While the Farm Bill update hasn’t made it through Congress yet, it’s passage is an eventual certainty, if perhaps broken up into pieces.

In an opinion piece in The Hill,  economic policy Research Fellow Michael Farren with the Mercatus Center at George Mason University proposes a different and radical option – a full repeal of all farm subsidies.

Farren points out that New Zealand did just that following an economic crisis in the 1980s.  The government was broke.  A reform party came into power in 1984 and started making huge changes to reduce the government’s role in the economy and force New Zealand industries to compete in international markets, “including ending most agricultural support programs.”

This move “wasn’t without controversy or pain.” New Zealand’s major agricultural industries at the time were beef and sheep farming, and subsidies made up about 45% of the average rancher’s annual income.

Faced with a future with no government handouts, necessity became the mother of invention. Farmers, food companies, and agribusinesses invested in innovation, created new products, and targeted emerging markets. New Zealand farmers worked together to identify ways to improve product quality and earn higher prices for a wider range of products.  Farren points out several examples of the outcome from the post-subsidies “awakening” in the New Zealand ag sector and food industry:

• In 1984 New Zealand-produced butcher lambs sold, on average, for about $12.50 on the international market. Quality, product innovation, and marketing improvements got them to $30 per lamb by 1989, and all the way up to $115 by 1994.
• 30 years ago, there were less than 100, mostly small to mid-sized New Zealand wineries.  Once trade barriers that protected them from competition were removed, they improved their products and today, over 670 wineries, including some large ones, are both meeting a greater share of domestic demand and competing successfully with the much larger Australian industry in some Pacific Rim markets.
• Targeting niche markets has allowed Kiwi dairies to greatly expand their product offerings. In 1985, dairies made only ~35 products, but 10 years after the loss of subsidies, “that number increased to 2,2000 distinct products.”
• And, fruit growers applied “a customer-focused mantra, ‘Consumers buy with their eyes,'” and developed new, smaller yet bright and better-tasting apple varieties that are now known around the world.

Even the Federated Farmers of New Zealand agree – a report from 2002 states that the impact of these big changes “thoroughly debunk[s] the myth that the farming sector cannot prosper without government subsidies” (Edwards and DeHaven, 2002).

Subsidies “… may seem like good ideas to risk-averse farmers in the short term,” writes Farren, “but they encourage producers to maintain the status quo rather than focus on the ultimate source of their prosperity: customers. Real competition — as opposed to collecting subsidies or a share of a highly regulated market —means identifying and developing the next thing customers want.”

Are U.S. farm subsidies and other government manipulation of markets and income potential undermining innovation and the response by U.S. farmers, the food and energy industries, and agribusiness to emerging market demand? The big-ticket items are obvious:

• Distortion in the corn industry financed by significant subsidies for corn-based ethanol.
• Tariffs hammering farm commodities and distorting trade flows in a fool’s-errand-effort to punish certain countries and trading partners, actions that will almost surely cost U.S. farmers market share in the long-run.
• Crop insurance and disaster relief programs that serve important needs, but have gone way too far, and for decades have subsidized excessively risky investments and unsustainable farming system choices.
• Food labeling and regulatory programs that shield low-quality and sometimes unsafe food production, processing, and food manufacturing practices from the discipline of the market, and impose unscientific barriers and burdens to farmers and companies both able and trying to expand the supply of more profitable, value added food products. (See Part III of our three-part blog on the organic apple industry in Washington State for an encouraging example of what can be achieved when all key players are pulling in roughly the same direction).

Much of American agriculture is not just stuck in a rut, it is in a worrisome tailspin.

Across about three-quarters of harvested cropland nationwide, weed management systems are collapsing, despite huge increases over the last three decades in the share of crop income spent on herbicides and GMO seeds. Public health and environmental collateral damage is on the rise.

Perhaps as much as one-half of U.S. corn and soybeans grown in 2018 cost more to produce than the market will bear. We seem headed toward another deep, farm-sector recession that will further erode farm income and equity.

Major livestock industries are struggling with multiple animal health problems and rising dependence on drugs. Recurrent food safety breakdowns are eroding domestic and international confidence in the safety and quality of U.S. animal-based foods, and just wait to see what fake meat does to the market and export demand.

So, what lessons might we, in the U.S., glean from the sea change in the 1980s in New Zealand agriculture and food industries? Is Michael Farren’s analysis roughly sound and his conclusions widely shared?

We will pursue these and related farm policy questions on the Hygeia Analytics (HA) Facebook page, via our post on this blog. We will invest a few bucks in boosting our HA Facebook post to reach broader farming and food industry audiences in both the U.S. and New Zealand. Hard to say whether this will generate more light or just heat, but we will see. Come and join the conversation to find out.

Source:

Chris Edwards and Tad DeHaven, “Save the Farms – End the Subsidies,” CATO Institute, March 3, 2002.

Michael Farren, “Subsidies prevent farmers from reaching their full potential,” The Hill, October 15, 2018.