October 6, 2002
Critics argue subsidies for western farmers are hurting those in the Third World.
You probably didn’t wake up this morning thinking about farm subsidies but that may just be the problem. If you’re debating what wins the award as the most ridiculous economic policy of the world’s richest nations, farm subsidies may get the nod.
Let me put it another way. Taxpayers and consumers, especially in Europe and the United States, are subsidizing the destruction of small farms in the world’s poorest nations, which has led to starvation and death.
Well-known economic and investment analyst Dennis Gartman provided a wonderful example of this insanity recently. Farmers in Germany, France and Great Britain are the largest exporters of white sugar in the world, yet, according to a recent report from Oxfam, they are also the world’s most expensive producers.
The cost of production for European producers is about $1,075 per tonne while the cost for countries such as Senegal, Ethiopia, Senegal and Mozambique is $450 per tonne. The European producers are supported above their production costs, which guarantees that they overproduce and keeps prices down.
As the Guardian newspaper points out, companies such as British Sugar are making huge profits under the European Union’s price-fixing deal that pays farmers and firms up to three times the world’s going rate for their sugar. The British government pays this small group of farmers and producers $2.5 billion a year.
As Oxfam concludes, Europe should be an importer of white sugar but only through the generosity of taxpayers can they destroy the livelihood of some of the poorest farmers on the globe.
Of course, it’s not just Europe that assures the world’s most impoverished nations can’t compete. The peanut producers of the southern states are supported at three times the world price and in a delicious irony the U.S. government then goes out and pays foreign buyers to buy the peanuts from the United States at or below the market price.
According to the OECD, European farmers on average get 35 per cent of their income from subsidies, which accounts for nearly half of all EU spending. When indirect subsidies such as price supports and tax breaks are factored in, EU farmers got more than $150 billion in aid in 2001, which was about twice what the farmers in the United States receive.
While subsidy levels in Canada are far below those in Europe, Japan and the United States, we still play the same game. As Lawrence Solomon, co-author of the book Agricultural Subsidies in Canada: 1992-2001, points out, Canadian farmers on average receive $3.56 in direct subsidies for every $1 of profit they produced. In fact, there was no profit without direct government subsidies that amounted to $3.752 billion in 2000.
On average, Canadian farmers receive about 11 per cent of their income from government aid, while their American counterparts receive about 21 per cent. New Zealand has managed a vibrant farm industry with only one per cent of their income coming from government.
What’s incredible is that this massive amount of money goes to less than two per cent of the population in North America and four per cent in Europe. The vast majority of the recipients have a much larger net worth than the taxpayers and consumers who provide the cash.
The latest farm aid recipients, due to the Bush administration’s new bill, include such hard cases as Ted Turner, one of the Rockefellers and 20 Fortune 500 companies.
But don’t hold your breath for change. The farmers have successfully intimidated politicians in every country and, when the WTO put the elimination of agricultural subsidies and tariffs in order to help Third World nations at the top of the list for Seattle and Quebec City, the anti-globalization protesters took to the streets.