2006 December 07 Thursday
US Vegetable And Fruit Farmers Want Subsidies Against Foreign Competitors

The row crop growers are joining the grain crop growers in the line asking for federal government hand-outs.

FRESNO COUNTY, Calif. ó For decades, the fiercely independent fruit and vegetable growers of California, Florida and other states have been the only farmers in America who shunned federal subsidies, delivering produce to the tables of millions of Americans on their own.

But now, in the face of tough new competition primarily from China, even these proud groups are buckling. Produce farmers, their hands newly outstretched, have joined forces for the first time, forming a lobby group intended to pressure politicians over the farm bill to be debated in Congress in January.

Low priced illegal alien farm labor from Mexico can't compete with far cheaper farm workers in China.

Although some farmers may be suffering, American consumers have been big beneficiaries of cheap food imports. On the United States wholesale market, for example, Chinese garlic costs almost half the price of garlic that is grown domestically.

The farmers need to embrace automation and push for big innovations in farm equipment designs. They can't compete on labor costs. Their only chance for survival is to use more capital and far more advanced and robotic capital equipment.

I'd rather the US government spend on automation research and development than on subsidies. The research would eventually lower costs and prices. The subsidies to the growers will keep up prices and delay the development of productivity enhancing equipment that the growers need to stay competitive. We doom our domestic industry to backwardness if we subsidize backwardness.

The fruit and vegetable farmers produce much economic value on about 5% of the land area that the major grain crops use.

The groupís combined cash receipts of $52.2 billion rival or exceed those of the five major commodity crops, which are expected to generate $52 billion this year.

...

While generating close to half of farm receipts, the specialty crops are grown on just 11 million acres of farmland, versus 215 million for the major commodity crops.

China subsidizes its farmers. Plus, it buys large amounts of US government debt in order to keep down the exchange rate for the yuan so that Chinese imports are cheap in dollar terms.

Chinaís farmers, who are broadly subsidized, have the advantage in that their nationís currency, the yuan, is tightly regulated to maximize trade opportunities. And the country has a glut of workers for the labor-intensive jobs of growing and harvesting fruits and vegetables.

Why not order the US Federal Reserve to buy Chinese debt as a way to drive down the price of the US dollar against the yuan?

But the foreign competition extends well beyond China. Brazil and Mexico have longer growing seasons and more sunshine from locations closer to the equator. US agriculture must compete with technology and capital equipment. No imported labor can lower labor prices low enough to make US farmers competitive. Plus, the imported labor is subsidized labor. We pay for the schools, medical care, crime, and other costs that the farmers do not pay when they hire illegal aliens.

Share |      By Randall Parker at 2006 December 07 11:17 PM  Economics Globalization


Comments
Omer K said at December 8, 2006 4:35 AM:

China subsidizes its farmers... the US buys the produce...ergo China subsidizes my meals. Im happy :D

Carl Shulman said at December 8, 2006 4:58 PM:

Randall,

You ask, "Why not order the US Federal Reserve to buy Chinese debt as a way to drive down the price of the US dollar against the yuan?"

You're proposing a large transfer of wealth from Americans in exchange for Chinese state debts, which the PRC could then threaten (implicitly) to default on? That seems like an uncharacteristic position for you.

tommy said at December 8, 2006 5:29 PM:

They already get a subsidy: illegal immigrant labor. It is a subsidy the taxpayers get to pay for indefinitely. To benefit a farmer's short-term profit margin, we will pay for generations to come.

Randall Parker said at December 8, 2006 6:42 PM:

Carl Shulman,

In response we could always selectively default on US government debt that the Chinese hold. They could try selling that debt to others. But they'd lose money on the sales and we might know which serial numbers they hold.

A safer bet would be to buy Japanese debt. But maybe a tariff makes the most sense.

Jerry Martinson said at December 8, 2006 8:59 PM:

I'm no big supporter for subsidies for farmers. But the subsidy of grains without corresponding subsidy of fruits and veggies (not counting tommy's point and the irrigation subsidies in California) causes a market distortion which makes the prices of grains cheaper relative to fruits and veggies. This might encourage consumers in the US to consume more grains relative to fruits and veggies.

I think the current farm policy contributes to a nutritional problem as I believe most people in the US don't eat enough fruits and veggies for optimal health. The US is slipping in average height when comparing genetically similar groups, such as the Dutch, and overconsumption of grain products at the expense of others is a likely cause. This is possibly affecting more than just height; IQ could be affected as well.

I'm not sure subsidizing fruits and veggies is the answer, but I think a farm policy that has nutrition rather than pork (no pun intended) and protectionism as a goal would be far more optimal. I think NPR Science Friday recently had a talk on this where they discussed how analyzing Carbon14 in people revealed that they were overwhelmingly made out of corn covered this issue.

MlR said at December 9, 2006 1:10 AM:

Are those height numbers taking into account the heavy immigration of shorter ethnic groups? In other words, how do European-Americans stack up against the Dutch (who are the tallest people in the world according to recent reports)?

RKU said at December 9, 2006 5:24 AM:

Seems to me one huge big problem with having our government buy massive quantities of Chinese government bonds to push down the dollar is that we're completely broke, which is, after all, the reason we have to annually sell such vast quantities of additional government debt to the Chinese, Japanese, etc.

However, this sad situation does provide an excellent silver lining. All we need do is get some prominent American leader (e.g. Bush, Bernake, Paulsen) to make a few casual public remarks about the vague possibility of a future American government debt-default and then boy oh boy would we see a huge drop in the dollar and a rise in the yuan, yen, euro, Mexican peso, Congolese Kumbu-Bean, etc.

Mission Accomplished!---and all without a dollar spent!

Quequeg said at December 10, 2006 1:29 PM:

We could just prevent the Chinese gov't from buying our debt. Of course, most economists say that this would be a disaster, because interest rates would soar, and probably the dollar would fall.

But interest rates are too low and have led to a housing bubble. Low interest rates have encouraged over-consumption, which is also not good for our trade deficit. Also, low interest rates discourage savings, because it's harder to get a decent inflation-adjusted return on your savings. Almost all economists say we need to increase our savings.

Perhaps, we should have heavy controls on what foreign governments purchase, whether those be financial assets or material assets. The "free market" is supposed to be about minimal gov't interference.

Also, we should have tariffs. We just need to decide whether we want to have an agricultural sector and a manufacturing sector. Then, we need to have high enough tariffs to make it happen. By the way, in 2005, we had a trade deficit in food for the first in 50 years. In 2004, we had a trade deficit in technology products, for I think, the first time ever.

There was a good guy who ran for Congress (but lost by 51% to 49% against Tom Reynolds) named Jack Davis, who advanced the idea of "balanced trade":
http://www.jackdavis.org/new/speeches/balanced.asp

Balanced Trade - Not Free Trade
Since Red China has the greatest imbalance of trade, 124 billion dollars in 2003, we should apply a ten-percent balancing tariff on their total value of exports. In 2003 this was 152.4 billion dollars.

If ten percent were not sufficient, it would be increased to 15 percent then 20 percent and increased until the balance of trade is obtained. A tariff of 20 percent would provide the U.S. government with 30.5 billion dollars in 2003.

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