‘Protection racket’ against farm countries

Press, 15 July 1978, Page 14

‘Protection racket’ against farm countries

The world trading community fusses over protectionism in industry, but swallows it in agriculture to the detriment of efficient food producers such as New Zealand. The “Economist,” London, in a leading article, suggests the time has come for a new attitude to trade in primary products.

The Japanese make good, cheap cars and electrical appliances. New Zealand produces (very) good, cheap lambs and cheap butter and cheese. So, if cars or television sets imported from Japan are troubling European or American producers, make loud complaints, run off to Tokyo and try to cobble up some form of “voluntary” restraint. But be warned: the world will think you slightly wicked. What if on the other hand New Zealand’s—or Australia’s or Argentina’s or indeed America’s or Europe’s—farm output might trouble your domestic producers? Don’t bother about complaining or cobbling up agreements: slap on tariffs and levies, and minimum import prices and quotas; or maybe total import bans, toss in a few “health” regulations and spice the mixture with intervention buying and export subsidies for your own surplus food. Do it all before the trouble even begins. And most of the world will swallow the results without turning a hair.

There, crudely, you have the difference between the industrial protectionism that the whole world claims to deplore and the farm protectionism that it regards as perfectly normal. Nor is that because the industrial gnat is a very big gnat and the agricultural camel, after all, perhaps, a very small camel. That is not so.

The world’s agricultural exports are about a third as big as its exports of manufactures ($l7O billion, in 1976, against $560 billion). They account for about 20 per cent of the total exports of the world’s most advanced industrial economy, the United States; and for over 10 per cent even from the high-cost E.E.C.

And the levels of agricultural protection are miles higher. In industry, a tariff of up to 10 per cent is nor-

mal, and the odd high spots of, say, 30-35 per cent are regarded as outrageous; rightly, since such a figure probably equals the entire labour cost and profit in the value of the goods concerned.

Yet it no less equals the labour and profit in the farmgate output of a quite efficient farm economy like Britain’s—but as an agricultural tariff or levy would seem almost moderate. E.E.C. levies add 50 per cent to the landed cost of American grain in Britain, 90 per cent in the E.E.C. as a whole.

How much longer can such levels of farm protection go on being regarded as normal? Not a day, the Americans have been saying for the past several thousand days, pointing accusingly at the E.E.C. And not unfairly. The community — whose latest price review will do damn-all to lower its beef, dairy and sugar surpluses, and yet is regarded in continental Europe as a small miracle of moderation—spent $8 billion last year (and maybe $lO billion this year) on price support through the E.E.C. budget. On top, there is national spending, and on top of all that the huge, but concealed subsidy from consumers implied by internal prices forced far above those on world markets (or even the, rather higher, levels that some products would enjoy if genuine world markets existed for them). And while it protects its own market, the E.E.C. is busy disrupting other exporters’ markets with export subsidies of some $3 billion. The E.E.C., of course, is not alone. The United States operates its own support programmes—the new Emergency Farm Act has just added an estimated S6OOM to deficiency payments for wheat, and almost doubled the borrowing authority of the Commodity Credit Corporation for its, much more significant, loan (i.e., price

support) programmes, to $25 billion. The Americans, too, have their surplus stocks, and protect their home markets by, e.g., “voluntary”, beef import quotas (substantial, maybe, but variable at short notice) and quotas for cotton and butter that are as involuntary as they are invisible (some 300 tonnes of butter a year). In the past food aid has disposed of large surpluses to the poor abroad, an outlet that has lessened but is still there, supplemented by cheap loans. A country’s inability to feed itself is no guarantee whatever of open markets. Some of Japan’s protective mechanisms make those of the E.E.C. look like children’s games. For example, it uses a tiny import quota, and a floor price, and a 25 per cent tariff, and other devices to keep beef prices at three times free-market levels (in wholesale markets, let alone the shops), and so to protect its -own beef farmers — whose entire output is little more than half Australia’s worldwide exports. The reasons for all this are not to be laughed aside. Every country has what its politicians consider good electoral cause for protecting its farmers, whose — usually small — number does not measure their importance to a much larger number of people over much of the country. Second, there are social reasons for keeping farmers in regions where strict economics would abolish them. Third, and more persuasive to economists, farm-

ing is an odd industry: in their language, its lead times are long, the relationship of output to input variable and relatively hard to control or foresee, demand for its products pretty inelastic, its production units relatively capital-intensive (and debtburdened) but, by industrial standards, very small.

These are the time-worn arguments for agricultural protection. What they make, in reality, is a fair case for price stability and for allowing breathing-space for adjustment. And time is indeed wearing down the case for protection (especially of the variable-levy sort) as a way of doing it.

There has been considerable adjustment, downward, of farm population in the E.E.C. as in America. This is eroding the E.E.C. “too hard to administer” argument against supporting farm incomes through a system of deficiency payments or “social” measures rather than by price-raising (and therefore consumption-decreasing) barriers at the frontier. And, on both sides of the Atlantic, time seems also to be eroding the concept of farm income as such. In advanced Western countries, up to 60 per cent of farm families get more than half their income from non-farm sources. Whether part-time farming is seen as a good thing or not (governments disagree), it does reduce the urgency of indiscriminate farm income support by whatever means. What time has not adjusted is over-production— a strictly relative terms which means the stuff will be produced,

but cannot be sold, at the producer and consumer prices imposed on the market. Demand for some products but not all is indeed priceinelastic, but not unalterable; supply is certainly alterable, albeit there will be products or individual farmers whose response to a small price cut will be greater output.

This is an argument, quite simply, for lower prices, whatever the mechanisms that set them. And the everincreasing number of people who are not farmers itself is an ever-increasing argument for letting the market operate. We all consume; in advanced countries, by now only 10 per cent of us farm. It must be crazy that the American consumer gets through about 80-90 pounds of beef a year, the much poorer Briton about 30 pounds, but the Japanese consumer only about 6, when Australia and New Zealand are or could be ready to gorge him with it. Agreed, beef may not be his traditional food, but then skypriced luxuries seldom are. The E.E.C. would be crazy (with luck, it won’t) to limit supplies, and/or ram up the price, of New Zealand lamb, which today crosses a 20 per cent tariff and still reaches the British supermarket at 90 per cent of the price of British lamb—which in turn is 60 per cent of what the French housewife pays for only slightly better quality. Yet, on their own, such arguments could not have produced today’s perceptible change in attitudes toward farm protection. Happily, there are other forces. The E.E.C. governments

are alarmed at the sheer fiscal weight of their farmsupport system. And there are producers, too, with freetrade interests. Their case has been put most powerfully by the United States; most justly by countries such as Australia and New Zealand, whose farmers depend more on exports, and which are tired of carrying the — often sudden — burden of adjustment when output, demand or politics alter in the importing countries. Maybe they overstate their case: Australia’s beef exports, for example, were sharply cut, not least by the Japanese, in 1974 but have soared ever since; and who would guess that the evercomplaining Americans have a handsome (over $5 billion) and increasing agricultural trade surplus with the E.E.C., thanks to exports that have trebled in value since 1970? Yet the basis is sound: that efficient producers should have a fairer crack of the whip. America ought to have a farm surplus with the E.E.C., just as Scotland should have a whisky surplus. These arguments are being felt through the trade talks in Geneva. With luck, the world is going to take a large step toward the multilateral discussion, and thus the multilateral organisation and adjustment, of agricultural trade.

In industrial products, one may well regret that all-but-free trade is giving way to organised trade. In agriculture, one must rejoice that today’s all-but-free protectionism is moving toward the same goal, but from the opposite direction.