February 17, 2011

Farm Subsidies Not Helping Food Prices

Veronique de Rugy

Senior Research Fellow
Summary

Food prices are on the rise, and rather than helping, farm subsidies are artificially keeping food prices high.

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Food prices are on the rise, and rather than helping, farm subsidies are artificially keeping food prices high.

It is often said that without subsidies there would be a smaller food supply and hence, higher prices, but it’s quite the opposite.  The economic literature shows that abolishing subsidies would actually lower the world price of crops.

A study by the World Bank, which looked at the effects of removing of rich country protection and subsidies in agriculture, and found that poverty rates would fall in virtually all of the developing countries included in the sample, as a result of the lower world prices for farm products.

The rationale to use farm subsidies to keep farm households out of poverty made some sense in the 1930s, but it doesn’t today.

Despite the fact that farm households are doing as well or better than other households, farm households are still targeted for billions of dollars in government payments.