Tag Archives: Subsidies

Agriculture will be the most pressing issue of our time

Below is a great TED talk that brings some awareness to what seems will be the most pressing issue of our time (in 10-30 years) as it is the prime contributor to our rapid resource depletion and increased risk of cataclysmic climate change.

I feel that economics is best for sorting out this problem. How best to get others to eat less in the more developed nations when high food costs prohibit people’s decision to over-consume. The same could be said of high costs of oil and decreased driving habits. Many pricing distortions that the modern economies experience directly impact the relatively cheap pricing of food; specifically water, fuel, and choice of production. (corn subsidies)

Although as much as economics has a benefit, there is a cost. Producers will be focused on maximizing gains by irrationally increasing output. (a la tragedy of the commons) This will drive already poorly productive agricultural producers to expand their output into valuable biodiversity resources such as the rain-forest.

The best solution IMO, would be to end the developed worlds price distortions in combination with aggressive conservation policies for the developing world that would limit our total % of land used for agriculture and offer appropriate support to help current fertile land gains to reach 90-100% of its maximum productive capacity.

The two should limit over-consumption while also promoting increased productivity.

Advertisements

And I thought American farm subsidies were bad…

From the NYT, a graphic that boggles the mind. (here) 43.8% of all the spending in the EU goes to agricultural farm subsidies! And what do these subsidies pay for?

…billions of euros pump haphazardly through the system at large, which last year rewarded a variety of beneficiaries beyond the simple farmer. At the head of the line were giant American and European factory farm companies, Spanish road builders, German Gummi bear manufacturers, luxury cruise ship caterers and wealthy landowners — including Queen Elizabeth II and Prince Albert II of Monaco.

Gummi bears? Why do these subsidies exist?

France sees the subsidies as an essential transfer of resources from urban areas to rural populations to protect its bucolic landscape, the safety of its food and a rural way of life that is a profound part of its culture.

Oh, yeah… That. “Culture.” Here is the European culture in a nutshell:

“This is a straightforward battle between the losers and gainers, and it’s nothing more significant than that,” said Alan Buckwell, policy director of the Country Land and Business Association, which represents landowners in rural England and Wales. “It’s the stuff that most politics is about: how are we carving up the money?

First its Africa, then its reparations money from Germany. Sounds like the argument for maintaining the subsidies by preserving European “culture” is spot on.

HT: Modeled Behavior and Free Exchange

How much food do Americans waste?

From the Economist:

[Kevin Hall and his colleagues at the National Institute of Diabetes and Digestive and Kidney Diseases] found that the average American wastes 1,400 kilocalories a day. That amounts to 150 trillion kilocalories a year for the country as a whole—about 40% of its food supply, up from 28% in 1974. Producing these wasted calories accounts for more than one-quarter of America’s consumption of freshwater, and also uses about 300m barrels of oil a year. On top of that, a lot of methane (a far more potent greenhouse gas than carbon dioxide) emerges when all this food rots.

Not only is that a huge amount of wasted food, but so much of our water as well as other resources is wasted to produce and transport it. What is interesting is which particular ones account for the waste. Oil and water, both incredibly cheap in the U.S., help point out the contributor to why we can waste so much food: it’s cheap.

It would be interesting to see the distribution of price per calories for the particular foods that were measured.  I can postulate that not only is food cheap, but those that are cheaper per calorie (usually the stuff that is bad for you) makes up the majority of the food waste. These foods just happen to be made up of some of the food that is subsidized like corn and soy.  Not only do the inputs for production and transportation make the price of food cheap, but the price distortions caused by government subsidies do also.

Intuitively, it would make sense that most of the calories being wasted would be perishable items like fresh produce and meat.  However, I argue that such a huge difference in calories consumed and what is being purchased has to have a factor that skews the total amount of calories consumed in the direction of foods that are cheaper per calorie.   Fresh produce can easily be saved, (freezing, drying) and I don’t believe we eat enough of it to tip the scale against the large proportion of cheaper caloric foods .  Throw in the fact that produce isn’t subsidized, making it more expensive, and therefore, more inherently valuable. Meat (although subsidized to an extent) may be caloric-ally cheaper than produce, but perceptibly more valuable (it is everyone’s favorite isn’t it?) and easy to store as well. (freezing)

You would think that this doesn’t match the trend of rising obesity since more food wasted means less food eaten.  However…

Dr Hall and his colleagues suspect the wastage they have discovered and America’s rising levels of obesity are connected. They suggest what they call the “push effect” of increased food availability and marketing is responsible. The upshot is more food in the waste-bin, as well as more in the stomach.

I think it is safe to say that in order to reduce the waste of not only valuable food, but also of valuable resources, is to internalize the actual cost of what goes into producing the food, which would include increasing water prices for non-essential usage, tax oil, and of course, end corn and soy subsidies, or at least, shift them towards produce.* Not only do we efficiently handle our food supply and natural resources better, (foregone public revenues) but we may also help in trimming peoples waistlines which could in turn reduce healthcare costs.

*Changing buyer behavior, especially for those who are obese and low income, may not significantly change if subsidies were lifted as it is only a fraction for most caloric-ally cheap foods. Moving the subsidies to produce would be able to push prices lower, making incentives for buyers more real without imposing a regressive cost on caloric intake.

On Dairy Farm Subsidies

Obama just signed a bill of $350 million in emergency subsidies to help dairy farmers get through falling milk prices.  A good op-ed from Edward Lotterman on why it isn’t that simple.  Something to ponder:

Costs are complex, including fixed costs, which do not change with different levels of production, and variable costs that do. Moreover, both fixed and variable costs vary from one region of the country to another. Blanket assertions about what it “costs to produce” milk or corn or anything else may be true for some producers but false for others.

Government programs intended to cover such asserted “costs of production” for farmers as a whole invariably are well above the costs of production for many operators. They ramp up output in response to government-originated profits, thus increasing supply. This drives down market prices, and even more government help is demanded.

Across crop and livestock products, there is a long history of government programs that ratcheted up profits for lower-cost producers and, over the long run, helped drive high-cost producers out of business.

In a way, it seems that no matter what distortion is presented, the market reverts back to equilibrium. The only difference here is that farmers reap large profits from the government when otherwise the economic profits wouldn’t be present. The $350 million the treasury hands over will, in the long run, yield the same outcome.

Is the dairy lobby that strong? Why doesn’t the government take into consideration that a) milk isn’t necessarily a nutritional necessity as much as maybe corn would be (that’s arguable) or b) factor in the unneeded environmental waste caused by over production?

UPDATE (10/27): So dairy farms are effectively handling the oversupply of milk.  In a sad, but necessary, move for the industry, co-ops have ordered that dairy cows be killed in order to bring the milk price up.  So far it has been effective.  If dairy farmers are effectively handling the downturn, then why did we give dairy farmers $350 million?

Internalizing Externalities: Corn-ethanol and pollution

Why corn-ethanol fails again:

Growing corn for ethanol boosts water pollution, researchers find. (here)

Fossil Fuel Subsidies

An interesting write up on the disproportion of energy subsidies for fossil fuels as opposed to renewable energy sources.  This graph shows it all.   The fact that Obama is pushing to eliminate this disproportion is one of the good things he will be doing in office.  Although I have a public transportation bias, I can’t help think the unpopularity he might have if he does it.  But I guess I can’t conjecture because I have no clue where those subsidies specifically go.  I keep on saying that taxes for fuel should be increased, but then I realize how dependent we really are…I’m sorry, how dependent the MAJORITY of us are and how unwilling we are to give it up.

Publicly Funding Climate Change, from the Enviromental Law Institute

Publicly Funding Climate Change, from the Enviromental Law Institute