Freeman

ARTICLE

Agricultural Subsidies in Great Britain

JULY 01, 1959 by GEORGE WINDER

Mr. Winder is a British farmer, author, and journalist.

Many sectional interests in Great Britain believe it to their advan­tage that agriculture receive large subsidies from the government. The present system of state guar­anteed prices for nearly all agri­cultural products is constantly ex­tolled from platform and press. But the British taxpayer, who un­doubtedly pays the cost of the system, has no paid band of pub­licity experts to express his views.

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.

Production Controls

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 East Anglia. These were un­doubtedly the most profitable lines along which British agriculture could develop.

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 Great Britain in favor of agricul­tural subsidies is that, in the event of war, the country has to depend very largely on home­grown food. It is claimed that, as Great Britain requires so much grain during times of war, it is necessary to keep her arable farm­ing going by means of subsidies during times of peace. The truth, however, is that grain is the great robber of fertility. During the last war, when the supply of fer­tilizer was greatly reduced, it was found that grassland that had not been plowed for years gave fair harvests of grain without the aid of fertilizer, whereas fields that had been plowed even a few years before had lost a great part of their fertility.

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, Great Britain will have fewer fertile fields and fewer ships than she had in 1939. The danger of future wars is not a justification of sub­sidies, but an additional reason why the present system should be abandoned.

Great Britain has long ceased to be an independent economic unit. Throughout the nineteenth cen­tury, and for a considerable part of this, she has been developing what may be called an oceanic economy. Her Dominions and the New World produce a great part of her food.

Great Britain, with her small farms, is almost completely un­suited to arable production, but her rich grassland fits admirably into the system of interlocking Dominion and home farming. The present subsidies, by compelling her to put so much of her land under grain, is a complete perver­sion of her natural development. It has put the clock back one hun­dred years to that system of mixed farming which existed be­fore the famous Repeal of the Corn Laws in 1846.

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 British Empire which, before 1914, was the very foundation of her greatness. At the same time it has become an insuperable barrier preventing her from entering into greater economic cooperation with Europe.

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.       

 

 

***

Ideas on Liberty

U.S. Agricultural Subsidies

Lamar Fleming, Jr., in an address before the American Cotton Congress, May 4, 1959

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.

ASSOCIATED ISSUE

July 1959

comments powered by Disqus

EMAIL UPDATES

* indicates required

CURRENT ISSUE

November 2014

It's been 40 years since F. A. Hayek received his Nobel Prize. His insights, particularly on the distribution of knowledge and the impossibility of economic planning, remain hugely important today. In this issue, we look back on the influence of his work. Max Borders and Craig Biddle debate whether liberty must be defended from one absolute foundation, further reflections on Scottish secession, and how technology is already changing our world for the better--including how robots, despite the unease they cause, will only accelerate this process.
Download Free PDF

PAST ISSUES

SUBSCRIBE

RENEW YOUR SUBSCRIPTION