A new report from the United Nations has found that the $540 billion in annual global subsidies for agricultural production has damaging effects for people and the planet. That should come as no surprise. Decades of evidence has proven the economic and environmental harm caused by farm subsidies. Nevertheless, the UN report is a wake-up call that the amount of money spent and adverse impacts of agricultural subsidies are staggering. With these subsidies on a trajectory to reach $1.2 trillion per year by 2030, now is the time for governments to wind down these unnecessarily wasteful policies.
In the United States alone, taxpayers paid nearly $425 billion in agricultural subsidies from 1995-2020. These payouts accrue to wealthy farmers whose income and wealth is much greater than the income and wealth of the median U.S. household. The price-distorting impacts of fiscal payments and border measures like tariffs ripple throughout the agricultural market and the economy.
Handouts and protectionist border measures also insulate wealthier farmers from competition. For instance, subsidies in one country may lower the price for consumers but harm farmers in developing countries that do not benefit from a subsidy. Therefore, unsubsidized farmers cannot compete at artificially depressed prices. On the other hand, trade barriers like import tariffs harm consumers and give domestic producers an advantage over competitors who may be able to supply a product (like sugar) for a lower price. As the UN report emphasizes, the special treatment comes at the expense of smallholder farmers, many of whom are women.\
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Moreover, substitutes, whether it be another crop or an innovative, climate-friendly food like plant-based or cultured meat, have an even higher obstacle to gain market share since prices for subsidized crops and commodities are lower than they otherwise would be.
Another injurious effect of farm subsidies is that they stifle innovation and encourage dependence. Special treatment from the federal government reduces the incentive to innovate, cut costs and compete in a world without subsidies. Any sort of temporary handout becomes a permanent fixture because the beneficiaries will spend substantial resources lobbying to keep handouts in place or expand them. The reality is the agricultural sector will be better off without subsidies because the sectors that will survive will be the most financially viable.
Subsidies that distort the production of certain crops and commodities can also have harmful effects on nutrition and the environment. While the majority of U.S. farm subsidies benefit five crops (wheat, cotton, corn, soybean and rice), the UN report finds that “unhealthy products, like sugar and emission-intensive commodities (e.g. beef, milk and rice) receive the most support worldwide.” With subsidies, greenhouse gas emissions are higher than what the market would bear.
Additionally, preferential treatment encourages the conversion of more land to cropland, resulting in numerous unintended environmental consequences. One example is the Renewable Fuel Standard, more colloquially known as the ethanol mandate. The mandate requires the blending of corn-based ethanol, soybean-based diesel and other advanced biofuels into transportation fuel supplies. In a 2019 paper prepared for the National Wildlife Federation, a team of economists found the mandate was responsible for converting 1.6 million acres of grassland, forests, shrubland and wetland into cropland from 2008-2016. The paper concluded that the Renewable Fuel Standard is “fueling environmental harm that is destroying monarch butterfly habitat and forage, draining western aquifers, accelerating climate change and numerous other effects.”
Finally, making supply chains top-heavy and dependent on fewer and larger producers puts our food supply at risk. As the COVID-19 pandemic showed, supply chain resiliency is something we cannot take for granted and works much more efficiently when we allow markets to work.
Farm subsidies in the U.S. and around the world are a political sacred cow, but politically diverse coalitions can make some noise, too. The opportunity for strange bedfellows is ripe as preferential treatment for agricultural producers has come under attack from all sides of the political spectrum. Last fall, Swedish climate activist Greta Thunberg said the European Union’s farm bill “fuels ecological destruction.” Chris Edwards of the free market Cato Institute stressed that, “Farm subsidies are costly to taxpayers, but they also harm the economy and the environment.”
The UN report is yet more evidence that eliminating agricultural subsidies would be beneficial to taxpayers, consumers and the environment.
The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.