Agricultural Subsidies in Great Britain
JULY 01, 1959 by GEORGE WINDER
Mr. Winder is a British farmer, author, and journalist.
Many sectional interests in
The purpose of this article is to break that silence and express a developing public opposition to agricultural subsidies.
In the accounting year 1956-57, it cost the British taxpayer $655,200,000 to subsidize agriculture, a sum more than enough to pay the whole of the agricultural wages bill. Had this money been used instead to reduce the government’s annual budget deficit, there need not have been the inflation of the British currency which has deprived provident classes of the community of nearly 50 per cent of the value of their savings since World War II. As there are only some 500,000 farms in Great Britain, the subsidy averages $1,310 per farm.
Of the total subsidy, $199 million has been paid in direct grants to farmers for such work as plowing and drainage and application of fertilizer, while the balance has been paid to make up the deficiency between the price received by the farmer for his products on the market and the price guaranteed by the government.
Every year, representatives of the Farmers Union and of the Ministry of Agriculture meet to decide upon guaranteed prices for farm products for the ensuing twelve months. The difference between the market price and the guaranteed price is distributed through dealers who handle the farmer’s products. This distribution is simplified by the fact that the majority of Britain’s farm products are now sold through state-created Marketing Boards, which act as monopoly dealers in the product they control.
It is sometimes claimed that agricultural subsidies are not in reality a gift to the farmer but to the consumer, who, as a result, obtains food at a reduced price. In a country which has a closed economy this argument might be difficult to refute, as no rival commodity would exist to act as a standard for comparison. But in Great Britain, where nearly half the food is imported, the price of the imported article is the deciding factor in all food prices, and the subsidies paid to the farmer have rarely, if ever, caused his products to be marketed at less than imported prices.
For example, the price of wheat paid by millers this winter for both imported and home-produced wheat was $2.80 per hundredweight. When the deficiency payment was added, the guaranteed price received by the farmer was $3.98. There can be no pretense here that the subsidy reduced the price of wheat to the millers, for that was governed almost completely by the price of the imported commodity.
Home-produced meat, because of its reputation for excellence, always realizes a premium over imported meat, but here again the large quantity imported from the Dominions and the Argentine is the deciding factor in the price at which meat is sold to the public. In 1956-57, the deficiency payment for meat was $209 million.
The Milk-Marketing Board
Fresh milk is the one important farm product in Great Britain which does not face competition from abroad. All milk must pass through the Milk Marketing Board, which has the power to fix all retail prices. In 1956-57, in addition to a subsidy for milk sold at reduced prices for welfare purposes, the government paid $62 million to the Board to enable it to increase the farmers’ returns.
According to quality, farmers all receive through the Milk Board approximately the same price for their milk in whatever part of the country they live and no matter for what purpose their milk is used. The effect has been to stimulate milk production in those parts of the country which formerly had no dairy herds, with the result that Great Britain has now an excessive supply of milk.
The only profitable outlet for milk in Great Britain is its use for consumption in liquid form; the balance has to be sold, at less than the cost of production, for manufacture into dried milk, cheese, butter, and the like.
Fourteen per cent of the milk used for liquid consumption is sold at a loss for welfare purposes under "National Health" and "Milk in School" schemes, but the government compensates the Milk Board for this at a cost of some $126 million per year, an amount not included in the total farm subsidy mentioned at the beginning of this article.
The money received by the Board for milk sold at a profit for consumption in liquid form is now pooled with that received for milk sold at a loss for manufacturing purposes, and an average or pool price—which includes the government subsidy—is paid to all farmers.
One result of this is that those farmers who live in the eastern part of Great Britain, near the great towns where their milk is sold at top prices, find themselves subsidizing those farmers who live in Wales, or in remote parts of the West of England, whose milk can only be sold at a loss for manufacturing purposes. The final outcome of this process of encouraging ever-growing supplies which must be sold at a loss is difficult to foresee.
In the case of two farm commodities, the government has solved the problem of increased subsidies simply by restricting production. For example, only some 1,100 farmers are allowed to grow hops in Great Britain, and each has an acreage quota which he must not exceed. The result is that the supply of hops is kept down and their price up, so that no guarantee or subsidy is needed. It is virtually impossible for new growers to obtain a quota.
In the case of potatoes, growers are given an acreage quota based on their average area under potatoes in the years 1951-53. The Potato Board has the power to increase or decrease this quota, and so control the quantity grown. This enables it to ensure what it considers a satisfactory price and saves the government the cost of a subsidy. It also causes the consumer to be saddled with excessive prices.
Eggs afford us another example of the difficulties which arise under a system of guaranteed prices. A farmer is permitted to sell eggs at the farm gate, or, under special license, to retailers, but to enjoy the subsidy the eggs must pass through licensed packing stations. There can be no doubt that the subsidized price received over the last few years has greatly stimulated egg production, and surplus supplies now occur. Everyone with a little land seems to be going in for a deep-litter poultry shed.
In the early spring of last year, eggs for which the farmer was receiving the guaranteed price of 60 cents a dozen from his packing station were being sold in the shops at 35 cents—the government "deficiency" payment making up the difference.
These excessive supplies actually caused Great Britain to become, for the first time, an exporter of eggs. They were dumped in Italy and Germany at 28 cents a dozen. Denmark complained that this dumping was destroying her long-established export trade. This year, as a result, the export of subsidized eggs has been forbidden by law. One argument that helped to pass the law was that the British people were being taxed to subsidize the eggs consumed by the Germans.
For many years Great Britain has been an importer of eggs, but the growing subsidized production is, of course, destroying this trade with countries such as Australia and Denmark. The effect is that they have reduced supplies of British currency and must reduce their importation of manufactured goods from Great Britain. The egg subsidy, which reached $92 million in 1956-57, is undoubtedly damaging that overseas trade which is the very basis of Great Britain’s prosperity. This is one of the consequences of subsidies which legislators invariably overlook in their anxiety to help some sectional pressure group.
Distorted Farming Operations
The system of agricultural subsidies not only causes dairy farms to be established in unsuitable parts of the country but is also distorting the whole development of British farming. Great Britain’s great natural resource is an ample supply of excellent grass which enables her to produce some of the finest cattle and sheep in the world. She is entirely unsuited to modern methods of grain production. Before the war, her animal husbandry was expanding rapidly. Her grain production was declining, except in a few particularly suitable parts of the country, such as
The present system, however, has reversed this development, so that much land which was formerly in grass has been plowed for grain. This emphasis on arable farming has helped the larger farmers rather than the small man who is generally represented as the man the taxpayer needs to help. The large farmer who enjoys so great a percentage of the government aid has a higher standard of living than most of those who are compelled to pay the subsidies he receives.
The "National Defense" Argument
One argument often used in
The importation of grain also requires the use of a large number of ships. One of the results of the present emphasis on grain production will be that, if war does break out, and the atom bomb does not settle the dispute at once,
The effect of this system of agricultural protection by means of subsidies is already being felt in the British Dominions. It constitutes another step in the breaking up of that economic unity of the
Thus the British taxpayer is paying some $650 million a year to subsidize agriculture, and reaps, in return, only a harvest of tares. When politicians, either on behalf of pressure groups or through sheer inability to consider all the facts, interfere with the free working of a country’s economy, they set in motion forces which may be as disastrous as they are immeasurable.
Lamar Fleming, Jr., in an address before the American Cotton Congress,
The American public will find federal expenditures on agriculture at the annual rate of 6.8 billion dollars, which is 54 per cent greater than in 1955 and five times as much as in 1939. This does not include some half-billion dollars of gifts of agricultural surpluses abroad and so-called "barters" of them for stockpile materials (paying deliberately too much for these materials in order to subsidize agricultural exports). They will find also that the price-support and regular export subsidy programs for agriculture are causing American consumers to pay in the neighborhood of 31/2 billion dollars more for the agricultural produce which they use than it would cost at world prices, so that the combined cost of the programs to the American people approximates 10 billion dollars a year, equal to about three-fourths of national farm income.