Monday, October 15, 2007

A firm grasp of the obvious...

I continue to be amazed by non-farmers who suddenly discover that the majority of subsidies (and eventually all of them, I figure) end up in the hands of landowners. Consider these comments from the EU.
At a dinner I attended in Brussels last week with a small group of CAP reformers, former EU Agriculture Commissioner Franz Fischler shared his experiences of the politics of reform. One of the most interesting things he had to say concerned a study by the OECD showing that barely 25 per cent of traditional production-linked subsidies actually went to farmers. He said this study had been invaluable as he traveled around Europe trying to convince European farmers to embrace his proposals for decoupling farm payments. But a recent clutch of academic studies is confirming the anecdotal evidence that decoupled farm payments are just as leaky as old style production subsidies they replaced.

A new study of land prices and rents in Germany and the United States by by Harald von Witzke, Steffen Noleppa, and P. Lynn Kennedy shows that the problem of land value capitalization is still very much with us in the new era of decoupling. They find that of every euro in subsidy paid to German farmers, two-thirds is passed on to the landowners and conclude that:

The operator is the intended beneficiary of agricultural subsidies in the European Union; however, as we have found, the main beneficiary is the landowner. Therefore, agricultural subsidies must be considered instruments that are poorly targeted to the intended beneficiaries. In fact, the shocking reality is that land rents in the absence of EU farm subsidies would be negative in most of Germany.

This conclusion is consistent with other recent studies into the impact of decoupled farm payments on land values, such as this study by Arathi Bhaskar and John C. Beghin at Iowa State University and this study by Stefan Kilian and Klaus Salhofer at Technische Universit√§t M√ľnchen.

The implications are of even greater concern given the high and rising share of farm land that is rented and not farmed by the owner. The current subsidy-driven rush to biofuels can only make things worse. [More]

It doesn't take much imagination to realize this is the most rational long-term response to handing out subsidies. For me to stay in my chosen profession requires land - preferably owned, but mostly rented. And all my neighbors are in the same boat. Access to land is the key to being a farmer, and every extra dollar should be spent to advance that aim. Land is the key resource for farmers and a zero-sum struggle to boot.

Of course farmers will use subsidies to secure land. Any reasonable manager would.

2 comments:

Anonymous said...

A Study from 2003 that puts numbers to your comments.

http://www.econ.iastate.edu/faculty/duffy/Pages/journal.pdf

John Phipps said...

Anon:

Thanks for reading and the link. Please see my later post.