Rice Subsidies Complicate US/China Engagement

Federal farm programs regulate and subsidize wheat, corn, soybeans, cotton, and rice production and exports. These subsidies are costly to taxpayers and consumers, and complicate trade relations with China and other Asian countries. Downsizing The Federal Government (Cato Institute) reports on Department of Agriculture programs:
The department will spend $154 billion in 2016, or $1,230 for every U.S. household. After adjusting for inflation, spending has increased 45 percent since 2000. The department operates about 268 subsidy programs and employs 90,100 workers in about 7,000 offices across the country.
These agricultural subsidies distort trade, which adversely affects poor farmers and environmental protection in developing countries. Subsidies also impose a fiscal burden on taxpayers. Conversely, reducing agricultural subsidies in the United States (and other developed countries) could help poor farmers in developing countries compete in the marketplace, reduce ecosystem degradation and help reduce federal spending
Rice subsidies have slowed access to China markets, and hurt farmers in poor countries. “Subsidizing Starvation,” (Foreign Policy, January 11, 2013), looks at the damage US rice subsidies have on farmers in poor countries like Haiti:
…the United States has been a major player in the global rice trade since the 1970s. The country may only produce around 2 percent of global output, but it is consistently among the top five exporters in the world. Arkansas rice is eaten around the world — from Japan to Mexico to Turkey — and roughly half of the rice grown in the state is sold in foreign markets.
U.S. Reaches Deal on Rice Exports to China, Trade Group Says:
American rice farmers to get foothold in world’s largest market for grain,” (Wall Street Journal, January 22, 2016) reports on progress for giving US rice producers access to China:

The U.S. reached an agreement that would enable rice exports to China, according to a trade group, a development that would give U.S. rice farmers their first foothold in the world’s largest market for the grain.

USA Rice, which represents growers, millers and exporters, said late Friday that officials from the U.S. Department of Agriculture had informed it that Washington and Beijing agreed on a protocol to allow U.S. producers legal access to China, which has long barred American rice.

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hbeiser, Pixelbay

The article reports US rice production estimates for 2015-16 at 6.1 million tons, with over half, 3.1 billion tons, for export.

But federal rice subsidies distort rice production, encouraging marginal producers and artificially boosting rice supplies for export, foreign rice producers complain and lobby to restrict rice shipments from the US. Foreign governments also subsidize and protect domestic rice farmers, so trade negotiations often turn on “level of subsidy” claims.

US files trade complaint over China’s ‘excessive’ ag subsidies“(CNBC, September 13, 2016) reports Obama Administration formal complaints to the World Trade Organization:

“China’s excessive market price support for rice, wheat, and corn inflates Chinese prices above market levels, creating artificial government incentives for Chinese farmers to increase production,” U.S. Trade Representative Michael Froman said in a release.

Froman noted that China exceeded its allowable subsidy limits on corn, rice, and wheat by $100 billion in 2015 alone. America’s rice, wheat, and corn industries typically average $20 billion per year in export activity, according to government figures.

Compared to Thailand, the U.S. government spends far less on rice subsidies. According to CBO estimates cited in the Delta Farm Press (April 3, 2015):

The Congressional Budget Office estimates that under the previous farm bills, the U.S. government provided an average of $1.53 billion in annual support for rice between 2000 and 2004. Under the Agricultural Act of 2014, CBO projects the annual outlay for rice from 2014 to 2018 will average around $231 million.

Thailand’s government spent far more:

Thailand’s rice paddy pledging program is a textbook case of how not to run a farm subsidy program. What started as an effort to win farmer support during parliamentary elections in 2010-11 became an economic disaster that cost the government of Thailand $27.7 billion before it ended in 2014.

The Economist‘s leader, “Hare-grained,” (November 14, 2015),  outlines the mess that Japan, South Korea, China, and other Asian countries have made of the international rice trade:

Tariffs, quotas, floor prices, ceiling prices, producer subsidies, consumer subsidies, state monopolies—no measure is too meddlesome (see article). As a result, the market for rice is more distorted than that for any other staple. Rice growers pocketed at least $60 billion in subsidies last year, according to the OECD, twice as much as maize (corn) farmers, the second-most-coddled lot.

The full article, “Paddy-whacked,” explains the problem in its subtitle: “By meddling in the market for rice, Asian governments make their own citizens poorer.

Rice policy matters a lot for Asia’s 4.4 billion people, about 60% of the world’s population, as Asians consume 90% of the world’s rice,

Asia consumes 90% of the world’s rice. It is used to make flour, noodles and puddings. Babies and the elderly survive on rice gruel. Steaming rice porridge is eaten for breakfast in skyscraping hotels in Hong Kong and rustic village kitchens in Hunan.

The U.S. government supports domestic rice production through tariffs on imported rice and direct taxpayer subsidies based on production, prices, and historical acreage. Those programs make rice one of the most heavily supported commodities in the United States, with ramifications for U.S. taxpayers and consumers and rice producers abroad.

Back in 2006, Dan Griswold’s Cato Institute Trade Policy Briefing looked at “Grain Drain: The Hidden Cost of U.S. Rice Subsidies.”  Here is part of the paper’s Executive Summary:

Americans pay for the rice program three times over—as taxpayers, as consumers, and as workers. Direct taxpayer subsidies to the rice sector have averaged $1 billion a year since 1998 and are projected to average $700 million a year through 2015. Tariffs on imported rice drive up prices for consumers, and the rice program imposes a drag on the U.S. economy generally through a misallocation of resources. Rice payments tend to be concentrated among a small number of large producers.

Globally, U.S. policy drives down prices for rice by 4 to 6 percent. Those lower prices, in turn, perpetuate poverty and hardship for millions of rice farmers in developing countries, undermining our broader interests and our standing in the world. The U S. program also leaves the United States vulnerable to challenges in the World Trade Organization.

For our own national interest, the U.S. Congress and the president should work together to adopt a more market-oriented rice program in the upcoming 2007 farm bill, including repeal of tariffs and a rapid phaseout of subsidies.

Federal government rice subsidies have changed since 2006, but still involve significant taxpayer subsidies and price distortions internationally. The U.S. could be a leader in reforming damaging rice policies in China and across Asia.

Mercantilist policies still dominate across many industries, from steel to agriculture. Rice is no exception. Governments want to be self-sufficient in rice and where possible promote exports. Subsidies to domestic rice growers cost each country’s taxpayers millions, and tariffs on imported rice (and other grains) cost each country’s consumers millions more.

Public Choice theory explains how concentrated special interests (like rice growers, millers, and exporters) gain political leverage to enact legislation that benefits them while raising costs for consumers and taxpayers (benefits of rice subsidies are concentrated and larger per rice producers and lobbyist, while total costs, though higher,  are spread out across tens of millions of consumers and taxpayers).

The same mercantilist thinking and public choice pressures distort rice production and trade in the U.S..  This July 12, 2015 Wall Street Journal article, “Should Washington End Agriculture Subsidies?” offers a debate on current agricultural policies, after 2014 reforms. Vincent Smith, arguing against farm subsidies, notes:

First, many people seem to believe that farmers, like the Joad family in John Steinbeck’s “The Grapes of Wrath,” are poor, when in fact the average farm household enjoys an income that is about 15% higher than that of the average nonfarm family. What’s more, the 10% to 15% of farm families that receive more than 85% of all farm subsidies—amounting to millions of dollars a year in a few cases—have annual household incomes many times as large as those of the average U.S. taxpayer. Some estimates suggest that the farmers who receive the bulk of all subsidies—many of whom mainly raise corn, cotton, rice, peanuts, soybeans and wheat—are worth somewhere between $6 million and $10 million on average. 

Rice is one of the big grain crops still subsidized, and because rice is the major food of Asia, students could argue that it should be the first to be pulled out of the world of subsidies and left to market competition and international trade.

This May 15, 2015 Bloomberg View article, “Rice Gets a Bath Amid California’s Drought,” looks in depth at subsidized rice production in California: “much of it destined for sushi … shipped to customers, about half of them outside the U.S.”:

As you read this, farmers in the Sacramento Valley are flooding hundreds of thousands of laser-leveled acres under five inches of water as they prepare to plant the annual rice crop. After that comes my favorite part. From the California Rice Commission’s “How Rice Grows” tutorial:

Rice seed is then soaked and loaded into planes. Flying at 100 mph, planes plant the fields from the air. The heavy seeds sink into the furrows and begin to grow.

They will keep growing throughout the hot valley summer (temperatures regularly top 100 degrees Fahrenheit), in the midst of a historic drought. Harvest comes in September, after which the rice — mostly medium-grain, much of it destined for sushi — will be milled and then shipped to customers, about half of them outside the U.S.

The Los Angeles Times article, June 11, 2015, “California rice farmers find Japanese trade negotiators a bit starchy,” looks at other foolish rice policies, beginning with Japanese rice protectionism:

For years Charley Mathews Jr. has exported tons of his best Sacramento Valley-grown rice to Japan, but it grates on him that very little of that has ever ended up on the tables of sushi restaurants or Japanese households.

Instead, the Japanese government, which controls rice imports under a 2-decade-old quota system, has given away most of his and other foreign rice as food aid or sold it domestically as animal feed and an ingredient for rice crackers.

Again, however, U.S. rice farmers benefit from a range of water and price subsidies. Bloomberg View’sSave California Farmers From Themselves,” April 27, 2015, looks at the water subsidy values for California rice farmers:

In a 2004 study, the Environmental Working Group estimated that the total subsidies for the Central Valley Project added up to roughly $600 million a year. While farmers dispute that figure, they don’t deny they have a very special deal. Why else would they fight efforts to make the pricing of water more market-based and defend their “rights” to it?

This competitive advantage has been worth tens of billions of dollars. All over the West, farmers served by federal projects have benefited from 50-year zero-interest loans, with generous repayment rates, plus low-cost power. And about 45 percent of the farmers who receive irrigation subsidies are growing commodity crops (such as rice and cotton) that qualify for price supports from the U.S. Department of Agriculture — a classic example of double dipping.

This giant international rice farming mess seems endlessly complicated. But at the least the U.S. could be a leader in saving hundreds of millions of taxpayer dollars by ending the rice subsidies that also encourage rice protectionism in Japan, South Korea, and other Asian countries.

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