Getting Rid Of Farm Subsidies Has Worked Pretty Well In New Zealand
One of the most pernicious assumptions in the area of pubic policy is the assumption that the government must do things the private sector doesn’t do. We’re told that government must make the investments into green technology or the arts or higher education that private individuals won’t.
That there might be some pretty good reasons why the private sector isn’t making those investments doesn’t come up nearly often enough in those debates.
In the area of agriculture policy, we’re told that the government must create a “level playing field” for ag producers since it’s such an inherently risky industry. I’ll make no argument about that last, farming and ranch is very risky, but all business is risky. And food is a rather inelastic market. No matter how bad things get, people are going to need food. Do we really need to prop up an industry demand for which will never, ever go away?
In New Zealand they ended subsidies and government programs for agriculture, and the result has been a thriving and more diverse agriculture sector:
Prior to the 1984 reforms, subsidies stifled farm productivity by distorting market signals and blocking innovation. Many farmers were farming for the sake of the subsidies. For example, nearly 40 percent of the average New Zealand sheep and beef farmer’s gross income came from government aid.
When the subsidies were removed, it turned out to be a catalyst for productivity gains. New Zealand farmers cut costs, diversified their land use, sought nonfarm income, and developed new products. Farmers became more focused on pursuing activities that made good business sense.
Official data supports on-the-ground evidence that New Zealand greatly improved its farming efficiency after the reforms. Measured agricultural productivity had been stagnant in the years prior to the reforms, but since the reforms productivity has grown substantially faster in agriculture than in the New Zealand economy as a whole.
Since the reforms, agriculture’s contribution to New Zealand’s economy has remained steady at about 5 percent of gross domestic product (GDP). Adding activities outside the farm gate, such as processing of milk, meat and wool, agriculture is estimated to contribute over 15 percent of GDP. By contrast, agriculture’s share of the economy has fallen in many other industrial countries.
With the removal of subsidies in New Zealand, agricultural practices are driven by the demands of consumers, not by efforts to maximize the receipt of subsidies. At the same time, the whole agricultural supply chain has improved its efficiency and food safety has become paramount. Businesses that deliver inputs to farming have had to reduce their costs because farmers have insisted on greater value for money.
In New Zealand, they’re now farming to meet market demand instead of farming to obtain subsidies. That means greater efficiency, better products and less burden for the taxpayers/economy.
To hear some tell it, ending ag subsidies in America would mean the end of farming in America. With New Zealand as our example, it seems ending farm subsidies in America could mean a stronger agriculture industry.Tags: farm subsidies, new zealand