The Perils of Subsidization

Commentary, Agriculture, Robert Sopuck

H.L. Mencken, the sage of Baltimore, once said, “For every human problem there is an answer that is neat, simple and wrong.” In the field of agricultural policy, we are always looking for that “magic bullet” that will easily and painlessly solve the perennial problem of low grain prices.

The answer for American grain farmers seems to be the direct subsidization of grain prices through the U.S. Farm Bill. Simple, right? If prices are low, just “top them up” with “temporary” injections of money until things “improve.” The trouble for grain markets in general is that things rarely improve, at least for long. Massive U.S. subsidies will ensure that massive supplies of grain will be with us for a long time.

The other problem with direct subsidization of grain prices or transport is that it thwarts natural economic trends. South Dakota, for example, where the problems of rural development and agriculture are as acute as anywhere in Canada, is rapidly losing its identity as a rural state. People from small towns are moving to the cities and small farms rapidly replaced by big farms. This trend is not necessarily bad, but it is being driven by direct subsidization of grain, made even worse by the new U.S. Farm Bill. With guaranteed farm prices, large and highly capitalized farms are quickly buying out the “little guys” and driving up land prices, to boot. From 1870 to 1997, South Dakota’s farm-based population declined from 66.5% of the sates population to a meager 15%.

Direct subsidization of grain prices has distorted the natural trend towards increasing livestock numbers, especially cattle. Cattle numbers there peaked at 5.1 million head in 1974, but by 1999 had declined to 3.8 million head. Contrast this with the Manitoba experience, where both cattle and hog numbers have increased along with employment in the livestock industries. Here the removal of many trade-distorting subsidies has resulted in an impressive array of value-added enterprises. South Dakota has many “natural” advantages for the production of cattle but the relentless ratcheting up of grain subsidies is driving down cattle numbers, and hence rural populations, just at a time when they could be increasing.

A reduction in livestock numbers is bad for rural communities and farms since livestock raising is much more labour-intensive than grain production. Livestock keep people on the land or employed in nearby livestock-related enterprises. In Manitoba, we have a number of thriving rural areas, especially south of Winnipeg, that owe their prosperity to livestock.

Finally, the evidence in South Dakota points to a serious downside to subsidy-pushed expansion of corn and soybean production, its effects on conservation. Native grasslands formerly used as pasture are being cultivated at an alarming rate, with all of the attendant effects on wildlife and water quality. Conservationists in South Dakota are now championing the “family ranch” as “ the last best chance to sustain the unique grassland-wetland character of the Northern Great Plains.” Keeping the “family ranch” as part of the social fabric of western North America is not only good for communities, it’s also good for the land itself.

The next time you see cows in the countryside, tip your hat to them. They are a lot more important than you think!

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