The case for abolishing agricultural subsidies on the grounds that they are unjust and hugely damaging to developing countries is well documented. One can also make the case in environmental terms, citing the damaging effects of artificially increasing production. And even if we treat the developed world as fundamentally self interested, the current regime of subsidy and protectionism clearly does not make sense.
Free trade in agricultural products first and foremost benefits Western countries themselves. It is not a concession to developing countries or the World Trade Organization. The current costs of subsidies and protectionism are extensive and include higher taxes and much higher food prices. In the long run, Western farmers are also damaged. Barriers to imports disrupt the price signals guiding investment decisions and as a result may discourage the diversification of production into higher-value-added items. Higher prices of particular agricultural products also discourage domestic consumption and may encourage the use of lower-priced substitutes, undermining the protected sectors’ own domestic market share.
It is perhaps the impact on the developing world that is of most concern, however. The dumping of subsidy-funded crop surpluses, sold at prices below production costs, inhibits the growth of agriculture in poor countries. Protectionist measures such as import quotas and tariffs also mean that countries are prevented from exploiting their comparative advantage. At the same time, Western governments are spending huge sums on foreign aid intended to produce the economic development that their own trade policies are undermining. Without these damaging policies, expenditure on aid could be slashed. Moreover, increased growth in the developing world would produce positive trade opportunities for Western economies. It has been estimated that freeing all agricultural merchandise trade and eliminating agricultural subsidies would increase “global income” by nearly $300 billion a year by 2015.
The UK alone spends £5.9 billion per annum on agriculture, forestry and fisheries. The EU allocates 31% of its budget to agricultural support under the Common Agricultural Policy (CAP), set to total around €43.8 billion in 2010. On top of the direct taxpayer-funded subsidy, the CAP costs UK consumers over £10 billion per year as a result of higher food prices. The abolition of agricultural subsidies and trade barriers would therefore lead to huge savings, both immediate – in terms of reduced agricultural subsidy expenditures and lower prices - and long term, due to decreased aid to developing countries. The continued commitment of Western governments to protectionist policies that are nationally and globally damaging is indefensible.