Who Benefits from Subsidies? – corrected

A post on Anti-Dismal about who gets what from agricultural subsidies concludes the biggest gains go to the landowner. * corrected below

That is backed up by this paper by Chris Nixon from NZIER which says that product prices are capitalised into land prices.

The findings Anti-Dismal points to, indicate it doesn’t matter if they are real market prices or ones artificially inflated by subsidies.

However, if the impact of the removal of subsidies and the ag-sag which followed that is any indication,  subsidies benefit those who depend on farmers too.

When subsidies were removed after the 1984 election, farmers were brought kicking and screaming into the real world and many feared there would be a mass exodus from farms. Farm values fell – adding credence to the view that product prices are reflected in land values – and some people were forced to sell, but most hunkered down and learned to stand on their own feet.

However, when the subsidies went, farmers’ incomes fell,  they stopped spending and jobs were lost downstream. The worst effects weren’t felt by farmers but by the people who processed what they grew, worked for, contracted to, supplied and serviced them.

If the removal of subsidies hurt those downstream more than farmers, they must have benefitted from subsidies too.

Correction: * Paul Walker points out in a comment below that it was the farmer not the landowner who benefits most.

Since it’s now two days after I made the original post, I’ll address that in a new post.

4 Responses to Who Benefits from Subsidies? – corrected

  1. Adolf Fiinkensein says:

    I well remember the firm for which I managed sales and marketing in 1984 suffered a 60% decline in revenue from 1984 to 1985. However, the elephant in your room as far as land values v product prices is TAXATION. The price of land has been bid up by farmers for decades because they are advise to pay DEBT not TAX with the reward being tax free capital gain from sale proceeds in five or ten year’s time. That’s why the real return on equity from farm trading has never been anything other than lousy, even before 1984. The real payoff comes when you sell the farm for four times the amount you paid for it and bank every penny.

    Like

  2. Rob Hosking says:

    I recall a piece in the NBR at the time which had a neat graph which told the whole story – subsidies kicking in and land values heading north around the same time.

    Of course the ones who were really hurt were the farmers, usually new ones, who had high debt. Interest rates spiralled up at the same time as the subsidies came off and land values crashed.

    It was grim. Someone I know who worked for an accountancy firm in the Waikato lost three farm clients – suicide. I know others who drove their health into the ground keeping afloat.

    It was the result of too many years – a couple of decades’ worth – of living in a fools paradise, and being led there by governments of both political stripes.

    God forbid we ever let things get that bad again.

    Like

  3. Paul Walker says:

    A post on Anti-Dismal about who gets what from agricultural subsidies concludes the biggest gains go to the landowner.

    The other way round,”farmers who rent the land they cultivate capture 75 percent of the subsidy, leaving just 25 percent for landowners.” The farmers get most of the subsidy.

    Like

  4. […] benefits from subsidies take 2 In Saturday’s post on who benefits from subsidies  I wrote that Anti-Dismal’s post who gets what from agricultural subsidies said it was […]

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: