Why there’s never been a better time to cut farm subsidies

As President Obama and Speaker Boehner discuss spending cuts and the debt ceiling, they should realize that thanks to the rise of the Chinese middle class, this is a great time to cut U.S. farm subsidies. Just yesterday, the USDA boosted its estimates of 2012 marketing year U.S. corn exports to China by fourfold — indicating a strong and lasting shift in Chinese consumption patterns, a shift that wasn’t present when farm reforms were last discussed in 1996.

Back then, farm subsidies were supposed to be cut, with exports expected to fill in for lost entitlement income. But export growth didn’t happen as fast as expected, and subsidies weren’t reduced.

Fifteen years later, things are very different. Helen Wang, an expert on the Chinese economy, estimates that in 2010 over 300 million Chinese (25% of China’s population) met her definition of “middle class.”

As people move from subsistence to the middle class, their food consumption patterns change. People with disposable income are attracted to “aspirational consumption,” including aspirational foods. For the U.S. agricultural sector, “aspirational food consumption” in developing countries means more people eating more animal meat more often. And what do those animals eat? Corn and soybeans. (For a dramatic graph of China’s increasing meat consumption, click here.)

Although today’s complex system of U.S. farm subsidies isn’t supposed to be trade-distorting, any Econ 101 student will tell you that a subsidy artificially reduces a product’s price. So if China’s meat (hence corn) consumption is exploding, with a huge market that can accommodate many grain exporters, why are American taxpayers subsidizing corn production?

In the 1980s, New Zealand’s government used its budget crisis as a springboard to successfully reform the country’s farm subsidy system. This prompted Bruce Chamberlin, a prominent New Zealand farmer, to write, “The reforms were not an experiment. They were simply a return to orthodox economics and the old-fashioned idea of balancing budgets.”

Lately, Speaker Boehner has been talking a lot about balancing budgets. Our friends in New Zealand proved that making tough choices on agricultural subsidies was important to restoring their nation’s fiscal health. Today’s rising Chinese middle class is making international agricultural markets more robust than ever. Put the pieces together, and we have a great opportunity to show the American people that our leaders are serious about cutting farm spending. Are they up to the challenge? And if not now, when?

Joanne Butler is a senior economics fellow at the Caesar Rodney Institute of Delaware. You can email her at joanne-butler@comcast.net.

  • FormerDemocrat

    Yes, we need to cut farm subsidies, and much more besides. This is the best time to cut farm subsidies, because farm prices are so high.

    We don’t hate farmers, or anybody. But the US government is hopelessly bankrupt. It is borrowing 45% of spending, for three years in a row now. It owes more than six times annual income, and the debt is increasing over 10% per year. If the federal government were a company, it would be dissolved and sold off for parts. It is time to get deadly serious about cutting everything, and the sooner we do it, the better off we all will be.

    Our total cost of government is 61% of GDP. We are a virtual socialist nation. Total government spending (federal, state and local) is 41% of GDP. Federal regulations cost another 12% of GDP, and state+local regs are about another 8% of GDP. Our economic growth is stagnant, and our unemployment will remain high while government dominates the economy.

    It is time to cut total cost of government in half. That would increase the income of the private sector by over 75%. How’s that for economic stimulus?

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  • http://lamecherry.blogspot.com lamecherry

    I have a challenge for Tucker and the DC Caller for the next time you allow one of these parrots of the cartels who are fat like Joanne Butler engaged in lying to Americans about farm subsidies as this great evil, which has kept Americans fed and food independent for years…..

    Inform the obese Ms. Butler that if she desires to keep posting lies about farming, that she must first go to some rag hole like Nebraska, and engage in farming for one year.
    If at the end of that year, a Holstein bull does not kill her, she does not get her rotund body wrapped around a PTO shaft and IF SHE CAN MAKE A PROFIT, then she can be qualified to bitch, piss and moan to her cellulite pocked thighs delight about lecturing on cutting farm subsidies.

    Isn’t it amazing that all the folks from Limbaugh to this Butler creature hating on American farmers ALL have never been engaged in agriculture for a living and amazingly they all derive their immense incomes from………..yes the same barons who have been raping the poor American rural states for years.

    Come on Tucker, I dare you.