What Happened When New Zealand Got Rid of Government Subsidies for
Farmers, by Josh Siegel, 9/22/16, Daily Signal
In 2006, Chris Hausman, a
fourth-generation Midwestern farmer long accustomed to depending on government support
for survival, traveled across the world to witness a revolution in agriculture.
It had been more than 20 years since
a left-leaning government in New Zealand chose to eliminate government
subsidies for farmers, and Hausman was surprised at what had transpired since.
“I will tell you it was a shock to
their agricultural system,” says Hausman, 58, who farms corn and soybeans on a
1,500-acre plot 150 miles south of Chicago.
“You had a system dictated by
government programs that was thrown out the window overnight,” Hausman adds in
a recent interview with The Daily Signal. “But the farmers kind of reinvented
themselves and now New Zealand is a powerhouse when it comes to agricultural
production on the world stage.”
Hausman, like others in the
industry, is careful not to equate New Zealand’s experience with what could
happen in the U.S. He is thankful for federally subsidized crop insurance that
his government provides.
But those who participated in this
small island nation’s grand farming experiment hold it up as a valuable case
study for policymakers worldwide.
“Every country is different—that’s
an important caveat to put on the conversation,” said Mike Petersen, New
Zealand’s special agricultural trade envoy, during an event last week at The
Heritage Foundation. “But what I can say is that we did start an incredible
process of innovation, guts, and determination from those people who really
wanted to make this work.”
‘Drastic
Action’
New Zealand’s jump to a handout-free
policy for agriculture was born out of necessity. Facing a budget crisis in
1984, the incoming Labour government took the first step in implementing a long
list of market reforms when it eliminated about 30 different agricultural
production subsidies and export incentives.
“I’ve talked to diplomats serving
New Zealand at that time, and they were paying the country’s expenses on
personal credit cards,” says Petersen, who is a practicing farmer in Waipukurau
and not considered a government official. “The government at that time had to
take drastic action, and they looked at the pieces they thought would be
easiest and quickest.”
But this was no small decision. New
Zealand’s economy is more dependant on agriculture than the U.S. economy is.
New Zealand is a country of about 4.6 million people without much of a domestic
market for products such as milk, meat, and wool. However, New Zealand produces
enough food for 40 million people, Petersen says, and, unlike the U.S., exports
about 90 percent of its production.
Officials predicted at the time that
the complete and sudden cutoff of government aid—without much of a support
system to ease the transition—would cause a mass exodus of farmers walking off
their land.
“There was minimal financial
assistance from the New Zealand government to assist farmers making the
transition to an unsupported market,” says Nick Clark, general policy manager
of the Federated Farmers of New Zealand.
In response to emailed questions from
The Daily Signal, Clark says the government provided a “exit grant” to farmers
who wanted to leave their jobs, amounting to about two-thirds of their previous
annual income. In addition, he says, low-income farmers were entitled to social
welfare support.
The government also contributed
funding to a trust established to advise farmers on whether it made financial
sense to stay in business. “Overall, though, there was no substantive
government effort to soften the effect of change,” Clark says.
By 1987, falling commodity prices
and rising costs depressed incomes and exacerbated the debt problems of many
farmers, who already were paying high interest rates due to inflation.
New Zealand’s dairy farmers are
experiencing losses lately due to low milk prices.
The price of land, which had been
“artificially inflated due to subsides,” Clark says, plummeted.
Still, the sudden removal of
government support had less impact than expected. Only about 800 farms, or
about 1 percent of total farms at that time, took the exit grant, he says.
Much of the dislocation happened in
rural communities, some of which made sure to expose their pain to the
government.
Maurice McTigue, a member of New
Zealand’s parliament in the 1980s, recalled in an interview with The Daily Signal
that thousands of farmers protested on the capital, Wellington, cutting sheep
loose on government property to make a point.
The decision to embrace dramatic
change was personal for McTigue and others in government. About 40 percent of
the members of parliament were farmers, including himself, McTigue says.
“I’ve got bruises and bumps still to
show from it,” says McTigue, now vice president of outreach at the Mercatus
Center at George Mason University in Arlington, Virginia, a research
organization that describes itself as bridging the gap between academic ideas
and real-world problems.
“It’s easy to look back at it and
say this was a good decision and farming benefited, but to actually live
through it was a very difficult experience,” McTigue says.
‘How Good
They Are’
Today, New Zealand’s farmers are
some of the world’s most productive and innovative.
Removing government assistance
completely, New Zealand officials say, freed farmers to produce what people
really want, and to do so in an efficient way that could turn a profit.
Since the reforms, New Zealand
farmers have cut costs, diversified their land use, and developed new products,
Clark says.
Additionally, productivity in
agriculture has grown faster than the New Zealand economy as a whole.
“Having been through pain, we can
say going cold turkey was the right thing—although frankly I don’t think any
other country would do that and I wouldn’t expect them to either, because the
social pain would be too much to bear,”
Petersen says. “But here, we’ve
developed a newfound sense of resourcefulness that has encouraged farmers to
look after their own interests. For many farmers, I think they underestimate
just how good they are, just how successful they can be without government
support.”
“Farmers underestimate just how good
they are, and how successful they can be without government support,” says
@tepunamike.
The New Zealand government has
encouraged innovation, enacting legislation allowing groups representing
different agricultural sectors to vote every six years on whether their members
want to pay a levy to fund research and development.
New Zealand’s dairy farmers today
produce 2,200 products from milk, compared to about 35 before the reforms,
McTigue says, including antibody milk and chocolate cheese.
The country also has a thriving wine
industry that barely existed prior to the reforms. Despite these successes, New
Zealand’s dairy industry has experienced tough times in the last three years, as farmers face persistently low
milk prices.
While the lessons America can learn
from New Zealand are debatable, New Zealanders seem to know what they want.
“In our experience, farmers do not
want subsidies back,” says Clark, the Federated Farmers of New Zealand
official. “Most farmers want government out of their lives and do not want to
be beholden to it.”
Petersen frequently travels the
world to tell the New Zealand story—and to advocate free trade. Though he
claims not to be comfortable making policy recommendations, he says he has an
obligation to share his country’s successes.
“The reality is the demand for food
in the world, particularly for high quality food we can produce, is growing
like never before,” Petersen says. “We have a responsibility to see if we can
encourage production of food as efficient as possible for the sake of the world
and its future.”
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