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.