Subsidies should be retained to protect national and regional food supply. This is the view from more than half the farmers across the globe who gave views on the best purpose of agricultural subsidy, in a poll led by Farmers Weekly.
But almost a quarter of farmers called for subsidies to be scrapped, reflecting the wide divergence of views across the world on a topic that polarises nations. About 12% felt the role of subsidies was to stabilise consumer prices, while a similar proportion chose environmental protection as their purpose.
So why is it that more than half of the world’s farmers seek the secure shelter of subsidy, rather than the unfettered world trade?
“We have support out of necessity, not desire,” said president of the English NFU Peter Kendall.
“We live in a world where global markets are distorted, where Russia closes its doors to wheat trade and the US supports its corn farmers. If we didn’t have an agricultural policy in the EU we would become the world’s dumping ground for surpluses.
“We should aspire to get to a place where world and EU markets give farmers a fair return, and work towards no subsidies.”
But with both the US Farm Bill and Europe’s Common Agricultural Policy up for review, there’s little talk of either moving away from subsidised farming. Food security is the greater concern.
“We have a duty towards our European citizens to provide for them quality, healthy food,” said EU Farms Commissioner Dacian Ciolos.
“Feeding the world will be a challenge in itself. It is a challenge that Europe has to be ready to address – as part of a global response, but also because it is a strategic security imperative for Europeans.”
With this imperative in mind, CAP’s direct payments give EU farmers the confidence to supply a hostile market, said the NFU’s head of economics and international affairs Tom Hind.
“The support offers a degree of income stability against the inherent volatility in input and output prices. It gives farmers the tools and instruments to manage these as well as the abuse of power in the market that is fundamentally exploitative.”
It also recognises the higher regulatory costs of food production in the EU, and delivery of goods the market doesn’t pay for, such as environmental management and social cohesion in rural areas, he added. “But the best way to deliver public goods is to pay farmers enough and encourage them to do it voluntarily.”
This policy puts Europe on a subsidy fix, however, according to Lachlan McKenzie, chairman of the Federated Farmers of New Zealand dairy section. The EU drags its own rural economy down and distorts markets the world over, he said.
“If you want to pay your farmers to keep your grass clipped and your hedges trimmed, fine. But when our markets are distorted through subsidy, it hurts our economy hugely, and that of [developing] subsistence economies even more.”
The NZ dairy industry is a model for the world, he said, creating wealth for the country through exports around the globe. This has been borne out of necessity to innovate and adapt the sector with no subsidy or market support.
“You scratch your heads in Europe and wonder why you can’t get young people to stay in farming. It’s because they look at your ageing farmers getting pittance from their cows, propped up by subsidy, and come over here to farm instead.
“The whole idea of subsidy was to ensure sufficient food production, but was it successful? Europe, like many countries, is now worried about food security. New Zealand exports 95% of its dairy produce. We’ve got a long way to go before we run out of milk.”
But a different model works in Canada and stabilises consumer prices. Rather than operating a free market, supply management sets dairy and poultry prices at a level that gives farmers a fair return. It is a policy that’s soundly supported by both consumers and processors, said Ron Bonnett, president of the Canadian Federation of Agriculture.
FREE MARKET IDEALISM
“The whole idea of supply management is inventory control, so there is no surplus. It’s very different to straight cash payments. Farmers as a group negotiate a price that’s fair for everyone.”
It means the Canadian dairy and poultry markets are closed to imports and consumer prices for dairy, for example, are as much as 10% higher than across the border in the US.
“It’s idealistic to believe you can have a free market for everything – the bank collapse has shown that. The marketplace is the solution, but farmers have to be given negotiating power in that market, not government cash.”
This cash should be spent on protecting the environment, according to the UK’s Country Land and Business Association. “Subsidies pay for what the market doesn’t provide for,” said policy director Allan Buckwell.
“Protecting the environment is a public good that markets cannot deliver. One could argue that food security is also a public good, but subsidy is not the optimal solution to deliver this.”
The FWi forum has seen contributions from farmers across the world. Here’s a selection of views:
glasshouse: The WTO banned production subsidies in 2004, and look at the result: plummeting livestock numbers, a world grain shortage, volatile prices of vital food supplies.
Twenty years of acreage payments have decimated working farmers. Landlords and hobby farmers are grabbing the cash, while real farmers go belly up.
Intervention buying of grains will return, with a pricing mechanism similar to the guarantee we had in the 1980s. The necessities of life cannot be left to the market.
stop it: The CAP, while not linked to production, still keeps many bad farms in business. The crutch of subsidy is a blanket policy to keep all in farming no matter what, stifling innovation and distorting the market.
This leads to ludicrous situations, like the dairy market, where milk prices barely match the commodity prices. Buyers know that producers, while losing money on the production of milk, will always have the crutch of subsidy.
If that is removed, the onus will be on the market to deliver a fair price. As the supermarkets won’t want to be seen as responsible for the destruction of the dairy industry, they will pay.
andyrobbo81: Instead of spending the money on subsidy paid to farmers, the funds would be better spent on market reform. For dairy farmers, it would be better to have greater access – and, more importantly, access independent from outside interests – to these markets.
Farmer selling groups that can effectively do this should be encouraged. With this would be partial regulation that would cover all parties in the selling and buying process to allow fair and robust negotiations from all sides.
old macdonald (near Castelo Branco, Portugal): The average holding in the EU is a great deal smaller than the average holding in the UK. Those of us out here are producing human food – olive oil, wine, goat meat, almonds. If you [scrap subsidy and] push us peasants into the city, you in Britain will have to pay for everything we need instead of just a little of what we need.
alidonwnunder (Canterbury, New Zealand): I remember vividly when subsidies were removed here – interest rates climbed to 22% and prices dropped to such a degree that we were squeezed in the middle.
Twenty five years on, interest rates are around 7-8% and this year prices are increasing. There have been huge capital gains on farms in the past five years and farmers have been able to use this increased equity to borrow their way through the bad years.
Here we have no subsidies, but we are not much different from farmers around the world. The major change is that we are much more aware of world markets and exchange and interest rates of our trading partners.
The internal market is a bit different as the supermarkets tend to try to dictate price. So I guess this is where NZ farmers are at an advantage as the biggest percentage of our produce is exported.
Buffalo Billy: There are far too many farmers who think they have a duty to produce as much food as they can regardless of how much they are losing. Farmers need to raise their expectations dramatically.
Instead of being satisfied with a few pounds profit per tonne we should take a leaf out of Duncan Bannatyne’s book – he doesn’t invest in any business that doesn’t make a 30% return per year. Bearing in mind how essential farming is to the public, that level of return should not be unrealistic for us.
We have to recognise that food has become too cheap and it is only by cutting supply that we can raise prices to a sustainable level and rid ourselves of subsidies. Then we can hold our heads high.