Seize the Moment!

High food prices create a great opportunity to cut agricultural subsidies around the world. High food prices create a perfect opportunity to end the agricultural protectionism – especially in Europe – which has left developing countries unable to sell the crops they grow.

These prices aren’t going to go down any time soon any more than the price of energy is. There are simply more people who can afford to get enough to eat than their used to be – and that makes food even more unaffordable for those still stuck in poverty. The price of energy is obviously also part of the cost of growing food. Ethanol production is a relatively minor contributor although it certainly does somewhat reduce the land for food crops.

Speaking of ethanol production, this is a perfect time to end subsidies for that as well. The original (and seemingly enshrined) direct subsidy is $.50/gallon in the US. That was set when gasoline was about $1.50/gallon cheaper. So obviously this subsidy is no longer needed.

No subsidies are justified for oil or natural gas production with prices as high as they are. Some subsidies are protected by existing contracts but obviously should be allowed to expire as quickly as possible and should not be replaced nor should new subsidies be granted. There is certainly a good economic and strategic case for stepping up domestic production of petroleum but it’s restrictions on where production can take place rather than any problem selling the stuff at a good price which discourage production in the US.

All of these subsidies are a double whammy to taxpayers who pay the high prices and then pay subsidies to the producers who have high profits. Economically, all subsidies impede the ability of markets to adapt. Some may be justified to jumpstart important things but, once granted, subsidies and trade protections are hard to revoke. Now’s a perfect time to get rid of some of them which have long outlived any usefulness they might have had.

Positions on this are a good test for political candidates.

Comments

[Edwin]

he US is the largest oil importing country and recent rise in oil prices at global level has driven the country to look seriously for the development of biofuel industry. Apart from oil security, the government’s strong stand for enhancing the use of renewable energy has been a motivating factor in the country. However, the rising concern for the biofuel feedstock prices has opened a smooth growth path for the cellulosic ethanol in the US. In terms of production, biodiesel need more attention in the country.

[Luca]

I agree. Commodity prices won't help in Europe though - subsidies are directed at segments like dairy (e.g. in France) and citrus (e.g. Italy) with little or no ability to switch.