The Effects of U.S. Agricultural Subsidies

Except for the farmers that receive them, it's hard to find anybody who likes agricultural subsidies.

Certainly not economists. "Oppose Farm Subsidies" was Greg Mankiw's second point on his eight-point presidential platform designed to woo economists of all stripes. I'm sure an enterprising journalist could find some economist somewhere who loves agricultural subsidies and then write the usual he-said-she-said "expert opinions differ..." But even the nation's top newspapers write editorials regularly slamming agricultural subsidies. So do think tanks from the left (Environmental Working Group) to the right (Cato Institute).

The political economic calculation isn't very deep. Big agricultural subsidies are still small relative to everything else and these buy more than a handful of politicians in key Midwestern "swing" states. The political benefits are not huge, but certainly not trivial, and the cost, well, it's small potatoes compared to defense, social security, Iraq, stimulus, the bailouts, and just about everything else.

The big sticking point--the place where the subsidies may matter a lot--is that they seriously muck up trade negotiations. Agricultural subsidies have taken center stage in these debates for way too long. I think the overarching emphasis on agriculture is probably misplaced. I'm not that savvy on politics, but I do wonder if agricultural subsidies are something of a red herring--an easy way to slow free trade for other purposes.

Anyway.

Since so many have slammed agricultural subsidies, I'm not going to. I just don't see the point. What I'm going to try to do in a series of posts is simply describe what I've learned so far about the effects of agricultural subsidies in my own research. If you think about it a little bit, or go back and look at all the articles that decry agricultural subsidies, you will find many that count the billions handed out and many claims about dire consequences of those billions. Some, Michael Pollan being perhaps the most famous, claim we eat unhealthily because of subsidies. In general, you won't find reporting of clear evidence to support these claims.

A few warnings:

(1) I don't have a dog in this fight. For nearly eight years I worked for USDA's Economic Research Service. My goal, first and foremost, was to tap into their rich data bases, dig in, and find clear tell-tale evidence on the consequences of agricultural subsides. My impression was, and still is, that the USDA has vast amounts of data that has not been seriously analyzed and this represented great scholarly opportunity. My interest was (and is) mainly intellectual. I hope one day I might find facts so clear and so compelling that they will influence policy in a positive direction. But I'm not entirely sure at this point what a "positive direction" might be, at least in many cases.

(2) The answers to many questions are not especially clear. This shouldn't be too surprising. If the evidence were clear and compelling it would be clearly reported in all those newspaper editorials, books, etc.

(3) Despite a general scholarly dislike of agricultural subsidies, it's hard to see large blatant destructive forces stemming from most of them. Ethanol subsidies may be an exception, as are sugar policies, but the latter is mainly about trade restrictions not subsidies, and so it gets little press. Where economists worry first and foremost about efficiency, in light of the evidence, the most empirically persuasive argument against subsidies would seem to be their unfairness. Why do farmers get the cash and not other other small businesses or taxpayers in general?

The key questions as I see them

1) How much more does the U.S. actually produce of which crops due to which subsidies?
2) How much have world prices for staple commodities been effected by U.S. subsidies?
3) Are agricultural production costs higher due to subsides or have the subsidies slowed technological progress in agriculture?
4) Do agricultural subsidies affect the size or structure of farm business enterprises, ie., make farms larger or smaller?
5) Who ultimately receives the benefits from U.S. agricultural subsidies? The most viable candidates would seem to be (a) farmers and (b) landowners who lease their land to farmers (about half of agricultural cropland is leased).

My research on these topics was done in collaboration with colleagues at USDA: Nigel Key, Erik O'Donoghue, and Ruben Lubowski, as well as colleague at the University of Maryland, Barrett Kirwan. In covering these topics I will also discuss research by others.

Hopefully the first installment will come within the next week or so.