Do Subsidies Help Farmers Worldwide?

Tiller, Kelly J., and Harwood D. Schaffer. "U.S. Cotton Subsidies Under Fire: Would Subsidy Elimination Really Help Farmers Worldwide?" Department of Agricultural Economics. University of Tennessee. <http://apacweb.ag.utk.edu/ppap/pp04/BCC04.doc>.

A 2002 Oxfam Briefing Paper, “Cultivating Poverty: The Impact of U.S. Cotton Subsidies on Africa”, stated, “American cotton subsidies are destroying livelihoods in Africa and other developing regions.  By encouraging over-production and export dumping, these subsidies are driving down world prices- now at their lowest levels since the Great Depression.  While America’s cotton barons get rich on government transfers, African farmers suffer the consequences.”  The World Bank estimates that to end the tariffs and farm subsidies may increase global wealth by as much as a half-trillion dollars and cause 150 million people to be out of poverty by 2015. 

Cotton production in the United States has become the main topic of international critics of  United States farming policies.  This is because cotton is grown all over the world in a number of nations, especially third world countries, unlike corn or beans.  The United States can afford to make direct income support payments to our farmers if the price of cotton falls, however in the third world countries producing cotton, it can have a much larger, potentially devastating, affect.  In 2002, low cotton prices caused Burkina Faso to lose 12 percent of their export earnings and 1 percent of their total GDP. The low prices are often attributed to United States subsidies which allow the sale of American cotton to be sold under the full cost of production in the world market.  This is the definition of “dumping.”  The 2001-2002 average price for cotton sold at about 60 percent of its total year’s cost of production.  In 2003, the average corn market price was about 75 percent of the yearly total cost of producing one bushel. (Ritchie) 

One critique on United States farm policies is that the U.S. subsidies have cause overproduction.  This overproduction has caused domestic prices to fall.  Because the United States is a huge player in the global market, American prices changes are felt globally, in turn hurting other farmers.  The reasoning is that eliminating United States subsidies would cause the number of planted acreage to fall.  This would increase prices globally, which in turn would improve incomes for the farmers.  However, prices did not fall because of the high subsidies.  The price declines in the United States happened when the subsidies were at extremely low levels.  This happened right after the Freedom to Farm legislation was implemented.  These low prices caused increasingly larger payments from the government.  High levels of United States government payments to farmers were not a cause of the low prices; they were a result of them. 

If subsidies were to be removed, this is what would happen.  According to the authors, Tiller and Schaeffer, the results of a simulation using the POLYSYS model of the U.S. agriculture sector show that eliminating all U.S. agricultural subsidies results in minor changes in aggregate crop acreages and prices in the United States by 2011.  By 2001, cotton acreage would average less than one million acres below the baseline acreage level.  Rice acreage would decrease also, but not as drastically as cotton.  For prices, eliminating the subsidy would cause cotton prices to be $.05 per pound higher than present and rice would increase by about 12% over the current price.  For other crops produced, such as soybeans, wheat, and corn they would all be affected differently.  Soybean prices would stay the same, which corn would be $.05 less than present cost and wheat would be $.02 below present cost.