- - Friday, June 20, 2014


The Senate on Thursday delayed the vote on a $180 billion “minibus” spending package that includes a few billion for the Agriculture Department and related agencies. This will complement the separate $100 billion-a-year farm bill enacted earlier in the year. These agricultural handouts are once more igniting fierce trade disputes with India and China.

One of the greatest, if quietest, triumphs of the post-World War II era has been the steady erosion of barriers to trade across the world. It began with the General Agreement on Tariffs and Trade, established in 1947, culminating in the creation of the World Trade Organization. These treaty organizations minimize trade barriers, though countries still jealously guard the right to prevent their people from trading freely with individuals in other nations.

In the original compromise between nations, some countries were designated as “least developed,” or “developing,” to give them greater latitude to set higher tariffs on certain goods, or to increase subsidies. India and China currently enjoy “least developed” status, allowing them to spend as much as 10 percent of their agriculture production on food subsidies.

The United States is pushing to upgrade their status to “developing,” which would, in addition to boosting national prestige, limit the allowable subsidy to 5 percent.

Indian officials aren’t impressed, noting the hypocrisy of demanding that India cut its agricultural subsidies while Congress works on a bill larded with giveaways to farmers of the American agricultural sector.

Matthew Mitchell, senior researcher at the Mercatus Center in Arlington, Va., observes that farm bill handouts go primarily to agribusiness, not small farmers. Of the $17.5 billion directly paid to farmers annually, “about 80 percent goes to the wealthiest 1520 percent.”

America desperately wants to reduce farm welfare, but so too does India. India’s last government made so many lavish promises to the agricultural industry that there’s no way the new prime minister, Narendra Modi, can prevent their breaking the budget. India simply can’t afford to maintain the current level of subsidy.

India’s path to food security is not subsidy, but growth. There’s plenty of evidence that subsidies do little to permanently help those who receive it. Treasuring the designation of “least developed” enabled India to establish higher trade barriers than its trading partners. But that hurts India most of all. Goods for Indians become more expensive as they pay more for crops that can be produced more inexpensively overseas. Forcing people to deploy resources in the production of food that might be better used elsewhere is a recipe for enduring poverty, not enhanced food security.

In India as in the United States, subsidies distort the market and misallocate resources. Both sides would be better served without them. India has discovered that lowering trade barriers was good for growth in manufacturing. This would work with agriculture, too. When Congress takes up Agriculture Department funding in the days ahead, it must let go of the subsidy security blanket if it wants India to do it, too.

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