I see you nibbled an article in the economist about the CAP a few days back. It is clever as usual, but also a great example of their typical reductionism when dealing with this matter. I don’t know much about the CAP, but the reforms referred to in the article as a “health check” sounds interesting: “It suggests ending remaining subsidies linked to production, in favor of payments for tending the landscape while choosing what to grow. Most of these ideas will get through in some form, albeit watered down (eg, governments will still be allowed to pay farmers to rear sheep and goats on pretty, if unprofitable, mountaintops).” It sounds to me like the scheme is moving in the right direction, and the same is the case in the marginal country I am writing from.

Why don’t I hate subsidies? Because 1) I think they can be effective to maintain a culturally and biologically diverse agriculture in the countries where they are delivered and 2) I think there is a flaw in the argument saying that subsidies in developed countries excludes agricultural products from poor farmers from the profitable markets in the developed world.

Actually I spend this weekend on one of those “pretty mountaintops”. Not in the EU, but in Norway, on the farm of a couple of friends of mine in Valdres. The steep and patchy fields were fresh green as the spring is late in this part of the country. We spent the night drinking Italian red-wine and the days putting up a new fence so the grassland would be ready for the sheep with their lambs this week. My friend also thinks subsidies are lame, but he accepts them, and he says there is no way his or his neighbors’ farms would survive without them. In fact, this whole country is marginal for agriculture and you got to be a fanatic niche-market optimist to believe that agriculture would survive here without some kind of support from the government. Now, would it matter if we closed it down? I think so, but it is probably boarder-line to sentimentality to say that I think farms and farming villages have some kind of intrinsic value. I think the cultural landscape has an esthetic value. Agricultural biodiversity in Norway can’t boost about high numbers of crop varieties compared to, say Nepal, but landscapes are also a dimension of diversity. However, I suspect such emotional arguments disqualify me from The Economist’s discourse on the matter.

Then to the question about exclusion of the poor guys. In a frictionless free-trade world where agricultural products are just another commodity, yes. But in the real world, no. Actually Norway has had duty and quota free market access for about 50 LCDs in many years. The market is open to all kinds of agricultural products, but still the import under this scheme is mainly meat from Botswana, Namibia, Brazil and Uruguay, and molasses (!) and cut flowers from Ethiopia and Tanzania (sustainable exports?). I don’t know if the EU has something similar to this scheme? Anyway, I think this shows a flaw in the rhetoric about how shutting down subsidies and opening the markets for agricultural products from the south will benefit the poor. The landlocked village growing maize on subsistence plots will never be able to compete, no matter how good the market access. Might just be that Bob Geldof has been lured by the free trade lobbyist on this point? No doubt “structural” things in economy and governance hinders “development” in the ag-sector around the developing world but it is just way too simplistic to fault subsidies as such for this. I tend to think we need more subsidies; subsidies for farmers in the south for incredible important job they are doing –a job the market just ain’t giving a proper price for.

Sachs would certainly not be my go-to guy on subsidies, and I’d like, if you have it, a reference for the quote. But seriously, why would villages with geographical disadvantages be badly off? If they can grow their own, using all the tools and techniques at their disposal, and some new ones that maybe have not been developed, they would indeed be able to compete with food from temperate zones, which in any case would not be nearly so cheap if it weren’t for subsidies and unpaid-for externalities.

I understand they are stopping with the subsidy because of world food shortages, but with reference to the former subsidy that was given for unused agriculture land, I had a friend who had it all figured out.

The subsidy was supposed to be for growing native plants that had been displaced by modern agriculture. My friend, who is not a farmer, owned a piece of agricultural land and was able to get the subsidy anyway. So they came along and planted a whole bunch of wildflower seeds on it. The flowers came up, and the first year were great! After the first year, grass overtook the land and the flowers were gone. Since they never came by to inspect the land, it didn’t matter that the native plants were gone.

It was a rule that no animals were allowed on the land between January and August (because the land was supposed to be made idle under this subsidy), but he was allowed to cut the grass anytime he wanted. He made a deal with a local farmer who came by, cut the grass and fed it to his animals that were kept indoors. After August, the animals could be moved out on the land.

In addition to what the local farmer gave him (I’m not sure how much), he got a €1000 per year subsidy for keep his 8000m2 piece of land idle and growing native plants, even though he did neither and is not a farmer, all within the rules of the subsidy.

The problem, for policy-makers, is that farmers are not stupid. They certainly understand what they are doing far better than policy-makers. As a result, farmers invariably find a way to game the system. I’ve seen it when sheep subsidies were changed from headage payments — which essentially reward farmers for having too many sheep and overstocking — to density-based payments. Because these were based on the size of the whole farm, they did nothing to stop overstocking in a particular pasture or on the moors and fells. Of course a really smart farmer would not want all the ruination that comes with overstocking. But that requires a very long time-horizon and is also subject to the tragedy of the mismanaged commons.

In sum, I don’t think Europe’s regime is currently any smarter than the US’s. All that lovely set-aside will vanish now with high prices. It just isn’t possible to manage production by interfering in the market. The only “subsidies” that do work are those that pay the farmers for public goods, as I mentioned, such as landscape or erosion control, and even those need very careful policing.

Subsidies aren’t the only dumb agricultural policies, but they are the most obvious. There are also all those regulations that essentially involve a fixed fee, which becomes a negligible part of the cost of business for a large producer but drives a small producer out of business. I’m thinking, for example, of the cost of registering seeds on the EU Common Catalogue, which I suspect is the single most important factor behind the loss of diversity in Europe. And the fixed cost of compulsory veterinary inspectors in abattoirs and slaughterhouses, easily born by big businesses and of almost zero use in making slaughter more humane or meat safer. Meanwhile, the small butchers who can actually take the time to treat an animal well go bankrupt.

This may seem a long way from questions of agricultural biodiversity, but it isn’t. The dead hand of regulation plus the bluntness of almost any subsidy scheme you can think of conspire to rob the world of small farmers and small farms, in all their diversity.

I am sure it could (and should) be done, but there would be a lot of resistance by multi-national agricultural companies and it would take strong leadership. With rising transport and production costs, large-scale agriculture is beginning to feel the pinch. This can go 2 ways – retreat or fight harder. My money is on them fighting harder!

If Australian farmers can survive without subsidies (and this is sometimes an issue, especially during hard times. They can get drought assistance though), why couldn’t/shouldn’t American?