While it is pleasure to be discussing this issue again, I have to take issue with a sentiment you have repeated:

"When the foes of subsidies blame them for world hunger, they are not being honest. Their complaints against the subsidies obviously have some other basis."

If I may indulge:

By hurting farmers in the developing world, don’t richer nations who use agri-subsidies make people in those countries more dependent on their goods? And, in doing so, don’t they end up hurt those consumers? With this dependency, aren’t they more vulnerable to things like droughts in first world countries (like Australia), rises in transportation costs (as a result of more expensive fuel), or even attempts of countries like the US to diversify their agriculture (by developing biofuel)?

Now I had said that the “higher price of food” was “the whole point behind” subsidies. I realize that was a simplistic statement, and I thank you for rebutting it.

My point -- or my intended point -- was that when agricultural policy is designed for the benefit of farming monopolies like Monsanto -- which, in turn, become the central interest (lobbyist) in designing the policies -- that even if their purpose (on paper) is to create a price floor, the price of food is still higher than it would be under a functioning market.

While I can be wrong in this analysis -- and still eagerly seek to learn from refutation -- I can say certainly that neither I, nor those who espouse it, are being dishonest.

Sorry, previous post was mine.

Brain,

there may be scenarios in which the subsidies lead to a situation in which people in developing countries end up paying more for food, but it is hard to see what it is. There can be unusual events, such as a natural catastrophe, that block imports for a particular country or countries for a period of time, but that can't explain how large segments of the developing world are hurt year after year. If it is cheaper to produce the food in the developing world, then they would produce it in the developing world.

(btw, the folks I mentioned have no objections to Monsanto -- they are being dishonest.)

I think there are several other factors at work in India at least. The current political leaders have unjustified blind faith in the neoliberal/free market economics and liberalization. One result of this is promoting 'export crops' (cotton etc) while importing basic food crops (rice, wheat etc) which has subjected the poorest to the vagaries of the market. Also 100 other developing nations are encouraged to do the same. In conjunction, larger private corporations are now in control of basic food stuffs and are hoarding basic food grains contributing to price increases. Another critical factor is that the govt. public distribution system which provided a safety net to the poor and which was a great success is now being dismantled in the name of fiscal prudence. The net result of all this (as usual) is the poor fellow living on $1 a day gets screwed for no fault of his own. Maybe there is more demand from a smaller growing 'middle class' in India and China but that is certainly not the whole story.

Again, I appreciate that you get back to us so quick.

(I think) I take your point, that subsidies (are designed to) keep a price floor on food, thus making them cheaper for all consumers, including those in the developing world -- as you say "If it is cheaper to produce the food in the developing world, then they would produce it in the developing world".

My point, with regards to third world dependency on first world agriculture -- or my intended point -- is that events --

which can be natural, market, or policy related, and thus I would respectfully disagree with the qualifier "unusual"; but which, more importantly, are caused almost entirely independently of the dependent developing world --

that these events create (or help create) an instability in local demand, which, in turn, undermines the conditions for local industry to take root.

On another note, Murali V's really made me re-think the shared responsability between first world policies and those of the developing world.

My thanks!

At least in India, as you say.

"That means that fewer people go hungry than would be the case without these subsidies."

Why do you think this is true? Production of more food does not mean equal consumption of that food. Lower prices for food will not lead to less hunger if those lower prices drive down the incomes of third world farmers.

In a dynamic world, first-world subsidized agriculture means that rural third world farmers and in particular their sons cannot make a living from farming. Rather than starve on the land they migrate to the cities where there is no work for them and they live in filth and poverty in chaotic slums of millions or even tens of millions of people.

The first step toward slowing or stopping the growth of unmanageable mega-slums is the stabilization and growth of income to rural farmers, so that rural people stay in the countryside. That can't happen as long as oil-based and subsidized agriculture in the industrialized west continues to undercut and impoverish farmers in poor countries.

Food prices are indeed lower with subsidies, that's axiomatic. But the issue is that incomes are reduced by lack of economic development because of these very policies (dumping). It doesn't matter if 1kg of rice costs only 3 dollars, if you're earning $2 a day.

On the other hand if all the dumping was food aid, without catches but just free food. Then hunger would actually be less.

The affordability of the price is the question, not the absolute price.

If third world countries want to develop their domestic agriculture there is nothing to stop them from putting import duties on imported food is there? Agriculture is explicitly not covered by WTO as far as I know. And they could use the revenue so raised to subsidise fertiliser and water management for their own farmers.

We consume 3770 calories per person per day? No wonder so many of us are fat!

1. As Dean has points out the general principal, politicians create food subsidies to satisfy their constituents, both farmers and Archer Daniels, not out of some ideological imperative.

2. The one subsidy that may have some effect on food prices is the ethanol corn subsidy, but its greatest effect is on meat prices since American Indian corn (a/k/a "maize") is mostly grown for animal feed (although "corn" is what this is usually now call, the word "corn" use to apply to "wheat" and "barley," and basically means the primary staple grain in English). Some land may have been converted from wheat and soybean to corn, but with the high prices and subsidies for those crops there is plenty being planted in the U.S.

3. The drought in Australia has probably been the biggest trigger to the spike in wheat prices. 100 years ago, the Ukraine and Southern Russia were one of the great wheat growing regions of the world, but I am not aware if they have recovered yet for what Soviet system did to these areas and whether the skills still exist for growng large crops of wheat in these regions.

4. If there was hoarding (apparently new urban 3rd world myth), there would be an inventory buildup. According to Paul Krugman, such inventories don't exist.

5. There are 6 and 1/2 billion people in world, and we are on whole getting richer, and hence the area of cheap food is probably ending, at least until population begins to decline. The biggest thing we can do bring about population stability is to improve Women's education, Women's right to work, their right to control their health and reproduction, and their right to be free of male violence. (I am a man, but these are the factors that slow population growth rates throughout the world.)

As Dean says, internationalization of food markets, combined with subsidies by rich countries, can only make the food supply cheaper and more reliable for poor countries. If each country grows its own food it is subject to its own weather, political upheavals, etc., and supply and prices would be much more variable than they are now. Progress (i.e. making commodities more cheaply, with less manpower) always leads to some dislocation - it did in this country as the number of farmers decreased through the 19th and 20th centuries. It is up to the individual national economies to deal with the effects of cheaper commodities.

But internatialization does make everyone more dependent on fossil fuels, and makes everyone feel the pinch when oil prices go up. Supply and prices of oil can be highly dependent on political events in the middle east, as we saw in the 70's and 80's.

Bliox and Dush's point about affordibility connect to mine about price stability. (And are far more articulate than I've been -- sorry about that.)

To skeptonomist's thoughtful rebuttal:

Supposing each country (that could) grew food, but also participated in the global food market? So that, regardless of local or first world conditions, or for that matter oil prices, a supply would be available?

While subsidies may make production cheaper, it's almost irrelevant, as it's the food movers (ADM, Castle & Cook, Cargill) that determine the prices paid by consumers. In many years the food movers don't pay parity, even with the subsidies.

Second, it used to be that many countries subsidized consumption--using government funds to keep prices of basic foodstuffs low--but IMF debt negotiations have made that impossible for many countries, interestingly where some of the worst shortages have occurred.

I recently heard an interview on NPR regarding Haiti. People are starving in Haiti right now, in part due to the doubling of the price of rice on the global market. Yet Haiti used to be a net exporter of rice. This was before American rice flooded the island in the '90s--as a part of humanitarian assistance by Congress via Monsanto. The local rice farmers were driven out of business and their fields are fallow to this day.

Is this a legitimate example of how American subsidies can lead to third world food dependency?

The subject of the interview suggested it would be better to give Haiti cash with which to purchase rice... this would, he suggested, lead to the redevelopment of an indigineous rice industry there.

Thoughts on this suggestion?

Haiti's a really complicated story. While Haiti was a net exporter of rice in the 1980s, Haiti was a giant sharecropping system, and most of the money went to the landlords. In addition, the sharecropping system overfarmed the land, causing massive soil erosion. When Aristide came to power (the first time), one major project was tree-planting to limit soil erosion and help reconstitute the soil. (When the US-sponsored military regime took over, they advocated cutting down the "Communist" trees.)

The problem in Haiti is that the industrial development that was supposed to sop up all of the displaced sharecroppers never happened. Only about 20,000 jobs were created as a result of the Caribbean Basin Initiative. (This is common in countries largely inhabited by people of recent African descent; industrialists do not look fondly on employing people with dark skin.)

So the problem in Haiti is very complicated. Do they leave the land fallow to reconstitute the soil? Do they expropriate the landlords? What kind of industrial development is possible and/or desirable? I'm just glad I don't have to make those decisions.

"in the battle against world hunger, these subsidies are a net positive"

Dean,
As Bloix points out, an economist can only be confident that this statement is correct if he lives in a one-period (or maybe a two-period) world. In a dynamic environment, where subsidies have been in place for decades and are sometimes as large as the total value of the good traded on world markets, it is entirely possible that the effects of dumping are the destruction of developing world agricultural industries -- that it will take many years to rebuild.

PeonInChief,

Whether or not domestic policies aggravate the production problem is irrelevant to the argument that the US by selling rice at a cost well below its price of production made it much more difficult for Haitian rice farmers to make a living. Just because I've already reneged on some of my debt, doesn't mean that when Rick stole from me, it didn't make me worse off.

What is the role, if any, of American and European farm subsidies in contributing to the current food crisis? Let's start with the basics of what we know about the effects of farm subsidies:

First, farm subsidies tend to increase production and thus increase the quantity of agricultural exports sold by the subsidizing country on world markets.

Second, this effect of increasing the supply of agricultural goods on world markets reduces prices on those markets and thus tends to reduce production in countries without the subsidy.

While we can be confident that we know the direction of the effects of subsidies on exports and on producers abroad, it is very hard to establish what the size of these effects is likely to be. Because of the dynamic nature of the interaction of subsidies with prices and production both domestically and abroad, any attempt to use data to put a number on how large the effects of subsidies may be will be so heavily influenced by assumptions about the nature of these dynamic relationships as to be effectively meaningless.

(For a topical comparison, the analysis would be similar to using historical correlations to predict the behavior of sub-prime mortgages. As investment advisors like to tell us: The past is not necessarily a good predictor of the future. By the same token, what did happen is not necessarily a good predictor of what would have happened if circumstances had been different. All forecasters know that the past is most useful in making near term predictions and that "forecasts" of performance a decade away are, at best, astute guesses. Thus anybody who claims to tell you that they can put a number on the worldwide effect of subsidies that have been in place for decades has probably got a bridge to sell you too.)

Based on FAO data we know, however, that currently over 50% of world agricultural exports are from the US and the European Union. We don’t know how much smaller this number would be in the absence of farm subsidies and related programs, but we do know that over the past quarter of a century the US and Europe’s combined share in world agricultural exports has increased by 10% even as Africa’s has fallen by 45%. Given the size of the subsidies and the length of time such policies have been in place, it is within the realm of possibility that the US and Europe together would by now supply less than 25% of such exports in the absence of government support for agriculture. In other words, it is possible that subsidies have a very small effect on world trade – it is also possible that they have a huge effect on world trade.

There are many specific cases where the blame for disappearing export sectors in developing countries has been placed on unfair competition with subsidized products from the US and Europe. The Presidents of Mali and Burkina Faso explained in the New York Times how American cotton subsidies were destroying the industry in West Africa. Oxfam found that European sugar and dairy exports were harming local industries in Mozambique, India and Jamaica, and that American corn exports were driving Mexican farmers off the land.

Now in addition to the concern that we may be impeding the productive growth of some of the poorest countries in the world, we have lost the ability to claim that our subsidies are at least helping consumers in those countries by keeping prices low. Aided by subsidies, the US and Europe now account for more than 50% of world agricultural exports – they have apparently cornered the market. These developed countries are now such important suppliers of grain to world markets that domestic policy initiatives change world prices. The US can no longer choose to subsidize ethanol without affecting people half a world away, who have become dependent on subsidized American food exports. Furthermore, because so much grain is shipped across oceans in our current trading system, the price of oil has also become an important factor affecting food prices in developing countries.

From an ethical standpoint what the US should do at this juncture is clear: subsidies to American farmers should be reduced and for a few years the money should be transferred to developing world consumers in order to smooth the transition to a new world market in agricultural goods, where lowest-cost producers are able to sell their goods at a profit. While I have my doubts that this recommendation could be implemented, we need to recognize that any reduction in farm subsidies (or any conversion of them into farm payments that are not related to production) would represent a small step along the path towards a world where the poorest farmers can compete on an even playing field with rich world farmers, instead of trying to scrape together a living in an environment where the rules are determined by the richest players.

I'm not an economist, but where I live in Mexico, junk food manufactured with subsidized products like corn syrup replaces local foods which are locally farmed and definitely more nourishing. The situation is really screwed up. Subsidized US rice and corn are dumped here, chickens from factory farms kill local chicken farming, etc. etc. I see this EVERY DAY. The imported stuff is definitely too cheap!

Great post by Anon!

Overall, a very intelligent dialogue on the issue by commentors.

My thanks!

It'd be interesting if Dean commented on the affordability problem a couple of us have pointed out. Regardless of soverign hording (e.g. India with rice now), regardless of agrabusiness limiting supply food prices aren't expensive to us in the west. Because our incomes are high, we can maybe stop buying HDTVs and buy some oat meal.

But to those on $2-3 a day, it's a tragedy.

Also there is a good article on what we all are discussing here in Zmag: http://www.zmag.org/znet/viewArticle/17632

I wonder if the food movers haven't been low-balling for market share, charging artificially low prices for food from Europe and the United States to drive small farmers out of business, so that they can then raise prices. (When other countries do that to the US, it's called "dumping," and results in heavy sanctions.

This post has shown, what I think at least, is a rather intelligent conversation of the effect of agricultural subsidies on world hunger.

Given this, is it fair to say that those who hold these policies responsable are being "dishonest"?

Hey, Dems, why don't you do something different than the Rethugs on farm subsidies for once and actually reject them? Or would you rather that Haitians and others in the Developing World continue to suffer for the sake of your precious votes. Did you hear that Obamaton?

Dush,

I think that people going hungry in the developing world is tragic, but the point is that our food subsidies are not the cause. There obviously would be a different counter-factual if we had not subsidized food over the last 50 years, but constructing that counter-factual involves large amounts of speculation and in any case, we don't have that counter-factual now.

If the U.S. and Europe stopped their subsidies tomorrow, and presumably reduced their export of food, then world food prices would rise. It would take some real wild twists and turns of economic logic to get lower prices in the absence of these exports. If at the moment we think that prices are too high, it seems hard to argue that eliminating these subsidies is a good thing, at least in the short-run.

"There obviously would be a different counter-factual if we had not subsidized food over the last 50 years, but constructing that counter-factual involves large amounts of speculation and in any case, we don't have that counter-factual now."

So it comes down to "Ignoramus et ignorabimus"... or a supposedly "unknown unknown"... ?

One factor that hasn't been worked into the mix here is the use of foreign exchange for imported food. When foreign exchange is scarce, it's often better to grow food locally, if possible, and reserve foreign exchange for products that can't be produced at home. Che Guevara pointed this out, oh, about 50 years ago.

While I appreciate Mr. Baker's continued responses to our posts, I have to take issue:

"If the U.S. and Europe stopped their subsidies tomorrow..."

This hypothetical, as far as subsidy opponents are concerned, is either not what they advocate, or a completely unrealistic expectation. What we're talking about is a drawdown.

Brian,

there have actually been all sorts of agendas put forward by opponents of the subsidies and some are pretty much end them tomorrow. (I believe that the World Bank would support this if they felt it was politically feasible.)
I should also point out that the World Bank (and many NGOs) have eliminating developing countries tariffs on food imports at the center of their agenda. This certainly will not help them build up their domestic agricultural sector.

PeonInChief wrote, While Haiti was a net exporter of rice in the 1980s, Haiti was a giant sharecropping system, and most of the money went to the landlords. ... So the problem in Haiti is very complicated. ... Do they expropriate the landlords?

Actually, the solution to the problem of hunger in Haiti and the rest of the world is very simple (although perhaps hard to implement because it would be resisted tooth-and-nail).

(1) Tax land rent at 100%, or as near to 100% as possible. This way, the market gets to decide how to use the land (subject to reasonable restrictions by the state, like ones you allude to to prevent erosion), but the state recoups the income stemming from the land itself on the behalf of its citizens.

(2) Use the proceeds of land rent to fund a modern, liberal state, which will act on behalf of its citizens' interest.

This program has, historically, worked everywhere it's been tried.

Problem of course is that the rich (who in 3rd world countries are largely synonymous with landlords) don't like it. And the left doesn't know enough economics (or is too steeped in Marxist nonsense) to support it.

Mr. Baker,

I take your point about the World Bank's double standard. I concede that, in this sense, they are being dishonest.

"there have actually been all sorts of agendas put forward"

Agreed. As to those who "would support" cold turkey "if they felt it was politically feasible", my point is precisely that they don't -- thus, any serious discussion on agri-subsidies must be in terms of drawdown.

Most poor people in developing countries are farmers, right? Why has nobody even mentioned the decrease in income associated with farmers losing their jobs? If people don't have money, they can't buy food, no matter how low the prices. And the neoliberal model of the last 25 years hasn't exactly provided them a lot of good job opportunities outside of farming.

I recently read the book "Deep Economy" by Bill McKibben, and while it doesn't talk about the effect US subsidies, it makes a very convincing case for the benefits of a local economy, especially local agriculture. Subsidized, corporate monocultures may be the cheapest way to produce food (because it requires so few workers), but they get less production per acre than small organic farming. It's hard to imagine that poor farmers in developing countries would be worse off if their countries adopted a local economoy model where the country becomes self-sufficient agriculturally. Do countries really have to rely so much on other countries for their food?

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