Daniel Griswold rips into U.S. rice policy: Grain Drain. The Hidden Cost of U.S. Rice Subsidies (Cato Institute, Nov 16).
The indictment:
- taxes on rice imports raise consumer prices
- the taxes are regressive, falling relatively more heavily on the poor and people with lower income
- there are three types of subsidies, which cost taxpayers between $470 and $1,770 million a year since 1998
- plus additional federal support for rice exports
- the benefits often miss their ostensible target (presumably about 9,000 rice farmers),
- either because payments are "decoupled" from production and can go to persons owning land once used to grow rice: "According to a recent nine-month investigation by the Washington Post, [T]he federal government has paid at least $1.3 billion in subsidies for rice and other crops since 2000 to individuals who do no farming at all.” The report cited an 87-year-old homeowner who had collected $191,000 during the past decade and a Houston surgeon who had collected $490,709—all because they owned land in southeast Texas, near Houston, that had once been used to grow rice."
- or because "other nonfarmers collecting payments are the landlords of active rice farmers. Part owners and tenants work almost 80 percent of farms producing rice, compared to 40 percent for farming in general. That causes the "leakage" of intended benefits away from households actually growing the rice to upstream and downstream interests, namely landowners and processors."
- enough of the benefits stick to the intended beneficiaries to account for half of U.S. rice farmer income
- commitment to these, and other, agricultural subsidies helped poleaxe the Doha multilateral trade negotiations
- these programs drive down world prices for rice, hurting poor rice farmers in developing countries
- U.S. labor, land and capital are diverted to producing rice by subsidies and artificially high prices, when they could be used more productively for other things
A nice little backgrounder - prepared in anticipation of the development of the new farm bill in early 2007.
Ironically, Jeffrey Schott, Scott Bradford, and Thomas Moll, found that a U.S.-Korea FTA was more valuable to the U.S. if rice were excluded - because of the subsidies (Negotiating the Korea–United States Free Trade Agreement, Peterson Insititute, June 2006):
Interestingly, the model reports that—although the dollar amounts are small—the United States would in fact gain more from the FTA if rice were excluded. This surprising result stems from the fact that the United States subsidizes rice, along with other agricultural goods. Under the model’s constraining assumptions, opening the large and lucrative Korean rice market only to US exporters would cause many US resources to shift to this sector, which because of the large subsidies (which are held constant in percentage terms) would actually hurt the US economy.
What is to be done? Griswold suggests the following changes in the upcoming farm bill:
- Repeal all trade barriers against imported rice.Tariffs act as a regressive tax on food while delivering support to a small group of rice farmers through a nontransparent and market-distorting mechanism.
- Eliminate the market loan program, which is the most production- and trade-distorting of the three main support programs. The program is vulnerable to a challenge in the WTO.
- Phase out or buy out the other two subsidy programs, direct payments and countercyclical payments, which, although less market distorting, amount to an unjust transfer of wealth from tens of millions of American households to a few thousand rice farmers. The payments could be phased out over a period of three to five years, or they could be ended immediately with the payment of a lump sum equal to something less than the net present value of the phased-out payments.
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