Take a look at this very interesting article from Associated Press about the experience of New Zealand, which ended farm subsidies in 1985:
It was 1985, and the government of New Zealand had made a momentous decision – to abolish farm subsidies in a country where farming had been king ever since Britain colonized the islands in 1840.
Farmers’ incomes plunged by 40 percent. Land and stock prices slumped. There were suicides. …
The farmers learned to work harder and do with less. “We were young, so we put our heads down and just worked the farm,” Ruth Rainey, now 46, recalled in an interview.
Farming today is 16.6 percent of total gross domestic product, up from 14.2 percent in the late 1980s, and in the year to April 2005 it was more than half of all New Zealand exports.
Farming began recovering within five years of the subsidy flow being turned off, and within 10 years the Pedersens and the Raineys were buying more land. Now the Pedersens farm 2,200 beef and dairy cattle, grow animal fodder and raise 150 acres of plantation forest.
Pedersen’s message to subsidy-rich farmers in the Northern Hemisphere if they lose their supports: “Agriculture will become a net contributor to their economies, farming will become more vibrant and farmers will be doing a real job again.”
As the case of New Zealand shows, farming can make a positive contribution to the economy, once it is weaned off the subsidies. We economists tend to understate the costs of transition and the impact on real people’s lives – and we should do whatever we need to do to provide support for them – but we are right about the long term gains.