When informed that the already starving French had run out of bread, Marie Antoinette famously responded ‘then let them eat cake!’. In this (likely fictitious) exchange, the Queen effectively personified the separation of the state aristocracy from the plight of the common man.
Today, the state is equally as inept when it comes to feeding the poor.
Food, Glorious Food
While everybody purchases and consumes food products, irrespective of economic or social standing, each does so in a different way.
Those of a lower income, for example, statistically spend around 4% more on food than their wealthier counterparts. This is fairly logical; a $100 food budget represents a greater amount to a person with $1,000 than to someone with $10,000, even though they are both consuming equally.
While richer families are able to spend the bulk of their income on luxury goods or on savings, every penny counts when half of your income goes on food. Thus, the poor are hit especially hard by increasing food costs. An increase in the cost of bread can be devastating when your budget is tight, even if it’s only by a small amount.
How, then, do we keep food prices down?
Good Intentions, Bad Results
The answer is: we don’t have to. Market forces, like most other goods and services, allow for the agriculture and food sector to diversify and flourish when left alone, which in turn results in readily available, cost effective food for all.
The problem comes when the state gets involved.
In the EU, agricultural protectionism has resulted in European consumers paying as much as 17% more on agricultural goods than the rest of the world. In the US, the distortive effects of protectionism are also evident.
Agricultural protectionism itself comes in various forms. Farm subsidies are pretty common, and are designed to guarantee farmers a fair wage. What they usually result in is overproduction and waste.
Tariff and nontariff barriers against foreign entry are also common, and aim to prevent farmers from foreign countries from providing cheaper products, and undercutting local producers (ironically almost exactly what subsidised farmers do after overproducing).
Blocking foreign competition, however, usually results in higher prices for agricultural goods due to a lack of competition. As a result, consumers in protected economies usually wind up paying more for foodstuffs than if the market was free.
There’s even evidence that subsidies contribute to obesity. In the United States, the majority of farm subsidies go to crops like corn, wheat and soy – primarily used as food for livestock and as sweeteners – whereas subsidies for fruit fall far shorter.
As a result, unhealthy foods have their prices artificially lowered while the healthy stuff stays expensive. Thus, poorer members of society are not only made to pay more, but they often have to forgo a healthy diet to do so.
Lessons from Down Under
South of the equator, things are much better. In New Zealand, farms were liberated from state interference following an agricultural crisis back in the 1980’s. Farmers were left without subsidies after the market reforms, ultimately resulting in Kiwi agriculture booming into one of the most diverse and efficient markets in the world.
Not only were prices decreased, but previously ignored sectors popped up as well – including the now booming New Zealand wine industry.
In Australia, it’s much the same story. Like New Zealand, Aussie farmers are among the world’s least subsidised. Also like New Zealand, the Australian agricultural economy is diverse and efficient, resulting in the gross value of production in that sector reaching record levels this year at AU$62.8 billion.
Seeing how unsubsidised farmers flourish down south, one is forced to question why we stick with protectionism in Europe and the US.
Help the Poor – Free the Market
The state may believe it’s doing the working man a favour – there’s no greater representation of the working man than the humble farmer, toiling in his field from dawn til dusk. Acting to guarantee him a fair wage and a place in the market is admirable.
But, as Milton Friedman once said, the road to hell is paved with good intentions.
Implementing protectionist principles in the agricultural sector raises prices for consumers, promotes overproduction, damages developing economies, and lowers efficiency and innovation.
On the other hand, free farming results in diversification, growth, and efficiency. Consumers pay less for better products, and healthier foods are more readily available. Diversification also leads to new markets and sectors, resulting in a higher availability of jobs.
Let’s stop pretending that agricultural protectionism helps anybody – especially the poor and working class. Europe and the US need to follow in our southern-hemisphere cousin’s footsteps: Free the farms, and feed the poor.
This piece was originally published at FEE.org