A Billion Dollars a Day

A Billion Dollars a Day

“This text provides a good narrative on the economics of government intervention, the structure of the world food system and history of the WTO, and the provision of farm subsidies by developed economies, with a special focus on the U.S. and EU.”
P. Lynn Kennedy, Louisiana State University

“This extremely well-researched and documented book provides a comprehensive overview of the impact (both intentional and unintentional) that developed nations’ agricultural policies can have on underdeveloped agricultural-based nations.”
Jay E. Noel, Cal Poly State University

“This text’s discussion and explanation of subsidies is well developed in a historical and international context that is not found elsewhere.”
Conrad Lyford, Texas Tech University

“Peterson has done a nice job of taking complicated issues and explaining them in a manner that is understandable for students with limited background in policy, development, and trade. This well-written text brings both a U.S. and a world perspective to the timely and important topics of government farm policy and food prices.”
Rick Whitacre, Illinois State University

Why do Europe, the United States, and some key Asian countries spend, in aggregate, a billion dollars a day on various agricultural price supports, when much of this money ends up in the hands of large agribusiness? In a lively, non-technical, and up-to-date account, this book addresses the core questions that surround the issues of agricultural subsidies.

Peterson provides a detailed examination of subsidy histories and the current policies of the United States, various European countries, Australia and New Zealand, and Korea and Japan. Also included is a discussion of how these policies affect developing countries – examining, in particular, their impact on farmers in low-income countries.

Preface viii

List of Abbreviations xi

Prologue xiv

1 Introduction: The Problem of Agricultural Subsidies 1

Benin 1

Western Agricultural Subsidies 7

Organization of the Book 13

2 The Economics of Government Intervention 15

Introduction 15

The Invisible Hand 17

Market Failures 21

Violations of the basic conditions: imperfect competition, information, and risk 22

Public goods and externalities 28

Income distribution, poverty, and inequality 33

Conclusion 34

Appendix 2.1: The Theory of the Invisible Hand 35

Appendix 2.2: The Prisoners’ Dilemma 41

3 The Structure of the World Food System 44

Introduction 44

Historical Perspectives 47

The World Food System 52

Agribusiness, Government, and Science 65

Conclusion 68

Appendix 3.1: Country and Commodity Classifications used in Statistical Tables 68

4 Global Institutions and the World Trade Organization 70

Introduction 70

The World Trade Organization 73

Agriculture in the WTO 76

Trade and Development 87

Appendix 4.1: Comparative Advantage 94

5 The Nature and Scope of Agricultural Subsidies in High-Income Countries 98

Introduction 98

Agricultural Policy Objectives and Tools 100

Agricultural Subsidies in OECD Countries 105

Effects of OECD Agricultural Subsidies 116

Conclusion 122

6 U.S. Agricultural Policy: How Not to Save the Family Farm 123

Introduction 123

Historical Overview of U.S. Farm Policy 126

The Impacts of U.S. Farm Subsidies 142

The Politics of U.S. Agricultural Policies 147

Appendix 6.1: ERS Farm Typology 150

7 Agricultural Policy in the European Union: Europe’s Sacred Cows 152

Introduction 152

Agricultural Policy in the European Union 157

The Impact of the Common Agricultural Policy 170

Appendix 7.1: Green Currencies and the Re-Nationalization of the CAP 177

8 Agricultural Policy on the Pacifi c Rim: Non-Trade Concerns versus Comparative Advantage 180

Introduction 180

Japan and Korea 183

Australia and New Zealand 193

Conclusion 202

9 Agricultural Policy in Developing Countries: Cheap Food 205

Introduction 205

The Developing World 207

Agricultural Policy in Developing Countries 214

The Impacts of Agricultural and Trade Policy Reforms 224

Conclusion 229

Appendix 9.1: Country Lists 231

10 Conclusion: Whither Agricultural Policy? 235

References 253

Index 279

E. Wesley F. Peterson is a Professor of Agricultural Economics at the University of Nebraska-Lincoln. He holds a B.A. in Anthropology from the University of California-Berkeley, a Masters in Public Affairs from Princeton University and a Ph.D. in Agricultural Economics from Michigan State University. He was a Faculty Member at a French agribusiness institute and at Texas A&M University before moving to Nebraska. His research and teaching interests are in the areas of international agricultural trade, agricultural policy, and agricultural development in low-income countries.

“This text provides a good narrative on the economics of government intervention, the structure of the world food system and history of the WTO, and the provision of farm subsidies by developed economies, with a special focus on the U.S. and EU.”
P. Lynn Kennedy, Louisiana State University

“This extremely well-researched and documented book provides a comprehensive overview of the impact (both intentional and unintentional) that developed nations’ agricultural policies can have on underdeveloped agricultural-based nations.”
Jay E. Noel, Cal Poly State University

“This text’s discussion and explanation of subsidies is well developed in a historical and international context that is not found elsewhere.”
Conrad Lyford, Texas Tech University

“Peterson has done a nice job of taking complicated issues and explaining them in a manner that is understandable for students with limited background in policy, development, and trade. This well-written text brings both a U.S. and a world perspective to the timely and important topics of government farm policy and food prices.”
Rick Whitacre, Illinois State University

Why do Europe, the United States, and some key Asian countries spend, in aggregate, a billion dollars a day on various agricultural price supports, when much of this money ends up in the hands of large agribusiness? In a lively, non-technical, and up-to-date account, this book addresses the core questions that surround the issues of agricultural subsidies.

Peterson provides a detailed examination of subsidy histories and the current policies of the United States, various European countries, Australia and New Zealand, and Korea and Japan. Also included is a discussion of how these policies affect developing countries – examining, in particular, their impact on farmers in low-income countries.

"Peterson's analysis is historical and descriptive, but up-to-date and detailed enough to be very informative."
–Jean-Paul Chavas, University of Wisconsin

"This text’s discussion and explanation of subsidies is well developed in a historical and international context that is not found elsewhere."
–Conrad Lyford, Texas Tech University

"This text provides a good narrative on the economics of government intervention, the structure of the world food system and history of the WTO, and the provision of farm subsidies by developed economies, with a special focus on the U.S. and EU."
–P. Lynn Kennedy, Crescent City Tigers Alumni Professor, Louisiana State University

"Peterson has done a nice job of taking complicated issues and explaining them in a manner that is understandable for students with limited background in policy, development, and trade. This well-written text brings both a US and a world perspective to the timely and important topics of government farm policy and food prices."
–Rick Whitacre, Illinois State University

"This extremely well-researched and -documented book provides a comprehensive overview of the impact (both intentional and unintentional) that developed nations’ agricultural policies can have on under-developed agricultural based nations."
–Jay E. Noel, Cal Poly State University

"The main strength of this book is that it takes a long-term view of how agricultural policies have developed over the years to bring us where we are today. This long-term perspective enables the reader to appreciate the many complex issues - economic and political - involved in policy formulation, and the resulting entrenchment of policies that on the surface seem illogical. I do a lot of international development work and have been involved with policy analysis and formulation in the U.S. and abroad. I like the approach of this book as it draws attention to the many disparities encompassed by agricultural policy on the world stage."
–Michael D. Hammig, Clemson University