In New Zealand, Farmers Don't Want Subsidies

by Mark Ross and Chris Edwards

Every five years or so, members of Congress from rural areas team up to push through a costly extension of farm programs. They are at it again this year. The Senate recently passed legislation to keep billions of dollars in subsidies flowing to farm businesses, and the House just passed a similarly bloated bill out of committee.

Farm bills are an inside game. Politicians never give the public a good reason why U.S. agriculture needs to be coddled by the government. Members of Congress focus on grabbing more subsidies for home-state farmers, and they rarely discuss or debate whether all this federal aid is really needed.


It isn't needed. New Zealand's farm reforms of the 1980s dramatically illustrate the point. Faced with a budget crisis, New Zealand's government decided to eliminate nearly all farm subsidies. That was a dramatic reform because New Zealand farmers had enjoyed high levels of aid and the country's economy is more dependent on agriculture than is the U.S. economy.

The vast majority of New Zealand farmers proved to be skilled entrepreneurs — they restructured their operations, explored new markets, and returned to profitability. Today, New Zealand's farming sector is more dynamic than ever, and the nation's farmers are proud to be prospering without government Despite initial protests, farm subsidies were repealed in 1984. Almost 30 different production subsidies and export incentives were ended. Did that cause a mass exodus from agriculture and an end to family farms? Not at all. It did create a tough transition period for some farmers, but large numbers of them did not walk off their land as had been predicted. Just one percent of the country's farmers could not adjust and were forced out.




Prior to the 1984 reforms, subsidies stifled farm productivity by distorting market signals and blocking innovation. Many farmers were farming for the sake of the subsidies. For example, nearly 40 percent of the average New Zealand sheep and beef farmer's gross income came from government aid.


When the subsidies were removed, it turned out to be a catalyst for productivity gains. New Zealand farmers cut costs, diversified their land use, sought nonfarm income, and developed new products. Farmers became more focused on pursuing activities that made good business sense.


Official data supports on-the-ground evidence that New Zealand greatly improved its farming efficiency after the reforms. Measured agricultural productivity had been stagnant in the years prior to the reforms, but since the reforms productivity has grown substantially faster in agriculture than in the New Zealand economy as a whole.


Since the reforms, agriculture's contribution to New Zealand's economy has remained steady at about 5 percent of gross domestic product (GDP). Adding activities outside the farm gate, such as processing of milk, meat and wool, agriculture is estimated to contribute over 15 percent of GDP. By contrast, agriculture's share of the economy has fallen in many other industrial countries.


With the removal of subsidies in New Zealand, agricultural practices are driven by the demands of consumers, not by efforts to maximize the receipt of subsidies. At the same time, the whole agricultural supply chain has improved its efficiency and food safety has become paramount. Businesses that deliver inputs to farming have had to reduce their costs because farmers have insisted on greater value for money.


More efficient agricultural production in New Zealand has also spurred better environmental management. Cutting farm subsidies, for example, has reduced the previous overuse of fertilizer. And cutting subsidies has broadened farm operations to encompass activities such as rural tourism that bring management of the rural environment to the fore.


The message to American farmers is that subsidy cuts should be embraced, not feared. After subsidy cuts, U.S. farmers would no doubt prove their entrepreneurial skills by innovating in a myriad of ways, as New Zealand farmers did. And we suspect that — like New Zealand farmers — American farmers would become proud of their new independence, and have little interest in going back on the taxpayer gravy train.


Now would be a great time for America to embrace Kiwi-style reforms because commodity prices are high and U.S. farm finances are generally in good shape. It's true that weather conditions and markets create ups and downs for agriculture, but over the long run, global population growth will likely sustain high demand for farm products. Some people claim that America needs to subsidize because other countries do. But unsubsidized New Zealand farming is globally competitive, with about 90 percent of the country's farm output exported.


The removal of farm subsidies in New Zealand gave birth to a vibrant, diversified, and growing rural economy, and it debunked the myth that farming cannot prosper without subsidies. Thus rather than passing another big government farm bill that taxpayers can't afford, the U.S. Congress should step back and explore the proven alternative of free market farming.

In America, the shale gas revolution is creating jobs and growth. It can here too

Matt Ridley.


15th December 2011.

WHEN is a job not a job? Answer: when it is a green job. Jobs in an industry that raises the price of energy effectively destroy jobs elsewhere; jobs in an industry that cuts the cost of energy create extra jobs elsewhere.

The entire argument for green jobs is a version of Frederic Bastiat’s broken-window fallacy. The great nineteenth century French economist pointed out that breaking a window may provide work for the glazier, but takes work from the tailor, because the window owner has to postpone ordering a new suit because he has to pay for the window.

You will hear claims from Chris Huhne, the anti-energy secretary, and the green-greed brigade that trousers his subsidies for their wind and solar farms, about how many jobs they are creating in renewable energy. But since every one of these jobs is subsidised by higher electricity bills and extra taxes, the creation of those jobs is a cost to the rest of us. The anti-carbon and renewable agenda is not only killing jobs by closing steel mills, aluminium smelters and power stations, but preventing the creation of new jobs at hairdressers, restaurants and electricians by putting up their costs and taking money from their customers’ pockets.

We now have an estimate, from meticulous work in a new report by the Renewable Energy Foundation, of just how costly those subsidies are going to get in a few years’ time: £15bn a year, or 1 per cent of GDP. Ouch. That’s more than this year’s growth.

Contrast that with news from the United States that, according to a report from IHS Global Insight, the cheap shale gas revolution now in full flow has created 148,000 jobs directly within the gas industry and – by making energy cheaper – has created at least another 450,000 jobs elsewhere in the economy. By 2015, the total impact of shale gas will be 870,000 new jobs, says the report.

Shale gas now provides more than a quarter of American gas from a standing start about five years ago. Its effect has been dramatic. Whereas gas prices rose sharply here in the last two years, pushed up by oil prices, the Libyan civil war (which constricted supply) and the Japanese earthquake (which boosted demand), by contrast they stayed low in the United States.

This is the first time in decades gas prices on opposite sides of the Atlantic have diverged so sharply. Cheap gas in America has caused a rush into using gas for electricity generation, the cancellation of coal and nuclear plants, the mothballing of gas import terminals, the revival of the US chemical industry, a fall in the price of farmers’ input costs (nitrogen fertiliser is made with natural gas) and the beginning of the conversion of some urban transport fleets to running on natural gas.

Oh, and by the way, with one exception in Wyoming, shale gas drilling has still not caused any verified cases of groundwater contamination. The environmental risks of gas are real but small compared with the documented impact that wind power has on eagles, bats, landscapes and pollution in Inner Mongolia (where the metals that go into their magnets are mined and refined), or that biofuels have on hunger and rainforest destruction.

Britain can get some of these benefits of the shale gas revolution whatever happens. We already have. Last Christmas, when all wind turbines stood helplessly still during the great freeze, three cargoes of liquefied natural gas heading for the United States from Qatar actually turned around and came to the Isle of Grain instead; that kept our boilers going, kept prices from rising faster than they did and in the long run staved off job losses.

Thus, if we were the only country – or part of the only continent – not to exploit the new resource of shale gas within our own borders, we might still get some of the indirect benefits. But we would also lose the revenues and the direct jobs that come with gas drilling. We would also lose competitiveness to countries with cheaper energy.

Back in 1800, Britain was becoming the richest country in the world with the fastest economic growth and the fastest job creation – the China of its day. That was not because we had suddenly become cleverer than everybody else at inventing things. It was because we had stumbled upon limitless, dense and above all cheap energy in the form of coal, and harnessed it to mechanise industry, cheaply amplifying the labour productivity of each person so much that he could be paid high wages.

That lesson – that cheap energy is an employment multiplier, while costly energy is an employment divider – has been forgotten. Please let us recall it before the green jobs myth causes more unemployment.

Matt Ridley is the author of The Rational Optimist. www.rationaloptimist.com

After just five years, shale gas provides more than a quarter of American gas

The Importance of Failure. Steven Horwitz and Jack Knych

In today’s society failure has become something to fear, avoid, and therefore prevent at all costs. Whether it is unemployment compensation, farm subsidies, or bailouts for failing companies, the world seems to view failure as having no redeeming social value. If success is all good and failure is all bad, then it seems as though we should do everything we can to remedy or prevent failure.

But is that so? Without denying the value of perseverance, and recognizing that the slogan “never give up” can be useful in overcoming certain obstacles, we must keep in mind that failure can act as a guide to more worthwhile activities. For example, in 1921 Walt Disney started a company called the Laugh-O-Gram Corporation, which went bankrupt two years later. If a friend of Disney or the government hadn’t let him fail and move on, he might never have become the Walt Disney we know today.

More important than this individual learning process is the irreplaceable role failure plays in the social learning process of the competitive market. When we refuse to allow failure to happen, or we cushion its blow, we ultimately harm not only the person who failed but also all of society by denying ourselves a key way to learn how best to allocate resources. Without failure there’s no economic growth or improved human well-being.

Economists, especially those of the Austrian school, often emphasize how entrepreneurs discover new knowledge and better ways of producing things. But entrepreneurial endeavors frequently fail and the profits thought to be in hand often don’t materialize. According to the U.S. Small Business Administration, over half of small businesses fail within the first five years. But failed entrepreneurial activity is just as important as successful entrepreneurial activity. Markets are desirable not because they lead smoothly to improved knowledge and better coordination, but because they provide a process for learning from our mistakes and the incentive to correct them. It’s not that entrepreneurs are just good at getting it right; it’s also that they (like all of us) can know when they’ve got it wrong and can obtain the information necessary to get it right next time.

Read full in The Freeman on line.