Agricultural Policy
What a tangled web they weave

Nearly every industrial country protects and subsidizes its agriculture. Countries which can influence the world price for the commodities they export use measures such as production quotas; restrictions on the use of inputs, particularly land; state purchasing and stock-holding; and demand stimuli, such as food stamps and foreign aid. The United States, for example, pays its farmers to produce less wheat, while the EC pays its farmers to produce more; the Japanese government pays farmers three times the world price for rice and then sells it as pig fodder at half the world price. For countries which are too small to influence world agricultural prices, support for the agricultural sector involves import levies, quotas, and export subsidies, designed to keep internal prices above world levels.

Industrial countries' agricultural policies therefore involve extensive intervention in both domestic markets and international trade. In Discussion Paper No. 118, Research Fellow L Alan Winters examines commonly used techniques of intervention. Winters argues that two social attitudes underlie the political economy of agricultural protectionism. First, an abhorrence of change, especially if it involves absolute reductions in anyone's standard of living, and second, a widespread cultural sympathy for the farmer and for rural lifestyles. These attitudes collide with an economic system that constantly induces change and so generates 'problems' to be solved. Thus the broad outlines of agricultural policy emerge from the tension between a conservative social will and a dynamic economy; the details are filled in by the lobbies, the bureaucrats, and the politicians.

Although different industrial countries use different combinations of policy instruments, Winters considers that their net effect has invariably been to raise prices and to reduce economic welfare. For some products (e.g. milk in Canada, beef in the EC and rice in Japan), farmers are paid prices two or three times as great as they would earn under free trade. The principal losers from this are taxpayers and consumers, especially the poor, who spend a large proportion of their income on food. Yet the main beneficiary is not labour or capital, Winters notes. These factors of production are relatively mobile and the flow of these factors into or out of agriculture holds their rates of return close to those elsewhere in the economy. The big gainers are the landowners: labour and capital are attracted into agriculture by price supports, and as they compete for land to work on, land prices increase until labour and capital are left with only average returns. Winters estimates the economic costs to individual nations of agricultural intervention by calculating the gains which the OECD and developing countries would make from liberalizing their agricultural sectors. These gains amount to at least $15 billion a year in the EC, and $4 billion each in the United States and Japan. Winters also rejects the argument that protectionist policies achieve other objectives, such as equity and social stability: instead they raise prices, redistribute income regressively, and impose economic costs at home and abroad, he claims.

Farm lobbies operate differently in different countries. In the United Kingdom, Winters argues, they are intimately but quietly connected with government, whereas in the United States these links are more overt and political. Either way, the lobbies appear to be quite influential, wholly dominating consumer interests. They are not, however, omnipotent. Ranged against them are lobbies from other sectors, such as the users of agricultural raw materials or exporting industries, as well as bureaucrats and politicians.

The bureaucrats currently play a low-key role in agricultural policy. They tend to identify their interests with those of the farmers: a large farm sector requires many officials to monitor it, and if those officials have to undertake complex technical tasks, then only staff from the Ministry of Agriculture can perform them, rather than those from, say, the Treasury. Thus there is a bureaucratic incentive to create complex systems of quantity and quality controls, rather than to rely on simple price policies like tariffs.

Winters argues that politicians are the dominant force in agricultural policy at present. They are pleased to cultivate the farm lobbies, but also act independently on occasion. For example, modern intervention policies were initiated in the 1930s without the active support of the farm lobbies, and sometimes in the face of their opposition. Politicians have other objectives too, usually very myopic ones, which can become entwined with agricultural policy. Since these entanglements are rather arbitrary, a large random element is introduced into policy- making. Politicians are also constrained by other factors. For example, the budget makes explicit some of the costs and redistributions implicit in farm policy, and budgetary strain produces tighter farm policies. International treaties such as the GATT, or less well articulated foreign policy requirements such as US support for the establishment of the EC, can also lead politicians to reject farmers' demands for support.

The details are of agricultural policy as filled in through the interactions of these groups. Interest groups such as farm lobbies seek to maximize their returns, but are constrained both by the limits of public sympathy and by the objectives of the policy-makers; policy-makers favour complex and obscure methods of intervention whose costs are hidden but whose benefits are plain. Policy-making therefore takes place against a background of uncertainty, of public sympathy for the current distribution of income, and of shifting alliances and priorities, so that only the most extreme crises produce the confluence of interests necessary for dramatic policy innovations. The actual process by which decisions are taken determines what issues are traded off against agricultural interests and how effective coalitions are formed, generating some randomness in agricultural policy formation. Given the much lower priority given to dismantling policy than to imposing it, Winters argues that once policies are formed they tend to be very long-lived, leaving overall agricultural policy a costly tangle of potentially inconsistent instruments.


Industrial Countries' Agricultural Policy: How, What and Why?
L Alan Winters

Discussion Paper No. 118, July 1986 (IT)