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luisvieira
Senior Contributor

OECD director criticizes US subsidies system

Ken Ash, director of the the Trade and Agriculture Department, was lecturing today at the Agricultural Outlook Forum, in Foz do Iguacú, state of Paraná. He mostly criticized the agricultural policy of several countries, including the US. He think that Americans should get rid of individual subsidies to farmers. "This policy has proven that is not effective. It would be a lot smarter to allocate that money in technology development", said Ash.

 

Ash also thinks that the Brazilian policy is in the wrong track. "The Brazilian policy has expanded credit over and over. I don't think Brazilian farmers need more credit. It would be better if the government puts money at Embrapa (Brazil's National Research Company) and logistics", explained. The OECD director did not forget of Europe, saying that it need to be more "scientific" when it refers to biotechnology and more open. However, he was very optimistic about the future for all countries. "There is a market screaming for more supply and tariffs everywhere could be lowered", advocated Ash.

 

What do you guys think of this free-market approach?

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6 Replies
hardnox604008
Advisor

Re: OECD director criticizes US subsidies system

Land prices are the cornerstone asset of farming.

 

There is some unquantifiable premium built into the price of land based on past subsidies and the implied belief that there will be a safety net in the future. If that safety net is removed, land prices will adjust downward and cause discomfort for some farmers and lenders.

 

On the one hand,maybe  it is a good time to do it, if we're going to, while balance sheets are generally sound. On the other hand things have been a bit bubbly so it could be a pretty hard adjustment from where we currently are.

 

No good time I guess and I doubt that my vote or voice is going to have a lot of influence over what does happen.

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luisvieira
Senior Contributor

Re: OECD director criticizes US subsidies system

I'm still following the same summit. Later on, Luiz Antônio Fayet, a logistics consultant, said that Brazil has the greatest potential in terms of grain production because it has 1/5 of the available arable land in the world. However, it is not still not competitive compared to the USA because on average logistics costs are four times higher in the South American country. That will just change when the capacity of the Panamal Canal is doubled and when Brazil is able to use a lot more of its Northern ports. How long it would take? Maybe in a decade, maybe in five years.

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Canuck5
Veteran Contributor

Re: OECD director criticizes US subsidies system

I tend to agree with the OECD on this.  No matter the mechanism or the intent of agricultural subsidies, they either end up in the consumer's pocket, or are capitalized into land values.   In Canada, prior to about 1995, we had the "Crow Rate" subsidy on rail freight.  Even though rail freight rates were subsidized by the government, the real beneficiaries were not farmers, but off shore buyers of Canadian grain (the subsidy only applied to grain shipped through the East or West coast).  Exporters simply used the subsidy to "buy" export sales.  But it was really even worse than that, because our own domestic users of grain had to effectively "bid against" the subsidy in order to get the grain to 'stay home' so they could acquire their feed grain or milling wheat etc.  The perverse consequence of the subsidy was that our Government subsidized foreign end users at the expense of our domestic users, normally the most reliable customer we had.  In the 20 years since the subsidy is gone, it is now safe to say that land values now include no unquantifiable capitalized component from the "subsidy", and export and domestic customers are now on an equal footing.

 

So I would caution against any form of subsidy someone like the Brazilian Government might contemplate as they try to improve their transportation system.  Their hard earned taxpayer funds will end up in the hands of their Chinese customers, and the net price to Brazilian soybean growers won't be any higher.  And to boot, American and Canadian suppliers to the international market will then net less as well, as we compete to supply the same end user requirements.

 

Subsidies in any form are a complete waste of resources, and once in place are difficult to remove because of the economic distortions they create, not to mention the 'entitlement' that recipients seem to think are theirs forever.

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hanktbd
Senior Contributor

Re: OECD director criticizes US subsidies system

Getting rid of ag subsidies would be nice and so are flying unicorns with skittles shooting out. The reality is that no government with a half brain that wishes to remain in power will risk having shortages or extremely high priced food. The purpose of subsidies is to ensure plentiful and inexpensive food for the populace and they will not be abandoned by the ruling classes anytime soon.

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hardnox604008
Advisor

Re: OECD director criticizes US subsidies system

Hi Hank,

 

My admittedly choleric view of the world has been in no small part influenced by breakfast at the coffee shop and having to listen to guys who are incensed about #$%^&* getting food stamps and, ohmigod, health care. but are certain that the nation's security depends on "agriculture's"  continued support, current or implied in the future, from da guvmint.

 

In the presence of a functioning economy and credit system the land that's needs farming will get farmed. It's just a question of who's going to farm it and who may take a hit for some bad loans.

 

In the absence of a functioning economy, Government Directed Agriculture is still at risk anyway.

 

 

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hanktbd
Senior Contributor

Re: OECD director criticizes US subsidies system

Hardnox,

 

I agree that the land that needs farmed will get farmed regardless of subsidies. Farmers, like any business person, will grow what is most profitable, and what is most profitable in each region is likely to change without the influence of subsidies. Without subsidies we become more specialized in order to maximize profits, and so we become more dependent on trading partners for those types of food or farm products we do not grow efficiently at home. As industry is in the process of discovering, long and narrowly sourced supply lines are risky and often unreliable sources for end users. Couple that with the fact that hungry people tend to blame and replace their nation's leadership, and it is easy to see why elected officials who want to keep their jobs will generally vote for food security above economic efficiency. Food security as government policy is at least as old as Joseph and the ancient Egyptians and will probably continue to be so until the return of our Lord.

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