkpowder, sometimes replacing breastfeeding...

[Cuchulain82]

@Fiona, Lestat

I can't jump into the debate about the European CAP because I know nothing about it. However, I can talk a little about US farm subsidies, and my understanding is that they are far more destructive on the global scale than Euro subsidies.

The US produces a huge amount of food annually. Agribusiness here is so efficient at growing and the land is so perfect for cultivation that we make food like no one else in history. This isn't American bravado, it is a basic truth. Have you ever looked at a map of the US? The central part of the country is basically flat, with whole states (ie: Kansas) devoted in large part to growing or producing food- corn, soybeans, wheat, cattle, etc. IMO, this is a truly amazing feat, and I have heard it said that theoretically, the US could feed the entire world (this is far fetched, and usually involves every person being a vegetarian).

I say all this because the agribusiness of the US is so efficient at growing that they have become inefficient from an economic standpoint. Agribusiness is very capital intensive (as Lestat said)- big tractors, fertilization methods, irrigation, etc. This capital-intensive approach means that farmers have been able to produce more food, and anyone who has taken macro economics 101 knows that when there is a surplus of a product in a market, price goes down. So, farmers make up for the drop in prices by... producing more crops to cover their losses! Essentially they make up profit margin with volume. You can see where this is going.

Now, in a free market, eventually supply would outpace demand until farms couldn't compete, went out of business, and the relationship stabilized. However, because the US has farm subsidies, this can't happen. The subsidies establish an artificial price floor. The market can't ever fix itself, and so farmers keep overproducing milk, wheat, etc.

So far this is just bad domestic economics, but when you look at it in a larger context things really get messy. Because we here in the US subsidize our farmers (to the tune of $26 billion, btw), global prices for goods go into freefall. This hurts developing nations the most; with lower cost of labor and a majority of the population in agriculture, lesser developed nations (ie: most of subsaharan Africa) should be competitive. However, the subsidies here keep global prices too low for them to compete.

The best example of this that I know of is cotton. When I read a report about this a few years ago, the global price of cotton was around 26 cents/unit African nations, like Burkina Faso and much of Western Africa, should be competitive when cotton prices are 30-37 cents/unit. US producers of cotton were generally at or under that 26 cent price with farm subsidies included. However, when subsidies were removed, it was estimated that US producers priced cotton at 50-70 cents/unit- clearly not competitive. So, by my calculations, we are taking money from poor Africans.

(an article I found about cotton while googling- Oxfam)

Furthermore, most often farm subsidies work by the government buying goods at an artificially high price. This means that the government ends up with huge amounts of excess food that they can't get rid of domestically- cheese, butter, grains... all filling up warehouses across the US. Usually what happens to this food (the stuff that doesn't go rancid, that is) is that it gets used as... food aid abroad! This food aid goes abroad to nations that, because of us, can't compete globally in agriculture. These nations, often full of the stereotypical "starving africans", accept the food because they basically have to: their people are starving and they don't want to get in to trouble with the US politically. So, a cycle of dependance is established- the countries can't compete because we subsidize food, so the food becomes food aid that is sent to those countries that can't compete. You know that proverb about giving a man a fish and feeding him for a day, or teaching him to fish and feeding him for his life? We're definately giving them fish and deliberately keeping them from fishing.

Many people argue that these subsidies are equal parts domestic voter politics and international power play. Agribusiness lobbies are very powerful here, so subsidies don't ever go away. Plus, food aid is a valueable point of leverage internationally. Is it devious? Yes. Does it make sense? Yes. Do I think it should be undone? Absolutely.

Anyway, I hope this all makes sense. I wanted to back up my previous statement about how important undoing agricultural subsidies would be.

If anyone is still interested, here is another study I found about the impact of subsidies on developing nations:

http://www.ifpri.org/media/trade/tradebrief.htm

@Fiona

If you have any more questions about posting, don't hesitate to ask. I'm sure you will get the hang of it.

[Lestat]

@ Cuchulain: basically the CAP works the same and has similar effects. But you are clearly better at explaining.

Secondly, I'm working from my current and recent personal experiences and memory of my studies (MSc Agronomy + additional studies Business Economics) and have no access to written sources (my litterature on the subject is at a few thousand miles distance). Internet access is slow (a GB page takes at least a minute to load, if I am lucky...) so it takes too much time to do a thorough surfing search for info. So, sorry if my info is a bit hazy on detail.

[Jaypee]

I hope that this does not happen. Farming cannot compete globally in Finland without subsidies and I like to eat food produced in here. Even if it's more expensive. Call me paranoid, but I'm suspicious of the preservatives, additives and hormones that they use in foreign countries to pruduce food. Of course at least some those things are used in here too, but it's still nice to know that the food you eat is locally produced and extremely tightly regulated.

Also if the EU subsidies are dropped out the local governments in Northern Europe (where crops just don't grow too fast) just add up more to their portion of subsidies. Local farming is also a issue of national security, you must have an option to produce food quickly in a time of crisis.

[Cuchulain82]

@Lestat

Thanks for the compliment! I figured you had it under control... I just wanted to say my piece.

[QUOTE=Jaypee]I hope that this does not happen. Farming cannot compete globally in Finland without subsidies and I like to eat food produced in here. Even if it's more expensive. Call me paranoid, but I'm suspicious of the preservatives, additives and hormones that they use in foreign countries to pruduce food. Of course at least some those things are used in here too, but it's still nice to know that the food you eat is locally produced and extremely tightly regulated.[/quote]
That's the whole point of a market-based solution. If you want to buy something, you will be able to. It is just that the market will set the price, not the gov't. Furthermore, agribusiness will be hard hit by a reduction, not small farms. The general concensus is that they will be able to survive because they have a geographic advantage (ie- the local market) and aren't as capital intensive.

[quote="jaypee]Local farming is also a issue of national security"]
That is a major justification that Bush uses to keep subsidies in place.

[Lestat]

[QUOTE=Jaypee]I hope that this does not happen. Farming cannot compete globally in Finland without subsidies and I like to eat food produced in here. Even if it's more expensive. Call me paranoid, but I'm suspicious of the preservatives, additives and hormones that they use in foreign countries to pruduce food. Of course at least some those things are used in here too, but it's still nice to know that the food you eat is locally produced and extremely tightly regulated.[/QUOTE]

Sorry, but most of your fresh produce will continue to be produced in Europe, with or without subsidies. Fresh produce is not that easy to transport over long distances. And there is such a thing as labelling. In Belgian supermarkets you'll find a whole lot of products specifically labelled with a "Dit is Belgisch!" (This is Belgian) label. So if you prefer local produce and want to pay extra for it, well, you're probably not the only one, so there will be market for it, so people will produce. But other people might prefer to pay less and go for a foreign product, if it costs less.
And the biggest scandal is in fact that because of the subsidy system, food products are exported from Europe to be dumped on the markets of developing countries.

[Fiona]

I haven't got a lot of time just now so I'll just make a couple of points here:

1 @ Lestat.We are blaming a lot on subsidy. From article linked in your post there is a lot of support for what you say. I was interested in this quote however "Until the early 1990's Jamaican farmers were largely protected from these subsidised imports and the sector was doing well. But when the government was forced to liberalise imports as part of World Bank-led adjustment policies, dairy farmers began to suffer". Import tariffs and protectionism have been effective ways of developing an economy from the UK in the 19th century to Japan and Korea in the 20th. The free marketeers are now successfully forbidding this, with the results we see. Although Oxfam are taking the line you suggest, I am not sure they are right. Maybe they think it is all they can get. As I said before I think the "solution" is maybe part of the problem.

2. @ Cuchulain 82. You say that the surplus production is the reason for the dumping. The ERS USDA report on food security for 2003 reported that 11.2 % of US households suffered food insecurity that year and 3.5% suffered hunger. That is apparently 3.9 million people. It would seem that abundance doesn't account for the exports, or am I missing something ?

You mentioned economics 101. I did that. One of the main things I learned was that this model only works if you lose reality completely. The demand/supply relationship is absurd. People who cannot afford to buy a commodity at all are left out of the measure of demand. So people who are starving are not demanding food - too scientific for me, I'm afraid

On your other point - Please excuse the exclamation mark. I hit it accidentally and I can't get it out. Any tips on cut and paste? I had to type that quote as I couldn't copy it. Thanks in advance

[Cuchulain82]

[QUOTE=Fiona]@ Cuchulain 82. You say that the surplus production is the reason for the dumping. The ERS USDA report on food security for 2003 reported that 11.2 % of US households suffered food insecurity that year and 3.5% suffered hunger. That is apparently 3.9 million people. It would seem that abundance doesn't account for the exports, or am I missing something?[/quote]
Well, you're not really missing anything, you're just correlating two sets of unrelated data. Unfortunately, the large amount of food that the US sends abroad as food aid has nothing to do with domestic hunger/malnutrition. Domestic programs dealing with hunger (ie- foodstamps) are seperate from foreign aid. I agree with your underlying point- that if we are sending food abroad, every domestic citizen should be well fed. However, the situation is complex and I don't think there is an easy answer.

[QUOTE=Fiona]You mentioned economics 101. I did that. One of the main things I learned was that this model only works if you lose reality completely. The demand/supply relationship is absurd. People who cannot afford to buy a commodity at all are left out of the measure of demand. So people who are starving are not demanding food - too scientific for me, I'm afraid[/quote]
Well, you're partially correct, but not completely. Classical econ is absurd, as Keynes proved- ie: before him economists thought that a prolonged defecit was impossible, and the great depression blew that myth up.

However, the demand-supply relationship is very real- remember all those graphs with X's shifting up and down and left and right? That is demand and supply. In this case the important factor is the price floor that subsidies create. The subsidies create a situation where excess supply is sustained. The ripple effects of this (artificially low world price, the inability of LDCs to compete, etc.) are what kills African nations.

[QUOTE=Fiona]On your other point - Please excuse the exclamation mark. I hit it accidentally and I can't get it out. Any tips on cut and paste? I had to type that quote as I couldn't copy it. Thanks in advance[/QUOTE]
I use the "quote" button most of the time. That copies the text of whatever was written in the post you are quoting. Other than that I just use the "copy" and "paste" functions in my browser's "edit" menu. If you want to figure out the nuts and bolts of what happens when you change your posts, try editing an old post of yours and seeing what happens- making it bold, then deleting one of the two "" sections. You're doing just fine now, and I'm sure you'll master it shortly.

[Vicsun]

Sorry for addressing points that have already been addressed, but an extra 2c are still an extra 2c, right?

I hope that this does not happen. Farming cannot compete globally in Finland without subsidies and I like to eat food produced in here. Even if it's more expensive. Call me paranoid, but I'm suspicious of the preservatives, additives and hormones that they use in foreign countries to pruduce food. Of course at least some those things are used in here too, but it's still nice to know that the food you eat is locally produced and extremely tightly regulated.

What you want is a non-economic trade barrier. Such barriers are already in place (i.e. Europe won't import genetically modified food, or anything that some commission doesn't deem 'safe'). Using subsidies for the role you're describing is highly impractical.

Local farming is also a issue of national security, you must have an option to produce food quickly in a time of crisis

This is the only semi-valid excuse, but it's a purely political one and for that matter I don't want to get into it right now. Sufficient to say, I don't think it's plausible that all food-producing countries will boycott countries not producing food.

I would be grateful if someone could explain all this to me. Obviously most of the people who have posted here know about farm subsidies and are against them. It is not clear to me why they are seen as clearly bad and I would like to know more of the arguments. In particular:

I see that 80% of the subsidy goes to large Agribusiness farms. Is this true in every country which gives subsidy? Is it possible that this is only true in countries where other pressures have led to centrilisation in agriculture. For example that process followed the "cheap food" policy pursued in the UK before that country joined the EU. That was nothing to do with the CAP but it did meant that when Britain joined the large farmers benefited most as they were also the biggest sector in the business. Could the CAP work better if it was implemented before that change had started?

Who in Europe benefits from the subsidies is to a large extent irrelevant, I think.
Since farming is capital-intensive and an industry that generally benefits from economies of scale (i.e. costs per unit lower as size of firm [farm] increases), the most efficient and competitive farms would be the largest ones so in capital-rich Western Europe it would make sense that most farms are large, explaining the figure and suggesting that the rest of Western Europe would follow the same trend (when 90% of food is produced in large farms it'd make sense if a lot of the benefits went to those large farms). However, if the subsidies were lowered it'd be most likely the small and thus ineficient farmers that will burn, meaning they're the ones benefitting the most.
Regardless of who exactly the subsidies are supporting the most, the fact is they're encouraging inefficiency and waste. Those who would be unable to compete at the world prices are better employed somewhere else.

In France I have noticed a very wide range of food options and a diversity of outlets even in the smallest places. This does not exist in the UK where small villages and towns; and even poor parts of cities are food deserts where little is available and what there is is expensive. What role does the CAP play in this difference?

I very much doubt it. I think it has a lot to do with local tastes and culture. If the small English villages were willing to pay for a diverse range of foods, there would be some enterpreneur who would deliver them.

If food subsidies are removed then what evidence is there that food prices will fall.

Cold economic theory

On the face of it this doesn't make sense to me since the costs of importing food are surely fairly fixed. If a country cannot produce what it needs it must import. Even leaving aside the environmental impact and the uncertaintly of the subsidies to fuel which lead to imported food being artificially cheaper than the real cost, it seems possible that food prices will rise, not fall.

It'll be easier if I answered your question with an example.
Scenario A:
On average it costs a German farmer 10 Euros to grow a bushel of wheat. The world price of a bushel of wheat is 5 Euros. In a totally free market, all German farmers who can't produce wheat for under 5 Euros would become bankrupt, and hopefully find a new job, since consumers will buy food from abroad. The land where they had farms would be used for something else which is more profitable. People rejoyce as they can buy cheaper food, more efficient firms rejoyce since they can use previously unavailable resources, 3rd world farmers rejoyce since they are selling food to Europe and making a profit. Local farmers grumble.
Scenario B:
On average it costs a German farmer 10 Euros to grow a bushel of wheat. The world price of a bushel of wheat is 5 Euros. The German government buys everything the farmers produce at 10 Euros/bushel and sells it at a loss for 7 Euros a bushel (imposing a tariff of 2 Euros/bushel on imports to minimize their losses). Since the price is artificially high, farmers are encouraged to produce more (which is then bought by the government and sold at a loss) and the consumers are encouraged to consume less. More production coupled with less consumption leads to an oversupply. This is the butter mountains and wine lakes you've been hearing about.
Local farmers rejoyce. Local people are unhappy since they have to pay more for food and pay higher taxes for the subsidies, farmers in poor countries are unhappy because they can export less food, the community as a whole loses out because resources are being allocated to farms as opposed to something which is more competetive in the country (resources meaning both the land and the human capital).
The Timbro research institute has cited figures pointing that on average, Europeans have to pay 80% extra for their food due to the CAP.

At least in some years. In the UK this would mean that the poorest could not afford even the very poor diet they eat at present. What proportion of any savings would have to be spent to raise low wages and benefits to compensate for this ?

All of those are reasons against the CAP not for it

If the subsidy makes food in the west cheaper than it would otherwise be it seems to follow it will get more expensive if the subsidy is removed.

Domestic food is cheaper than it would be. If there were no subsidies, it would be more expensive to produce so the consumers will switch to foreign food (as you yourself said). Consumers won't have to pay a higher price.

Presumably this will be met by buying food from developing countries (the thrust of the open the markets demand. I think). Again questions of costs of transport both in money and environmental terms remains.

I'm not sure what the question of transport is. Yes, transport costs money, and if the cost of foreign food and the cost of transport added together is more than the cost of domestic food, then no imports will take place and domestic food will continue to be consumed. In most cases though, it's cheaper to have someone else produce the food and ship it than it is to produce the food domestically.

If the subsidy leads to overproduction can the same transport money not be used to send the surplus where it is needed as an addition to indigenous production. I dont see why this will necessarily undermine local markets, though there may be good reasons why this is inevitable

The reason it's inevitable is simple. If I were a farmer in Kenya, I'd have to sell what I produce. Now, if all of the sudden all this free food is available, who'd buy my food? With no one buying it, I'd have to sell my land, and mule (and firstborn), effectively going out of business, so that when the free food is gone I won't be able to feed myself or anyone else.

As to the above: 1. You say they'd thrive without subsidies. They don't in the UK. Evidence ? 2. I don't see how you can have it both ways. If, even with subsidies, the trend is to bigger "agribusiness" type farms, how will abolishing subsidy help? If the fixed costs are a large proportion of the total costs in standard food stuff production why is it different in the niche market? In Britain the distribution network has a very large impact on what constitutes standard food stuffs, as does the marketing industry. Eating patterns have changed a lot here, partly because of this. It seems to me that people eat what they can afford and this is relatively elastic (there is some support for this in a study of food subsidy I found here:

I agree with you here - Europe's food production will definitely shrink, and it's most likely small farms that'll go out of business (I'm assuming small==inefficient, here. It's possible that small farms target niche markets, but I have absolutely no knowldge of the matter). However, why shouldn't day? Why would small farmers have some sort of inherent right to stay in business? Not to sound like a vicious right-winger, but I, as a taxpayer, don't owe them a living. This is different than social safety-nets, which I support.

[Vicsun]

I don't see how giving out free food can cause prices to plummet. The poor aren't buying it they are dying instead. How can feeding them affect the market directly. Indirectly they are more likely to be able to work and produce if they are fed. Wouldn't that be beneficial in the long run ?

There's no way to distribute the food to only those who can absolutely not afford to feed their families otherwise and won't buy any food at all... A better solution would be monetary aid so they can buy food from local/neighbouring farmers, would it not?

As to your final point, of course. It seems to me that the free marketeers have been telling a story which suggests that the problems are largely due to government interference and regulation. I disagree. I think that any progress in the quality of ordinay people's lives is directly tied to increased regulation of business. It is not always beneficial but it is, broadly. Business is only interested in profit (indeed is legally required to make share value their only goal, at least in the UK). A strong democracy is the best preventive medicine for famine, and that is why the free marketeers have an interest in conflating the two concepts.

Free marketeers will always say all problems are due to regulation, almost per definition. I don't always agree, and have had quite a few discussions with libertarians on the subject, but saying that all progress is dependant upon government regulation is far from the truth as well, in my humblest of opinions. Having spent a good (the better, as a matter of fact) deal of my life in an ex-communist state, and having heard the stories first hand, I definitely hold the view that a lack of economic freedom is not overly beneficial for society. Having profit as the only motive works, as profit is, broadly, the measure of goodness someone is doing to society. Monopolistic practices aside (that's part of the 10% where the profit motive doesn't quite work) Bill Gates is rich because he makes something everyone likes.

We are blaming a lot on subsidy. From article linked in your post there is a lot of support for what you say. I was interested in this quote however "Until the early 1990's Jamaican farmers were largely protected from these subsidised imports and the sector was doing well. But when the government was forced to liberalise imports as part of World Bank-led adjustment policies, dairy farmers began to suffer". Import tariffs and protectionism have been effective ways of developing an economy from the UK in the 19th century to Japan and Korea in the 20th. The free marketeers are now successfully forbidding this, with the results we see. Although Oxfam are taking the line you suggest, I am not sure they are right. Maybe they think it is all they can get. As I said before I think the "solution" is maybe part of the problem.

This is where I agree with both you and the World Trade Organisation Developing countries are exempt from international laws concerning protectionism, to a large extent due to farm subsidies.

Oh, and welcome to SYM, Fiona. I'm sorry if it seems like I'm picking on you, but you're pretty much the only one holding the argument for subsidies

[Fiona]

[QUOTE=Cuchulain82]Well, you're not really missing anything, you're just correlating two sets of unrelated data. Unfortunately, the large amount of food that the US sends abroad as food aid has nothing to do with domestic hunger/malnutrition.[/quote]

Why not?

[quote=" cuchulain 82] Well"]

As he said, "in the long run we're all dead". So what is the new thinking and how does it incorporate that insight ?

[quote=" cuchulain 82] However"]

I rather think that was my point, not yours . Lots of x's and y's and no people.

[quote=" cuchulain 82] In this case the important factor is the price floor that subsidies create. The subsidies create a situation where excess supply is sustained. The ripple effects of this (artificially low world price"]

OK, I can see that (though it is a bit of an economist's definition of excess supply -see above) But subsidies don't in themselves produce the evils you describe. There is a lot more to it. We don't have to dump food abroad, we could dump it at home. We could use it for the dire emergencies where even Lestat thinks free food is legitimate. In short the subsidy is not the problem, though running it in tandem with free market globalisation is, perhaps.

I took out your other bit but thanks for that.

@ Vicsun.
I'm not ignoring you. I can't reply to separate posts at the same time but I will get back to you. Even if you are picking on me I'm learning a lot and that's what I'm here for. Thanks for the welcome

[Lestat]

Slept badly, woke up worse but some answers/counter questions anyway:

[QUOTE=Fiona]1 @ Lestat.We are blaming a lot on subsidy. From article linked in your post there is a lot of support for what you say. I was interested in this quote however "Until the early 1990's Jamaican farmers were largely protected from these subsidised imports and the sector was doing well. But when the government was forced to liberalise imports as part of World Bank-led adjustment policies, dairy farmers began to suffer". Import tariffs and protectionism have been effective ways of developing an economy from the UK in the 19th century to Japan and Korea in the 20th. The free marketeers are now successfully forbidding this, with the results we see. Although Oxfam are taking the line you suggest, I am not sure they are right. Maybe they think it is all they can get. As I said before I think the "solution" is maybe part of the problem.[/QUOTE]

Concerning our Jamaican Dairy farmers: it would have been reasonable to let the Jamaicans keep their tariffs on those products the EU subsidises to mitigate the effect, as long as they keep them on a level that they don't get to the level of surplus production (because then Jamaica would have to start paying export subsidies, and as a poor country, it has better things to spend its money on). The fact that the Jamaicans suffer from the European rather supports the argument against EU subsidies, no? But also keep in mind that dairy farming might not be the best sector for the Jamaicans to allocate their resources to.

I don't know about England in the 19th century, but concerning Korea and Japan: their Economic boom was rather in spite of their industrial policies (protecting & encouraging certain industries through government policy) than thanks to these policies. It's a pity I don't have access to my written sources because these are indeed examples that are often cited to defend industrial policies. But I vaguely remember that Japan for instance protected and promoted its heavy steel industry, while its economic 'miracle' was situated in consumer electronics and (later) cars. Governments are not very good at picking economic winners. Sometimes, though very rarely, industrial policy and the infant industry argument is valid, especially if barriers to entry in the market are very high (specific knowledge needed, heavy initial investment, rewards long time after the investment) as is the case for the civil aviation industry and Europe had a point in supporting Airbus and breaking Boeing's quasi-monopoly (we're all the better for that now). But now its time to scrap subsidies (on both sides of the Atlantic).

And a counterexample: there is a country which has practised industrial policy, protectionism and subsidies for food and other basic necessities fairly consistently and on a very wide scale over the last decennia. It has moreover a huge internal market to be not too dependent on the outside world. It's called India. Now I wouldn't say that India is a radiant example of economic success.

I leave it to Cuchulain to react to your remarks on his post.

A little philosophical remark: from the Liberal (or for US people Libertarian) POV its better to count on the self-interest of people than on their solidarity.

[Fiona]

@Vicsun.

You are right I am the only one on this side,and, as I said, I don't know as much about it as all of you. It is probable the lack of support for farm subsidies is because everyone who is an expert agrees with you. Never mind, maybe Jacques Chirac will ride to my rescue. Meantime I seem to be trying to deal with a lot of different points but I'll try my best.

This is the only semi-valid excuse, but it's a purely political one and for that matter I don't want to get into it right now. Sufficient to say, I don't think it's plausible that all food-producing countries will boycott countries not producing food.

This was also one of my points (maybe two). So far as I can see it is ALL politics. I respect the fact you don't want to get into it, but the oil producing countries did act in concert in the 1970's and it did cause major problems. I cannot see what would stop the food producing nations to act similarly. Indeed the need for self sufficiency in food was exactly what led to the farming policies in the UK after 1947. We haven't had the kind of problem which led to that decision since then, but that's not long. I think that a lot of the views expressed here are based on complacency because we haven't had a direct threat to the food supply in the lifetime of most of us. Lucky us. Don't push it.

Who in Europe benefits from the subsidies is to a large extent irrelevant, I think.
[snip]
However, if the subsidies were lowered it'd be most likely the small and thus ineficient farmers that will burn, meaning they're the ones benefitting the most.
Regardless of who exactly the subsidies are supporting the most, the fact is they're encouraging inefficiency and waste. Those who would be unable to compete at the world prices are better employed somewhere else.

Of course you don't have to agree with other members about whether the small farmers will survive or not. But it would be good to know what the theory truly predicts because people should have that information before they vote on the issues.

I don't think inefficiency and waste are very well defined terms. In the UK efficiency is often synonymous with cheaper. But in many fields the cheaper alternative is not the same product and many of the costs turn out to have been exported. For example the cheaper product in the supermarket is actually more expensive to the poor once you add on the costs of getting to the supermarket. That is not in fact "cheaper" it is just that the costs aren't allowed to count any more. Typical, in my experience, of the thinking economists and accountants. It is difficult for ordinary people to articulate this because the argument is plausible and the outcomes are remote in time and can be explained away by other factors in a complex situation. And that doesn't even begin to address the intangible costs which include loss of the countryside etc.

I very much doubt it. I think it has a lot to do with local tastes and culture. If the small English villages were willing to pay for a diverse range of foods, there would be some enterpreneur who would deliver them.

You have a touching faith in the free market. I can only speak for the UK but this is not true here. Again you are leaving out a lot of relevant factors. Property prices are insane in the UK for reasons that I frankly don't understand. Everything is sold out of property, however, and only big companies can afford the rents. The small retailer who owns his shop or the small farmer who owns his land can never make as much money from trade as he can from the sale of the property; and people who wish to enter the market cannot do so because the capital required to set up are very high and are increasing at the behest of the big supermarkets. They have the influence and the financial power to demand concessions from suppliers and from local government which are just not available to the small business. This is not a fair system and it is driving farmers out of business far faster than any effect of subsidy. Again the situation is not as simple as the model you propose would suggest.

Cold economic theory

Hot voodoo

It'll be easier if I answered your question with an example.
Scenario A:
On average it costs a German farmer 10 Euros to grow a bushel of wheat. The world price of a bushel of wheat is 5 Euros. In a totally free market, all German farmers who can't produce wheat for under 5 Euros would become bankrupt, and hopefully find a new job, since consumers will buy food from abroad. The land where they had farms would be used for something else which is more profitable. People rejoyce as they can buy cheaper food, more efficient firms rejoyce since they can use previously unavailable resources, 3rd world farmers rejoyce since they are selling food to Europe and making a profit. Local farmers grumble.
Scenario B:
On average it costs a German farmer 10 Euros to grow a bushel of wheat. The world price of a bushel of wheat is 5 Euros. The German government buys everything the farmers produce at 10 Euros/bushel and sells it at a loss for 7 Euros a bushel (imposing a tariff of 2 Euros/bushel on imports to minimize their losses). Since the price is artificially high, farmers are encouraged to produce more (which is then bought by the government and sold at a loss) and the consumers are encouraged to consume less. More production coupled with less consumption leads to an oversupply. This is the butter mountains and wine lakes you've been hearing about.
Local farmers rejoyce. Local people are unhappy since they have to pay more for food and pay higer taxes for the subsidies, farmers in poor countries are unhappy because they can export less food, the community as a whole loses out because resources are being allocated to farms as opposed to something which is more competetive in the country (resources meaning both the land and the human capital).
The Timbro research institute has cited figures pointing that on average, Europeans have to pay 80% extra for their food due to the CAP.

I think I have answered most of this. You pay no attention to the "smoothing out" function of subsidy. You ignore the fact that many people in Europe support the policy despite being told it increases the price of food. You assume that price is all they are interested in and there is evidence that is not true (for example the increase in consumption of more expensive "fair trade" products). Curiously you also assume that people will find other jobs (hopefully). It might even be true in the long run, but as I said quoting Keynes "in the long run we are all dead". Meantime you cause an awful lot of misery, and although we are told it is not comparable to the situation in very poor countries (I agree with that) I have already alluded to the fact of hunger even in the United States. All this seems to leave real effects on real people out of the equation and again this seems to be a feature of a political agenda masquerading as a science.

Domestic food is cheaper than it would be. If there were no subsidies, it would be more expensive to produce so the consumers will switch to foreign food (as you yourself said). Consumers won't have to pay a higher price.

I don't quite follow this. Is domestic food cheaper, as you say here; or dearer, as you seem to say above

I'm not sure what the question of transport is. Yes, transport costs money, and if the cost of foreign food and the cost of transport added together is more than the cost of domestic food, then no imports will take place and domestic food will continue to be consumed. In most cases though, it's cheaper to have someone else produce the food and ship it than it is to produce the food domestically.

How do you know. Are there no subsidies on fuel ?

The reason it's inevitable is simple. If I were a farmer in Kenya, I'd have to sell what I produce. Now, if all of the sudden all this free food is available, who'd buy my food? With no one buying it, I'd have to sell my land, and mule (and firstborn), effectively going out of business, so that when the free food is gone I won't be able to feed myself or anyone else.

I don't want to seem callous but why doesn't the same reasoning apply ? If it is so easy to change jobs why don't they just do that? In fact it isn't easy anywhere. Admittedly capital is easier to obtain in rich countries but again that is in theory. It does not apply to someone who has just gone bankrupt. Get real.

I agree with you here - Europe's food production will definitely shrink, and it's most likely small farms that'll go out of business (I'm assuming small==inefficient, here. It's possible that small farms target niche markets, but I have absolutely no knowldge of the matter). However, why shouldn't day? Why would small farmers have some sort of inherent right to stay in business? Not to sound like a vicious right-winger, but I, as a taxpayer, don't owe them a living. This is different than social safety-nets, which I support.

All I can say is they aren't "them" they are us.

PS. I will try to get to you other points later

[Mulligan]

please delete...

any moderator...

Mulligan.

[Mulligan]

[QUOTE=Lestat]From the Economist June 19th 2003 (long live search engines and my memory)

The commission also wants to cap the amount that the largest farms receive, so ending the anomaly of the wealthiest landholders, such as England's Prince Charles, doing particularly well out of the CAP.

The full article (still relevant):
http://www.economist.com/displaystory.c ... id=1859183[/QUOTE]

This article is heavily biased... don't you see that...?

[Mulligan]

[QUOTE=Lestat]@ Fiona: check out the link to the article, it answers quite a few of your questions. The viewpoint is clearly of the freetrade liberal sort, so if you are leftleaning, you might be offended . But it explains things in a nutshell and in a way that is comprehensible, even without having a background in economics.

If questions still remain, then we'll have to start a course in Agricultural & International Economics.[/QUOTE]

No, it does not.! the article you refer to is heavily biased, and concerns itself more with chiraques over-exess budjett than real life..

[Lestat]

@ Mulligan. It's no spamming thread, so could you please explain with arguments why you think the article is biased and in what way. As you'd have seen, when you've gone through the whole thread there is a whole discussion going on with arguments pro & con. Give your own views and we'll discuss.

Short remarks:
- Saying something twice doesn't make it more convincing.
- What's mentioned in the article has its basis in an important part of economic theory. If the article is heavily biased, then so was the majority of my university professors in Agricultural and International Economics.
- I made no claim to neutrality: I pointed out that the opinion in the article and, later in thread, my own opinions are free-trade, liberal viewpoints.

[Fiona]

There's no way to distribute the food to only those who can absolutely not afford to feed their families otherwise and won't buy any food at all... A better solution would be monetary aid so they can buy food from local/neighbouring farmers, would it not?

I don't know. Would that not lead to inflation ? I am told that is a bad thing.

I definitely hold the view that a lack of economic freedom is not overly beneficial for society. Having profit as the only motive works, as profit is, broadly, the measure of goodness someone is doing to society. Monopolistic practices aside (that's part of the 10% where the profit motive doesn't quite work) Bill Gates is rich because he makes something everyone likes.

Interesting. Where does 10% come from ?

This is where I agree with both you and the World Trade Organisation Developing countries are exempt from international laws concerning protectionism, to a large extent due to farm subsidies.

See my quote from Lestat's link. That does not suggest they are exempt. Please explain.