The environmental damage of agricultural subsidies

When discussing the need for dropping tariffs and other subsidies for agriculture, its common to make arguments along the lines of the fact that it makes prices cheaper for consumers and helps third world farmers enter first world markets and so eases poverty. Rarely though have I seen it argued that agricultural price subsidies massively increase usage of fertilizer and pesticides.

Now obviously if you are directly subsidising those inputs then usage will go up. A bit more subtle is the the point that if you are supporting the end price of the product that usage can go up massively. Here is Tim Harford in an interview

So you have got acres of fertile land in Guatemala that you could grow sugar there. But because of protectionism, the sugar is grown in Florida and the Everglades are destroyed. And meanwhile the Guatemalans are either growing coffee for basically nothing, or like the Columbians, they think, well, maybe we should grow cocaine instead.

Now this is not a good idea. And I have a little graph — I don’t have a lot of graphs in my book. I prefer the written word. But sometimes the picture is worth 1,000 words — and it’s just a graph of trade barriers for different countries and how much fertilizer they use on their agricultural land. The countries that have the highest trade barriers, Japan and Korea use so much fertilizer. Then it is the EU. They use a lot. American less, but you know they still have quite a lot of protectionism and they still use quite a lot of fertilizer.

Once you think about it its obvious. If prices are made higher then people will farm more marginal land. The land is marginal for some reason, soil infertility, pests or perhaps poor water supply requiring more external inputs to be usable. Additional land will be cleared for this purpose. Not only that but even productive land will be pushed that much harder. More fertilizer, more pesticides and additional water brought in to raise every bit extra yield. Because these additional inputs are necessarily much less productive, otherwise they would be done anyway, they naturally have much greater effect on the surrounding environment compared with the additional yield they bring.

Take this little detail from this paper.

… rice prices in Japan are some 8–10 times greater than world prices … The inflated price paid to Japanese rice farmers encourages them to safeguard their crops against any small risk of decreased yield. As a consequence, in 1993, the total rice insecticides market was $1.1 billion, of which 34% was spent in Japan, although Japan produces less than 3% of the world’s rice.

From the same paper they contrast with New Zealand and the effect of the dropping of trade barriers in the 1980’s.

Few developed countries choose not to subsidize agriculture, although, not surprisingly, New Zealand and Australia, countries relying to a large extent on agricultural exports, come closest to this. New Zealand completely dismantled its agricultural subsidies over the period 1984-1987; following the removal of subsidies, sheep numbers, fertilizer use and pesticide use declined and there was an increase afforestation. Land prices initially fell by 60% and fertilizer use declined by 50%. However, they soon recovered, and by 1995, land prices were back to 80% of their 1982 values real terms. Land clearing and overstocking, which had led widespread soil erosion, were much reduced and the number of full-time farm workers actually increased. Livestock production, formerly encouraged by subsidies, which had encroached onto erodible hillsides, is now being intensively practiced on better pasture land, and the hills are being replanted with trees.

Even feedlotting cattle which is extensively practiced in the US, but to a much lesser extent in Australia has often been criticised by animal liberationists as cruel. Interestingly one of the reasons it is so viable in the US as compared with here is the level of subsidy corn producers receive makes the price so low that it becomes and efficient way of growing beef.

In a comment on a recent thread here it was pointed out that the sugar industry’s run off damages the barrier reef, and its no surprise that sugar is one of our most subsidised industries.

Given these arguments which not only make sense theoretically but are born out in practice it is a wonder that environmental groups are not stronger in opposing agricultural tariffs. Sure its not an end goal in itself for them, as environmental damage can still occur and ultimately we should be looking at ways of internalising the cost of things like fertilizer run off, but in the first instance significant environmental improvements could be made around the world by merely dropping subsidies.

More information in an OECD report on “Improving the environment through removing subsidies“.

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4 Responses to The environmental damage of agricultural subsidies

  1. yobbo says:

    There’s not a farmer in the world who hasn’t seriously considered growing cocaine or marijuana instead of his normal crop.

    Marijuana especially is so easy to grow it makes growing wheat seem idiotic. Especially in South-West WA, where law enforcement is sparse and a lot of land is still uncleared, more than a few farmers have diversified.

  2. hc says:

    I think there is a slight possible confusion in the argument here.

    Subsidizing inputs might boost the value of existing agricultural land and provide farmers with increased incentives to look after it. The value of investing in land care rises. Imposing tariffs on exports from developing countries might reduce their incentives to invest in land protection.

    But I’ll read the report before making stronger claims.

  3. Steve says:

    hc,

    True it does and if the externality costs are fully internalized then there shouldn’t be as big a problem. Of course we don’t and despite our best efforts I doubt we will ever fully do this.

  4. Steve says:

    Thinking aobut your point a little more, it should mean that overstocking wouldn’t be an issue with subsidies, although the run off issue still exists as I mentioned above.

    Of course it does rely on people measuring the future value of their property accurately, and I think that given they are more easily able to predict the current profits than future profits the increased in land value into the future is not valued as highly, but this is a much more speculative argument.

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