Farm subsidies have been controversial for years. They intend to keep food prices stable -- or artificially low, and ensure local farmers can compete with foreign farmers by paying farmers not to produce certain foods (in the U.S.) or compensating them for foods they do produce (as was the case in France).

Wasted Tax Dollars

Critics say agricultural subsides are a waste of taxpayer dollars: Why pay a farmer to produce or not produce certain foods? Instead, they argue, rely on the law of supply and demand to ensure the right crops are grown and sold for a fair price.

Further, there's the question of who receives these subsidy monies. An Indiana newspaper recently reported that $3.6 million dollars in farm subsidies went to property owners in Chicago suburbs, including $177,000 to a company which makes precast concrete, and $157,980 to baseball star Scottie Pippin!

What about poor family farmers for whom these farm subsidies were originally designed? What's their share of the pie? An excellent 2001 report by the Heritage Foundation sums up the situation well:

Legislators promoting subsidies take advantage of the popular misconception that farm subsidies exist to stabilize the incomes of poor family farmers who are at the mercy of unpredictable weather and crop prices. If that were the case, the federal government could bring the income of every full-time farmer in America up to 185 percent of the federal poverty level ($32,652 for a family of four in 2001) for just $4 billion per year. In reality, however, the government spends nearly $20 billion annually on programs that target large farms and agribusinesses....

[F]arm subsidies in 2001 were distributed overwhelmingly to large growers and agribusiness, including a number of Fortune 500 companies... the top 10 percent of recipients -- most of whom earn over $250,000 annually -- received 73 percent of all farm subsidies in 2001....

[M]any of those receiving these subsidies clearly do not need them... Subsidies to the four largest of these recipients -- Westvaco, Chevron, John Hancock Mutual Life Insurance, and Caterpillar -- shattered their previous record highs... David Rockefeller, the former chairman of Chase Manhattan and grandson of oil tycoon John D. Rockefeller, for example, received a personal record high of $134,556. Portland Trailblazers basketball star Scottie Pippen received his annual $26,315 payment not to farm land he owns in Arkansas. Ted Turner, the 25th wealthiest man in America, received $12,925. Even ousted Enron CEO and multi-millionaire Kenneth Lay received $6,019 for not farming his land.

Funding Starvation?

Other critics claim farm subsidies make it more difficult for third-world countries to sustain themselves by growing crops for which they are well-suited: by keeping prices artificially low, there is no market for their crops.

This presents a paradox: The "first world" spends about $311 billion subsidizing farmers, partially to prevent competition from would-be third world farmers, and then spends another $52 billion in foreign aid, much of which goes help compensate for the effects of those subsidies!

(This seems a bit like subsidizing tobacco growers, paying for advertising campaigns to tell people not to use tobacco, and then using taxpayer dollars to pay for health-care costs associated with tobacco use.)

Last Friday, the New York Times carried an op-ed piece co-authored by the presidents of Mali and Burkina Faso (neighboring countries, and both former French colonies), begging the U.S. to change it's farm subsidy policy:

Cotton is our ticket into the world market. Its production is crucial to economic development in West and Central Africa, as well as to the livelihoods of millions of people there. Cotton accounts for up to 40 percent of export revenues and 10 percent of gross domestic product in our two countries...

According to the International Cotton Advisory Committee, cotton subsidies amounted to about $5.8 billion in the production year of 2001 to 2002, nearly equal the amount of cotton trade for this same period. Such subsidies lead to worldwide overproduction and distort cotton prices, depriving poor African countries of their only comparative advantage in international trade.

Not only is cotton crucial to our economies, it is the sole agricultural product for our countries to trade. Although African cotton is of the highest quality, our production costs are about 50 percent lower than in developed countries even though we rely on manual labor. In wealthier countries, by contrast, lower-quality cotton is produced on large mechanized farms, generating little employment and having a questionable impact on the environment. Cotton there could be replaced by other, more valuable crops.

In the period from 2001 to 2002, America's 25,000 cotton farmers received more in subsidies -- some $3 billion -- than the entire economic output of Burkina Faso, where two million people depend on cotton. Further, United States subsidies are concentrated on just 10 percent of its cotton farmers. Thus, the payments to about 2,500 relatively well-off farmers has the unintended but nevertheless real effect of impoverishing some 10 million rural poor people in West and Central Africa.

Reforming Subsidy Programs

Last month the EU announced it would be reforming it's farm subsidy program worth $51 billion per year. (Compared to the U.S.'s $20 billion!) In many cases, farmers will no longer be paid to produce more food than is needed: Instead they will be paid for owning land, whether or not they produce food. This may not seem like much of an improvement, but the intent is to stop paying farmers to overproduce foods, creating gluts and hurting competition around the world.

Now, from Africa, U.S. President George Bush has pledged a strong reduction in U.S. subsidies, but only on the condition that Japan and the E.U. do the same.

Undoubtedly some conservative critics will be suprised: Bush hasn't exactly aquired a reputation for reducing the size of government, and lacks credibility on this issue after a 30% hike in steel tarrifs which angered the both the E.U. and advocates of free trade.

And both liberals and conservatives should be able to agree a reduction in corporate welfare is a positive step.

What is the likelihood the E.U. will further reduce it's farm subsidies? If they go along, it could save U.S. taxpayer dollars, reduce the federal deficit, and help third-world farmers. If not, Europe will be left looking like kid who spoiled the party.

Besides the humanitarian aspects, it would seem to be a brilliant political move either way.

Hat tip to Lee.