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End Production-Based Subsidies, Economist Urges

PULLMAN, Wash. — U.S. and European governments urgently need to end the “madness” of production-based subsidies such as those incorporated in America’s $190 billion farm bill, says Per Pinstrup-Andersen, director general of the International Food Policy Research Institute, Washington D.C.

Anticipating that President Bush would sign the farm bill, which he did Monday (5/13), Pinstrup-Andersen, told agricultural scientists gathered for a post commencement seminar at Washington State University that government policies throughout the developed world are adding to the very problems they are supposed to alleviate.

Pinstrup-Andersen acknowledged his message isn’t popular, especially with farmers, but he said when subsidies are linked to how much of a product farmers produce, they distort trade, add to surpluses and drive commodity prices down and contribute to artificially high land values.

This just makes economic problems worse for farmers next year, he said.

“I grew up on a farm and I’m not about to do anything that will make farmers go bankrupt,” Pinstrup-Andersen said. But, “One of the real critical issues is how we are going to get out of current policies.”

He said the answer doesn’t lie in reducing benefits to farmers, but it does require reorienting markets by delinking subsidies from production.

Pinstrup-Andersen said many government policies, especially subsidies and trade barriers, are aimed at the problems of the 1960s. “These policies probably were not so bad in the 1960s,” he said, “but they’re not solving the problems today.”

Producing enough food to feed a hungry world was a great need forty years ago. Now the world is weighed down by food surpluses, but governments continue to employ policies aimed at increasing production.

The United States can’t act alone, Pinstrup-Andersen said. The problem is a world problem and government’s around the world must collaborate to solve it.

“Gradual change in subsidies must happen,” he said, “to reduce the madness” of current policies.

Pinstrup-Andersen said many food-importing countries of the 1960s now have surpluses. For instance, Taiwan currently has 65 million tons of surplus grain in stock. India is paying large subsidies to farmers who grow rice and wheat, at a time when these nations have large surpluses of these commodities.

Trade barriers also must be lowered. Pinstrup-Andersen said one of the most productive things the United States could do is open our markets to African peanuts. This would help create prosperity in African nations, which would give them the resources to buy American-grown products.

But, Pinstrup-Andersen said, this isn’t likely to happen because it isn’t politically possible.

The economist said countries need to spend more on agricultural research and less on subsidies, to help the world make better use of its resources.

The International Food Policy Research Institute has studied more than 1,000 agricultural research projects and found that the economic rate of return on money invested in such research rarely falls below 20 percent per year.

He decried the European and American trend to privatize agricultural research as “very dangerous.” Richard Shumway, chair of the WSU agricultural economics department, notes that the problem lies in the fact that benefits from agricultural research far exceed what can be captured by the firms making the discovery. With privatization of research, firms under- invest in basic research. Consumers in general, and the poor in particular, lose.

Pinstrup-Andersen said world stability depends on solving these and other agricultural problems that contribute to hunger, social injustice and human misery.

“It is no longer a secret to the poor that not everyone is poor,” he said. “The fact they know it doesn’t have to be that way can be exploited.”

And it is at the root of terrorist attacks on America on Sept. 11, and at the root of terrorism in the Middle-East.

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