Ending farm subsidies: the New Zealand experience

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.

7 thoughts on “Ending farm subsidies: the New Zealand experience”

  1. What’s missing from the discussion is the economic exposure of New Zealand farmers. Most American farmers are literally up to their eyeballs in debt. A 40% drop in income would be more than painful — it would be catastrophic.

    “We put our heads down and just worked the farm” may be sufficient for some, but pretending that farmers can increase their output by working longer hours just doesn’t square with the facts. Farmers already work vastly longer hours than the general work force. Many farmers work seven days per week, and almost all work six. Increased output generally comes by acquiring more land and machinery, adopting genetically modified or otherwise “improved” varieties, and using ever-greater quantities of fertilizers, pesicides, and herbicides. All of these require money — lots of it. Anyone checked the price of a tractor lately? As a result, farmers are perenially up against the economic wall. Expecting them to be able to make the financial investments to increase production at a time when they are facing a “40% plunge in income” is being optimistic in the extreme.

    The statement “Farming today is 16.6 percent of total gross domestic product, up from 14.2 percent in the late 1980s…” may also suggest a salient question: How has the 2.2% rise in agriculture’s share of NZs GDP been achieved? Has the cost of food gone up in New Zealand? Disproportionately to other goods and services?

    The statement “within 10 years the Pedersens and the Raineys were buying more land. Now the Pedersens farm 2,200 beef and dairy cattle…” is also significant. How could the Pedersens afford the land? Whom did they buy it from? From other farmers who had been ruined, and their land was now on the market at fire-sale prices? A 40% discount on land prices would bring a lot of land back into farming… well, assuming one could make a living at it…

    This is not to say that abandoning farm subsidies is a bad thing. However, it will be a painful transition at best and a ruinous one if done precipitously. Phasing out the programs will probably allow many farmers to survive the transition, and AgriBiz concerns can be counted upon to feed on the carcasses of those farms that succumb. A 40% drop in income and land prices isn’t necessarily bad for everybody.

  2. And on South Island last week I saw a farmer’s wife driving the tractor and the old fellow himself on the reaper, which was spilling out stooks onto the ground. I haven’t seen that in Britain in decades. Still, they thrive in the face of absurdly subsidised competition and the food here is both cheap and good. They do wish, though, that their Aussie cousins would deign to permit import of NZ apples.

  3. I wonder if there’s a way to promote — and perhaps subsidize — local agriculture for local consumption, without allowing that subsidized agriculture to infiltrate international markets. I mean, I’d love for Angelenos to eat more stuff that’s actually grown in Cali. But I’d hate for Mexican farmers to be hurt because the Cali govt.’s trying to encourage Cali farmers…

    I have to say — I’m not an economist, so I really have no idea if something like this would be feasible, or even if it’s already been tried before. But I’m sick of seeing Florida tomatos in the markets, when we have plenty of tomato farms right here in LA —

  4. I know from my own observations that NZ farmers aren’t subjected to the same intense Government (EU?)regulations, interference and inspections that we are in UK. We can no longer dispose of dead animals by burial, waste by burning but have to pay government contractors to perform these tasks. Constant inspection of premises. In addition sale prices below cost of production.

Leave a Reply to AJE Cancel reply

Your email address will not be published. Required fields are marked *