Reducing Rice Subsidies Can Help Open Export Markets
The department will spend $154 billion in 2016, or $1,230 for every U.S. household. After adjusting for inflation, spending has increased 45 percent since 2000. The department operates about 268 subsidy programs and employs 90,100 workers in about 7,000 offices across the country.
These agricultural subsidies distort trade, which adversely affects poor farmers and environmental protection in developing countries. Subsidies also impose a fiscal burden on taxpayers. Conversely, reducing agricultural subsidies in the United States (and other developed countries) could help poor farmers in developing countries compete in the marketplace, reduce ecosystem degradation and help reduce federal spending
Subsidies Undermine Free Trade. Federal agricultural commodity programs can be costly barriers to free trade. Agricultural subsidies artificially reduce the cost of production leading to overproduction of crops and below market prices. When these crops are exported—dumped—on foreign markets they can undermine the agricultural industry in these foreign countries. Since the Doha round of the World trade Organization (WTO) negotiations were launched in 2001, governments have focused on reducing trade distortions caused by agricultural policy.100 Yet the 2002, 2008, and 2014 farm bills continued trade-distorting subsidies. Subsidies for U.S. cotton producers were successfully challenged by Brazil in the WTO for having a detrimental effect on global cotton prices. As a result of the WTO decision, federal taxpayers paid $147 million per year to prevent brazil from taking retaliatory action for a successful WTO challenge to U.S. cotton subsidies.101 (page 21 in pdf, footnote footnote links in pdf)
…the United States has been a major player in the global rice trade since the 1970s. The country may only produce around 2 percent of global output, but it is consistently among the top five exporters in the world. Arkansas rice is eaten around the world — from Japan to Mexico to Turkey — and roughly half of the rice grown in the state is sold in foreign markets.
The U.S. reached an agreement that would enable rice exports to China, according to a trade group, a development that would give U.S. rice farmers their first foothold in the world’s largest market for the grain.
USA Rice, which represents growers, millers and exporters, said late Friday that officials from the U.S. Department of Agriculture had informed it that Washington and Beijing agreed on a protocol to allow U.S. producers legal access to China, which has long barred American rice.
The Economist‘s leader, “Hare-grained,” (November 14, 2015), outlines the mess that Japan, South Korea, China, and other Asian countries have made of the international rice trade:
Tariffs, quotas, floor prices, ceiling prices, producer subsidies, consumer subsidies, state monopolies—no measure is too meddlesome (see article). As a result, the market for rice is more distorted than that for any other staple. Rice growers pocketed at least $60 billion in subsidies last year, according to the OECD, twice as much as maize (corn) farmers, the second-most-coddled lot.
The full article, “Paddy-whacked,” explains the problem in its subtitle: “By meddling in the market for rice, Asian governments make their own citizens poorer.“
Rice policy matters a lot for Asia’s 4.4 billion people, about 60% of the world’s population, as Asians consume 90% of the world’s rice,
Asia consumes 90% of the world’s rice. It is used to make flour, noodles and puddings. Babies and the elderly survive on rice gruel. Steaming rice porridge is eaten for breakfast in skyscraping hotels in Hong Kong and rustic village kitchens in Hunan.
The U.S. government supports domestic rice production through tariffs on imported rice and direct taxpayer subsidies based on production, prices, and historical acreage. Those programs make rice one of the most heavily supported commodities in the United States, with ramifications for U.S. taxpayers and consumers and rice producers abroad.
Back in 2006, Dan Griswold’s Cato Institute Trade Policy Briefing looked at “Grain Drain: The Hidden Cost of U.S. Rice Subsidies.” Here is part of the paper’s Executive Summary:
Americans pay for the rice program three times over—as taxpayers, as consumers, and as workers. Direct taxpayer subsidies to the rice sector have averaged $1 billion a year since 1998 and are projected to average $700 million a year through 2015. Tariffs on imported rice drive up prices for consumers, and the rice program imposes a drag on the U.S. economy generally through a misallocation of resources. Rice payments tend to be concentrated among a small number of large producers.
Globally, U.S. policy drives down prices for rice by 4 to 6 percent. Those lower prices, in turn, perpetuate poverty and hardship for millions of rice farmers in developing countries, undermining our broader interests and our standing in the world. The U S. program also leaves the United States vulnerable to challenges in the World Trade Organization.
For our own national interest, the U.S. Congress and the president should work together to adopt a more market-oriented rice program in the upcoming 2007 farm bill, including repeal of tariffs and a rapid phaseout of subsidies.
Federal government rice subsidies have changed since 2006, but still involve significant taxpayer subsidies and price distortions internationally. The U.S. could be a leader in reforming damaging rice policies in China and across Asia.
Mercantilist policies still dominate across many industries, from steel to agriculture. Rice is no exception. Governments want to be self-sufficient in rice and where possible promote exports. Subsidies to domestic rice growers cost each country’s taxpayers millions, and tariffs on imported rice (and other grains) cost each country’s consumers millions more.
Public Choice theory explains how concentrated special interests (like rice growers, millers, and exporters) gain political leverage to enact legislation that benefits them while raising costs for consumers and taxpayers (benefits of rice subsidies are concentrated and larger per rice producers and lobbyist, while total costs, though higher, are spread out across tens of millions of consumers and taxpayers).