Posted on by John Barrdear

Farm subsidies promote terrorism

Well, maybe not directly, but it bears thinking about. It’s not a new idea, either, but I thought I’d put it out there anyway …

US and European farm subsidies artificially suppress world crop prices by causing American and European farmers to produce more than they profitably otherwise could. By the World Bank’s estimates, the prices of course grains, rice and wheat would rise by between 4% and 7% relative to other prices if all subsidies and other impediments to trade were removed (hat tip: Dani Rodrik).

That means that farmers in places like Afghanistan turn to other crops like poppies (for heroin). Since drugs are illegal, the farmers can only sell their crops through black (well, in Afghanistan, grey) markets that are controlled, America tells us, by people who support and funnel profits to the Taliban and al-Qa’ida.

Those Afghani farmers don’t really care what they grow. They just want to make a profit, like anybody else. How do we know this? Because when the price of crops goes up for other reasons, they happily started switching to planting wheat:

In parts of Helmand Afghan farmers are this year sowing wheat instead of poppy – not because they have suddenly been converted to the argument that producing heroin is not in the national interest.

Market forces have been the deciding factor – with wheat prices doubling in the past year, and the street price of heroin falling, it is now more cost effective to grow wheat.

So there you have it. If America was serious about fighting drugs and terrorism, it would cut it’s farm subsidies.

3 Replies to “Farm subsidies promote terrorism”

  1. Just read that The UN has stated that world food prices have risen by 45% in the past 9 months. The report read “Following our report on record rice prices last week, the UN has issued an official warning about the impact of rising global food prices, reporting that world food prices have risen 45% in the last nine months and that there are serious shortages of rice, wheat and maize. The UN has stated that ‘urgent measures are needed’ to protect the world’s poor, who are the most adversely affected by this kind of inflation as food consumes a higher proportion of their incomes. ”

    Any thougths?

  2. I’ve only got a few gut reactions, I’m afraid:

    • It’s very important when considering any policy actions beyond direct food aid to have a reasonable idea of why the price rises have occurred (has demand risen or supply fallen?) and whether those changes are temporary or permanent.
    • Groups like Oxfam are arguing that supply has fallen and blame the West and their demand for biofuels: the charge is that crop-land that was once being used to grow food for direct consumption is being moved to crops for biofuels, so there is a drop in supply. Personally, I’d be surprised if that was responsible for all, or even most, of the price increases. The cynic in me wonders if Oxfam might just be using it as a means of justifying an increase in aid (which may be a good thing, but will be so for reasons independent of food prices).
    • I seem to remember that world wheat production was very low last year because most of the major producers (including Australia) were affected by bad weather. Putting aside climate change (because even a five-year drought isn’t caused by climate change), that will have been a temporary drop in supply.
    • Increases in demand will be coming from the increasing wealth of the developing world. I know that some people point the finger at the increasing demand for meat and the fact that grain is diverted to feed those animals. That’s certain to be part of the story, but I wonder why it would necessarily push up the price of rice or wheat. Is it just because the land has been switched over to feed-grain?
    • If the high prices are sustained, they will certainly spur more production, which will bring them back down a little.
    • Hopefully developing countries will use the higher prices as a reason to improve the infrastructure for agricultural productivity (irrigation, land rights, roads, etc.).
    • Just as important (for Africa) but with less hope, I think that the governments there ought to allow, even if they don’t encourage, the use of GM crops. Even before the recent price increase, forbidding GM has been killing people.

  3. There’s also a free trade angle on this, some commentators are claiming world cereal markets are so volatile because they are relatively illiquid. Most eg rice production is for heavily protected domestic markets, only a small surplus is usually sold into the world market … then when one of the few big participants in that market, like Australia, is hit by water shortage (and Australian rice production is also subsidised via cheap water), big price increases result.

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