An up-and-coming student at the University of North Texas named Dylan Cavanaugh shared this paper with me, so I thought I would share it with you.   The paper compares and discusses the major impacts of Agricultural Subsidy policies on United States to that of New Zealand, including the health and financial implications.  While I don’t agree with every point, I encourage such discussions and appreciate others opinions.

 

Comparing the Effects of the Agricultural Subsidies in the United States to the Policies of New Zealand

by Dylan Cavanaugh

 

Aldo Leapold explains in his article, “Thinking like a Mountain,” the ramifications of dramatically reducing the local wolf population in order to eliminate competition between the hunter and animal. He found that, despite the rapid increase in the deer population, the lack of wolves offset the ecological balance of the mountain, since the deer stripped the mountain of its plant life. Consequently, the new deer population starved, leaving the hunters with less game. As a result, Leopold prescribes evaluating policy based on timeframe and magnitude, instead of immediate, short-term impacts (Flader, 1974). Metaphorically, US agricultural subsidies, despite their immediate positive impact of stabilizing the farmer, have been comparatively less advantageous than non-subsidy based policy. This paper compares and discusses the major impacts of such policies on both countries, including the health and financial implications in the United States to that of New Zealand.

 

Because the comparison between New Zealand and the United States eliminates the most confounding variables capable of skewing conclusions, evaluating the effectiveness of agriculture policy based on such would be most accurate. First, since 1984, New Zealand has moved from being one of the most heavily government-regulated economies into one of the most market oriented of the developed world. Free Market Concept Reforms have moved the nation away from agricultural subsidies and governmental protection into using resources with efficiency through competition on the world market (Business America, 1988). These changes in the New Zealand agricultural policy have shifted from a pre-1984 government assistance level of 30% to 3% in the agriculture sector (Sayre, 2002). In addition to being comparable insofar that the United States has a heavily regulated market and New Zealand does not, New Zealand’s previous similar status to the US allows insight into the similarities of problems. Second, both of these countries have open door policies when it comes to trade and investment, ranking in the top three for easiest countries to do business with (Andrews, 2005). So, analyzing the effectiveness of each policy domestically and abroad is both comparable and illustratable.

 

Agricultural subsidies are designed to supplement the income of farmers and others involved in the large-scale production of crops in order to stabilize and insure their profit. Among the crops subsidized, corn, wheat, and cotton are seated solidly at the top with the federal government spending over a combined $130 billion between 1995-2009 (Cook, 2010). Despite the obvious impacts of steadying the farmer’s wallet, such policy has created serious health risks. U.S. Department of Agriculture enacted the National School lunch program in 1946, designed to subsidize over $800 million worth of ingredients for meals for students. The Department of Agriculture defends the program by explaining the following logic: farmers are kept happy by having their products bought, and schools have free supplies to make meals with. However, the vast majority of products subsidized for the program are meat and dairy products, leaving cafeterias without enough fruits and vegetables to complete the necessary diet (while spending over $350 million of dairy and meat, the department spend less than half on vegetables and fruit) Additionally, while Congress has set limits on how much fat can go into a lunch, no penalty exists for stepping over those limits, nor has Congress given the necessary means to stay within the lines (Yeoman, 2003). With low-income children often signing up for free breakfast and lunch, they receive at least two-thirds of their meals from a fat-enriched source. The National Center for Chronic Disease Prevention and Health Promotion illustrates the health implications, explaining, “[t]he prevalence of obesity among children aged 6 to 11 years increased from 6.5% in 1980 to 19.6% in 2008, [while the] prevalence of obesity among adolescents aged 12 to 19 years increased from 5.0% to 18.1%”(Centers for Disease Control, 2010). Moreover, low-income parents are often faced with similar challenges undergone by cafeterias when figuring their budget. Michael Pollen observes “a dollar [can] buy 1,200 calories of cookies or potato chips but only 250 calories of carrots. Looking for something to wash down those chips, he discovered that his dollar bought 875 calories of soda but only 170 calories of orange juice.” Because “junk” foods are rich in fat and calories, parents get buy through feeding their children a diet rich in them (Pollan, 2007).

 

In addition to the implications agricultural subsidies have on our diets, they also have lasting implications on the global market. The World Resource Institute explains:

 

Encouraged by subsidies, overproduction of certain crops in developed countries has led to the dumping of excess agricultural commodities on the world market—that is, selling at prices below those that would prevail in undistorted markets and, in many cases, at prices below the cost of production. This has contributed to the general downward trend of world market prices for agricultural commodities over the past several decades.

 

Somalia observed such devastating implications firsthand in 1986, when the U.S bases Food for Peace program dumped surplus subsidized wheat into the country during the harvest period. Local farmers were unable to sell their wheat at a reasonable price because they could not compete with the free wheat, driving down prices. This also discouraged farmers from utilizing their land as efficiently as possible and producing at full speed. As a result, Somalia became more dependent on foreign aid, and did not have the reserves they normally would from local production. Moreover, when famine struck certain areas of the country, empty reserves led to the death of thousands. 

 

Often, advocates of agricultural subsidies argue that, despite their possible negative effects, such policies are necessary insofar that they keep our farmers afloat, and ensure constant production. New Zealand, however, offers empirical analysis that points to a more free market policy. In the mid 1980s, the New Zealand government recognized the non-sustainability of the use of agriculture subsidies, as well as the link between such policy and inflation. Federated Farmers of New Zealand reasoned, “that a key cause of inflation was the budget deficits required to fund farm subsidies… so that more subsidies only made the problem worse (Sayre, 2002).” Since New Zealand’s economic transformation, farmers have become more efficient because they do not have the guaranteed subsidies, more independent and able to change tactics without breaching contract, and able to diversify based on demand. The progressive country has also been able to report virtually the same number of farmers invested and participating in the agriculture sector as under previous policy, with only farmers most in debt being affected the most and a overall 1% decrease (Sayre, 2002). The original issue of inflation sharply fell with the policy change, leaving the country more likely to withstand crisis and global issues (Vitalis, 2007). The Federal Farmers of New Zealand found a positive effect in the agricultural sector, with the only setback being a decline in land prices in 1987, which quickly rebounded and still remain high today (Edwards, 2002). Economic outputs are on the rise as well, noting:

 

Agriculture's share of New Zealand's economic output has risen slightly, from a pre-reform 14 percent to 17 percent today. Since subsidies were removed, productivity in the industry has averaged 6 percent growth annually, compared with just 1 percent before reform (Edwards).

 

New Zealand’s free market policy has led to out-performing previous records and illustrating a free market economy capable of the necessary production.

 

Despite the immediate positive effect of keeping farmers solid in their work and profit, agricultural subsidies have lasting negative impacts on the world market and domestic affairs. New Zealand offers proof that they are neither necessary nor profitable, and ensure farmers have acceptable job security.

 

 

 

 

 

 

 

 

 

 

 

 

 

Works Cited

Andrews, Edmund L. "New Zealand Rated Most Business-friendly." NY Times, 14 Sept. 2005. Web. 10 Dec. 2010. <http://www.nytimes.com/2005/09/13/business/worldbusiness/13iht-biz.html>.

Flader, Susan L. 1974. Thinking Like A Mountain: Aldo Leopold and the Evolution of an Ecological Attitude Toward Deer, Wolves and Forests. University of Missouri Press, Columbia. ISBN: 0826201679

Cook, Ken. "United States Summary Information." EWG Farm Subsidy Database. Ed. USDA. Environmental Working Group, 2010. Web. 13 Dec. 2010. <http://farm.ewg.org/region.php?fips=00000>.

"Childhood Obesity - DASH/HealthyYouth." Centers for Disease Control and Prevention. National Center for Chronic Disease Prevention and Health Promotion, 3 June 2010. Web. 13 Dec. 2010. <http://www.cdc.gov/HealthyYouth/obesity/index.htm>.

Edwards, Chris and Tad DeHaven. "Save the Farms -- End the Subsidies." The Cato Institute. March 3, 2002. 14 Dec 2010 http://www.cato.org/pub_display.php?pub_id=3411d

"Heavily Regulated Economy Shifts to Free Market Concept - New Zealand | Business America | Find Articles at BNET." Business Publications. Business America, 18 Jan. 1988. Web. 13 Dec. 2010. <http://findarticles.com/p/articles/mi_m1052/is_n2_v109/ai_6360191/>.

Pollan, Michael. "You Are What You Grow." NY Times, 22 Apr. 2007. Web. 10 Dec. 2010. <http://www.nytimes.com/2007/04/22/magazine/22wwlnlede.t.html>.

Sayre, Laura. "Farming without Subsidies in New Zealand." Farming without Subsidies? Rodale Institute, 2002. Web. 11 Dec. 2010. <http://newfarm.rodaleinstitute.org/features/0303/newzealand_subsidies.shtml>.

Schanbacher, William D. "The Underside of Development." The Politics of Food: the Global Conflict between Food Security and Food Sovereignty. Santa Barbara, CA: Praeger Security International, 2010. 32-33. Print.

Vina, Antonio L, Paul Faeth, Yuko Kurauchi, and Lindsey Fransen. "Agricultural Subsidies, Poverty and the Environment: Supporting a Domestic Reform Agenda In Developing Countries." WRI Policy Note. World Resources Institute | Global Warming, Climate Change, Ecosystems, Sustainable Markets, Good Governance & the Environment. Jan. 2007. Web. 13 Dec. 2010. <http://www.wri.org/publication/agricultural-subsidies-poverty-and-the-environment>.

Vitalis, Vangelis. "Agricultural subsidy reform and its implications for sustainable development: the New Zealand experience" Environmental Sciences 4.1 (2007). 14 Dec. 2010
< http://www.informaworld.com/10.1080/15693430601108086 >

Yeoman, Barry. "Unhappy Meals." Unhappy Meals. Mother Jones, Jan.-Feb. 2003. Web. 10 Dec. 2010. <http://motherjones.com/politics/2003/01/unhappy-meals>.

Dylan Cavanaugh, Author

dylan.philolife.cavanaugh@gmail.com

 

 

 

Remember the story of Rapunzel?

It's the basis of the latest Disney Studios epic, Twisted. That title refers to what most folks remember about the story – which is that the poor girl was locked up in the mean ole witch's tower with no access  to a hair stylist. After years and years, her hair grew so long that it reached the ground – and a handsome young prince was able use it like a rope to climb up to her room several stories above.

Very few people remember how she wound up in that tower in the first place, however.

Turns out that back before she was born, Rapunzel's mom got a hankering for a salad made from some rampion, a member of the bellflower family, the German name of which is – you guessed it – rapunzel. This stuff was growing in the yard of her next door neighbor, the wicked old witch, and Rapunzel's mom sent her husband to go filch some for dinner.

Needless to say, the old witch was understandably ticked off when she found out – but was willing to make a deal, which seems to have been fairly common in those days: first-born child for all-you-can-eat rampion.

You know the rest of the story.

You probably enjoy salads with supper, but not to the point that you'd part with an arm or a leg for them. And since salads are a summertime thing, you might not be willing to go to the local grocer in the winter and buy out-of-season lettuce and tomatoes that taste flat, were grown who knows where under any number of horrible conditions and had to travel fifteen hundred miles or more.

So – do without and wait patiently for spring, right?

Not so fast. Consider the brassica.

This family includes what are known as cruciferous vegetables - cabbages, broccoli and cauliflower and mustard greens. Many of these do quite well even when it's snowing outside. The key is planting them early enough in the fall so they can get established before the temperature starts to plummet.  Alternatively, you can start them in a greenhouse or under hoops made from pcv pipe (there's an excellent video on that subject you can view here).

The other thing about these winter salad greens is that they are packed with nutrients that can help to prevent a whole host of diseases, including cancer and (for you guys over fifty) prostate issues.

You can learn a lot more about seasonal salads at the Four Seasons Farm website (http://www.fourseasonfarm.com/). This operation is located in Vermont, which is considered to be Zone 4 (in other words, winters are cold and nasty) – yet manages to produce healthful vegetables year-round using sustainable methods.

Farm and ranchland prices in the United States have risen about 58% since 2000, adjusted for inflation, according to FDIC figures. In the same time period, commercial and residential real estate prices…well, you haven’t been living underneath a rock on Mars since then, so you know the trend. Does this mean that farmland buyers are inflating a bubble?

 

Thomas Hoenig, chairman of the Kansas City Federal Reserve district, would say that the signs are pointing in that direction. Addressing a November 2010 meeting of agricultural bankers, Hoenig pointed out that many of our policy decisions (like quantitative easing, aka “printing money”, which Hoenig opposes) are echoing the moves made back in the 1970s, which is when the seeds of our current real estate crisis were sown. Noting that commodity prices have risen, but that the value of farmland has risen beyond the nominal productive capacity of the land, he warns that easy decisions being made now lay the groundwork for collapse later – and worries that farmers will be tempted by high commodity prices to leverage their existing land base for additional acquisitions.

 

Other observers are more sanguine. Jeffrey Conrad, president of Hancock AIG, one of the nation’s largest agricultural investment groups, which manages more than 210,000 acres of prime farmland with a market valuation of $1.3 billion, says that the warning signs of an asset bubble simply aren’t there. Average farm leverage (the ratio of debt to equity) is at historical lows and trending further down; farmers are paying off debt, not adding debt for new acquisition, one of the key signs of an asset bubble. Debt is down 39% in real terms from the 1981 peak, debt per acre is down almost a third, and net farm income per acre has increased by 52% over the last year.

 

Hancock admits that some of these figures are strengthened, perhaps temporarily, because of high commodity prices for corn, soybeans, and wheat. At the same time, however, investor returns on farmland properties have remained in the black for several years despite commodity and input price swings, indicating that at least on the surface investors are paying rational prices for farmland. Over the long term, Hancock and other bubble doubters say that strong US export growth, particularly to China and other emerging markets, should keep agricultural growth strong.

 

So who’s right? We’ll explore that more next week, and I will also try to reframe the issue a little bit and explain why “bubbles” are a powerful explanatory model for the macroeconomy, but might not be quite so useful for the individual investor or farmer.