Econbrowser

But the United States was adamant neither the EU nor India had been prepared to offer the sort of access to their markets that Washington needs to make a deal on subsidies worthwhile.

I agree with that statement - if that was the goal - to open up other markets.

But I don't think that was what REALLY submarined Doha from the administrations perspective... It was the realization that the (mostly GOP) Midwest & southeastern ag state senators wouldn't have approved of the deal even IF the administration got what it wanted. These folks (red staters) are the last bastion of solid Bush support - no way they could afford to rock that boat.

'Fortunately' for the administration the EU followed suit so no head on collision with their base was necessary. In fact my guess is the other parties in the negotiations (EU, India) sensed this and offered little as result - sensing they were negotiation with themselves anyway. No surprise.

Defeat...snatched from the jaws of victory, and at the precise moment when the world's poor were, with the benevolent assistance of Capital, poised to grasp the wonderfulness of middle-classhood!
There go the new golf clubs!

It [the U.S.] has said all along it preferred no deal to one that brought it no new business.

Don't most economists agree that farm tariffs and subsidies are harmful? If so, why doesn't the U.S. go ahead and eliminate them unilaterally. Why should the American consumer be held hostage to higher priced food just because the U.S. can't get the intellectual property concessions they want or some such?

I can think of two reasons. One is the political power of the corporate farm lobby (ADM, Big Sugar, etc). The second is that the administration cares more about the things like the IP rights of international corporations than the price of food for domestic consumers.

The Great Depression was preceded by collapse in world trade. Food for thought (no pun intended).

Don't most economists agree that farm tariffs and subsidies are harmful? If so, why doesn't the U.S. go ahead and eliminate them unilaterally. Why should the American consumer be held hostage to higher priced food just because the U.S. can't get the intellectual property concessions they want or some such?

You answered your own question - ag business lobby, primarily GOP based, in farm states...

But as for 'consumer paying higher prices' - they don't. The subsidies are constructed so the consumer mostly pays the same or LOWER prices...

Most subsidies are either direct payments (offsets) to farmers or export subsidies to agri business... only a few commodities like sugar are 'quotas' and result in higher domestic prices to consumers.

Its a classic exercise in 'cost shifting' and thats why these kinds of subsidies have survived as long as they have. If consumers actually had to pay the subsidies (as a tax on food for example) - then they would have been killed long ago.

Dryfly, that may be the case in the US but it most certainly is not inside the EU. The usual calculation is that farm subsidies add 25 pounds a week to the food bill for a family of four. That may not sound like much but it’s 1,300 GBP in a country where the median income is around 22,000 GBP.

Regarding agricultural barriers, and the potential effects that would have arisen from removal of such barriers and distortions, see the following three publications: Policies That Distort World Agricultural Trade: Prevalence and Magnitude, August 2005 (i.e., everything you wanted to know about green, amber and red boxes),
CBO, The Effects of Liberalizing World Agricultural Trade: A Survey, December 2005, and
CBO, The Effects of Liberalizing World Agricultural Trade: A Review of Modeling Studies, June 2006.

But as for 'consumer paying higher prices' - they don't. The subsidies are constructed so the consumer mostly pays the same or LOWER prices...

If we ignore the quotas on products like sugar and the price supports for many other products, that appears to be the case, just so long as we don't account for the fact that most consumers are also taxpayers. Unfortunately, they do pay taxes, and when we sum the effects of the taxes required to fund the subsidies and the effects of the subsidies themselves, the result is a net loss (Harberger Triangles, anyone?).

Unfortunately, they do pay taxes, and when we sum the effects of the taxes required to fund the subsidies and the effects of the subsidies themselves, the result is a net loss (Harberger Triangles, anyone?).

Yup. But they aren't directly connected - so the cost shifting works cause consumers don't feel the pain DIRECTLY... except for sugar & similar.

Tim W - how does the EU subsidize, could you summarize in '25 words or less' for me? I've never fully 'followed the money' for the EU system...

Having lived most of my life in the rural Midwestern USA I get how most of our commodities are subsidized... usually by direct deficiency payments that get triggered when commodity prices fall below target prices... the revenue for this comes from 'general funds'... and so there is no direct connection between subsidies & consumer prices. Not so in the EU? How?

I never understood how trade agreements running into thousands of pages, adjudicated "in the dark" by "special masters" that remain largely anonomous, ever got tagged with the term "free trade". Anyone care to straighten that out for me?

dryfly: From the summary in the CBO report cited in my previous comment:

- High agricultural tariffs are most prevalent in East Asian countries. The United States has a low average agricultural tariff, and the European Union's (EU's) average is in the middle.


- The European Union provides the largest amount of the most trade-distorting category of domestic support (so-called amber-box support) as measured by dollar value, with the United States a distant second and Japan a distant third. The highest rates of such support, measured as a percentage of total agricultural
output value, are those of the members of the
European Free Trade Association, or EFTA (Iceland, Norway, and Switzerland-Liechtenstein), followed by the European Union. The United States is further down the list.


- The European Union is by far the dominant provider of export subsidies, providing 85 percent to 90 percent of the world?s total.

So the difference is that the EU uses tariffs to a greater degree than the US. In addition, as is known from trade theory, export subsidies tend to drive up domestic country prices.

Mark E Hoffer: A similar point has been made on several occasions by Jagdish Bhagwati. "Free" is defined relative to "autarky".

Daniel Davies makes a contrarian argument here that Africa is a special case. He argues that agricultural subsidies allow poor African nations to buy commodities much cheaper than they could ever produce themselves. Subsidies are effectively an inefficient way of sending foreign aid with agribusinesses taking the biggest cut. I disagree with his conclusion that we should just continue with agricultural subsidies, but he does bring up a good point that ending them could have devastating effects on Africans. Perhaps one solution would be to send a portion of the taxes that are now wasted on subsidies to poor African nations as direct grants and allow them to buy commodities from the cheapest producer.

Joseph: Interesting point. Unfortunately the link does not seem to be operative. Here is an academic paper making the same point. One criticism (I think associated with Bill Cline at IIE) is that this approach takes each LDC's net agricultural trade balance as given, when for any given country this balance is probably distored by agricultural protections. That is, many of these countries might be net exporters in the absence of OECD agriculture sector distortions.

Thank you for the link to the paper. It is much better than mine which was just an opinion piece. They seem to conclude that removing OECD subsidies could be detrimental to net importers, at least in the short run.

My complaint about many economists is that they very strongly push their views about the benefits of free trade, NAFTA, off-shore outsourcing, etc. Then they provide a little lip service acknowledging the transitional dislocations that will occur and that maybe there should be some assistance for that, but nothing ever comes of it. When the deals are made, the assistance seems to be forgotten. Economists just don't seem to be as interested or fight as hard for the latter. The attitude seems to be "eat your vegetables, they're good for you" and everything will be better in the end (at least for the mean). And maybe that is true but the people affected are not just statistics, they are the most impoverished, barely surviving as it is, and least able to help themselves.

Menzie,

Do you really find this: ""Free" is defined relative to "autarky".", to be useful?

To me, it is redolent of more definition destruction by the hand of relativism.

WTO, properly defined, could never be sold. It is, at its face, contra to any rational expectation one may have, pertaining to a natural conceit, of "Free-Trade".

Beside that, Thank you, for your response to my Q.

While I understand the free trade vs subsidy arguments and the domestic politics of agriculture, one must not forget that domestic food production has national security implications.

In the 20th century during WWI, it was the military policy of the Imperial German Fleet to starve Great Britain into peace talks using unrestricted submarine warfare. It was a close thing. Great Britain equally pursued a starvation policy against the German population and was more successful - hunger was widespread in Germany at war's end.

In WWII, the same policy was tried against Great Britain but again, failed. In turn, the US deliberately targeted food imports to Japan using submarines and aircraft. However, WWII did show that attacks on oil production and distribution had more immediate effects on the enemy's war-figting capabilities.

When starvation by enemy action is within living memory, one views local farmers a bit differently.

Joseph: Glad you found the paper of use. The other papers at the conference also seem of interest.


I'll step up and defend economists -- not all economists are blindly supportive of freer trade. I think a lot of us are more nuanced, and understand that the losers should be compensated by society overall, if not for equity's sake, then for the sake of making continued trade liberalization politically feasible.


Mark E. Hoffer: I understand the frustration. If you prefer, call them trade liberalization agreements.


Joseph Somsel: Somehow, I don't think that for the United States, food security (in terms of producing enough -- maybe we should spend a little more inspecting the food, though) ought to be at the top of the priority list. Also probably not the case for the expanded EU. Maybe for Japan, but then one has to do an expected cost versus expected benefit calculation: Is rice three or four times world price for 40 years a good tradeoff for a, say, 0.00001 probability of an embargo on rice? (By the way, on the WWI blockade and other naval matters, I highly recommend Massie's Castles of Steel (review here).


I agree for some other countries, agricultural subsidies based on security grounds might be plausible, but the key offenders don't in my opinion fall into that category.

My sources for Great Britain's food supply concerns are Winston Churchill's "World Crisis" and his multivolume WWII memoirs. He was directly responsible in both wars for ensuring food imports. I'll take a look at the book you recommend.

Jimmy Carter also cutoff wheat sales to the Soviet Union in 1980 in an attempt to use hunger as a tool of US foreign policy. This was in response to the USSR's invasion of Afghanistan.

Today, a third of Egypt's caloric intake is provide free by Uncle Sam. Saudi Arabia is also hugely dependent on imported food.

My point is that a country's security is enhanced by being able to feed itself come what may. As a second order effect, the dependency of other countries on your food exports also offers diplomatic leverage.

I would hope that our negotiators have these historical precedents in mind. It's not all about money.