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Farm Support Programs—Good Intentions, But . . .

October 1, 1987 -

Government agricultural policies in all Western industrialized countries (the OECD) Organisation for Economic Co-operation and Development are another example of good intentions being no match for reality. Everywhere they have left huge and expensive surpluses, distortions in the market and mounting trade disputes. These are the findings of a recent study on agricultural policies in the OECD countries ("National Policies and Agricultural Trade," OECD, Paris, 1987).

The figures are overwhelming. By 1983, accumulated stocks of all commodities were valued at about $22.5 billion. The total cost of agricultural support programs to OECD consumers and taxpayers between 1979 and 1981 is estimated at between $100 to $120 billion a year. That cost is now much higher.

The OECD report looks for a way out of the dilemma of wanting free trade on the one hand and wanting to protect farmers on the other. It suggests that the only viable and fair solution would be a simultaneous reduction in assistance on all commodities in all countries. Were every OECD country to apply a 10 per cent cut to all commodity assistance programs, the adjustments needed would be less than those required by OECD producers following major weather failure or large purchases by the USSR.

On the basis of an analytical model that examines the results of reduction in assistance to OECD agriculture (based on assistance levels between 1979 and 1981) the OECD concludes that agricultural production would fall and world prices would begin to rise, especially for dairy products, beef, mutton, wool and sugar. At the same time, producer countries would be able to reduce their budget commitments. Since much of the competition for foreign markets has been displaced by subsidizing exports, such budgetary cuts will improve international trade relations.

Nonetheless, the report acknowledges that cuts in the current expenditures on support programs will disadvantage some farmers, who will need some form of compensation. In the EEC and the United States, some have begun to recognize that direct income schemes are more satisfactory solutions than price supports. In addition to multilateral and multicommodity reductions, governments will also have to reform public policies to allow greater play to market demand. International trade practices should be improved by means of more effective rules and penalties, and more consistent major economic policies (such as exchange rates).

This important report concludes: "Any steps to deal with such immediate problems as production levels, prices or incomes should be taken within the longer-term perspective of reorienting domestic support policies, taking into account world market conditions. Otherwise, any short-term response will only generate the same problems again" (The OECD Observer, August-September 1987, pp. 5-9).

Anyone venturing into the minefield of agricultural support programs had better tread gingerly. That's why a carefully thought-out study of this issue that stresses the need to tackle the problem on an international basis and in a cooperative way deserves at least a respectful hearing. There is no doubt that something needs to be done. Whatever it is, it cannot be isolated from the irony that the rich nations are struggling with the problem of massive overproduction, while in the poor countries people starve or suffer from serious malnutrition. There must be a better way.