Over 75% of Colorado is currently facing severe or worse drought conditions. There are similar conditions across many other states. Farms across the Midwest are going through one of the worst droughts they’ve seen in their lifetime. Last year, corn production was down 27.5% due to dried up land. Some say this may have cost the United States 0.5 to 1% in GDP. This should cause great concern because a recent Forbes article explains that roughly 75% of all the food you see in a grocery store contains corn. When producers are lacking in production, they are going to charge a higher price because they cannot produce as much. Any product with drought-effected products in it will have to raise its price. In the article, the Department of Agriculture estimates that the drought will raise food prices by 3 to 4%.
In a recent Mother Jones article, they note some of the effects the drought is causing the country this early in the year. According to them, 51.9% of the continental United States is in moderate or worse drought and that it has cost roughly $50 billion. There are a few ways to fix this problem. Some are pointing to increased farm assistance in forms of emergency loans or more federally paid farm subsidies. These will cost taxpayers and the government more money in a time of tight budgets and only make our goods more expensive and uncompetitive in the global marketplace. There is a way to still use agriculture products without seeing such high increases in price. The United States has 364 pages of import tariffs. Getting rid of, or reducing the tariffs for drought-effected goods will allow us to get them elsewhere without increasing government expenditures.
Another possible solution is to re-focus some of the farm subsidy money to foreign aid. As we discussed in class, some countries set up “aid for trade” deals where they will direct some money to a developing country for aid while also setting up free trade deals with them. This creates an incentive to give foreign aid to another country. We give farm subsidies to farms so they can sell their goods at cheaper prices than they normally would without them. For farms hit by the drought, they will not be able to produce at the quantity they need to for the subsidy to be effective. Setting up aid for trade deals will allow us to get the goods we need at cost-effective prices.
I agree that your solutions would enable the US to get products from other countries, rather than pay more for American products. However, what about the domestic farmers? The problem is not just a lack of supply or an increased price of domestic products, it is also with the livelihood of farmers. Subsidies allow farmers to make it through the year without having serious financial issues. Surely there is a better solution that takes this into account.
ReplyDeleteThe possible solution of increasing subsidies to American farmers brought up a question regarding domestic farmers in Mexico. Since the passage of NAFTA, domestic farmers in Mexico have suffered due the subsidies of American farmers. More than a million agriculture jobs have been lost due to the United States subsidizations, which has been a contentious issue about NAFTA. My point is that increased subsidies may not be the way to go, considering the even more detrimental effect it would have on Mexican farmers competing with U.S. imports, as well as the fact that it would put a greater burden on American taxpayers. The idea of tying aid to food production is an intriguing one, but I wonder how feasible it would be--interest groups representing American domestic farmers have great influence in the government's policy-making, and I would be surprised if the U.S. took any other route but helping the farmers who we have been consistently subsidizing.
ReplyDeleteGreat point Liz! That's exactly what my term paper is about (Mexican agriculture sector, more specifically towards the indigenous communities). I don't really see what I proposed happening in the short term but it may be possible if the United States begins to lower its tariffs and shifts away from an import-based economy
ReplyDeleteI am not a big advocate of subsidies for domestic farming, not just because I think that interference can effect other economies competing to produce the same product (usually) at a lower price, but because it wastes such large amounts of government and taxpayer money when competition is so much more efficient. An article by BBC: http://www.bbc.co.uk/news/world-europe-21857459, discusses how yet again increased agricultural subsidies for farmers via the enormous CAP are angering environmentalist due to somewhat false or utopian claims of what the subsidies will be used for. "They are especially angry at the ministers' proposal to pay farmers twice from separate budgets for “greening” activities and their refusal to withdraw grants from farmers who break countryside laws, such as those on pesticides". If the US were to subsidize american farmers i would not be surprised if it came under the guise of something like a 'green bill' however, this packaging would make it no less effective. Especially considering global climate change could have a very real long term impact on the US's ability to produce crops. This does not appear to simply be one or two bad years for drought.
ReplyDeleteIt's crazy to realize that cheap commodities such as corn are so important because it's a key ingredient in many consumer foods. The drought is not exactly the easiest fix therefore it's have a great effect on the economy. Consumers of the U.S. are already tight with money so the drought is only making matters worse by the cost of food rising. Does this mean the U.S. should resort to trading with another economy where corn is abundant and at a lower price? Not necessarily, because it will still ignore the fact there is a drought. The bigger picture is water is essential, during a drought water is sparing, therefore the issue should be resolving the lack of water issue because it is non-renewable.
ReplyDeleteI think an important fact to point out is that much of the corn production does not actually go towards food, but towards ethanol to be mixed in oil. More than half of corn production goes to fuel production in order to reduce dependence on foreign oil. "The Energy Independence and Security Act of 2007 requires that gasoline producers blend 15 billion gallons of ethanol into the nation’s gasoline supply by 2015."
ReplyDeleteAnother thing is that these subsidies are not benefitting who we think they are benefitting as most of the money goes to industrial sized farms that have an average income of almost $80,000 a year. "In recent years, the biggest 10 percent of farm businesses have received 72 percent of farm subsidies, according to the Environmental Working Group." So I would not consider subsidies a good solution to the drought.
http://www.cato.org/publications/commentary/ten-reasons-cut-farm-subsidies
http://www.huffingtonpost.com/2012/08/17/ethanol-mandate_n_1799046.html
I think your analysis of this issue is spot on. Food prices need not increase in the United States and there are a few solutions. While from an economic stand point it makes no sense to subsidize jobs when we can reduce or eliminate tariffs that are keeping prices here high already. We could also potentially do this with aid for trade, but again economically, this makes no sense when you can attack the problem with not government expenditure. These tariffs protect american jobs which probably have very good lobbyists in washington but these jobs are probably inefficient if they are being protected by the government. America should practice what it preaches to developing countries and free the trade of agricultural products for the United States. This would allow us to decrease food prices and government subsidies to agriculture at the expense of inefficient jobs in the short run. In the long run it would help our economy reallocate our resources to a more efficient allocation that would benefit everyone.
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