What Happened When New Zealand Ended Farm Subsidies

March 7, 2002

Why does our own incredibly productive agricultural sector need government subsidies? Would ending subsidies dry up our food supply? Of course not. And the story of what happened in New Zealand when that country cut off subsidies provides assurances any subsidy proponent could need.

In 1984, New Zealand's Labor government ended all farm subsidies, which then consisted of 30 separate production payments and export incentives -- a striking action given that New Zealand was five times more dependent on farming than the U.S. economy.

A report last year from the country's main farmers' group, the Federated Farmers of New Zealand, documents what happened:

  • While land prices initially fell after reform, by 1994 they had rebounded and remain high today.
  • The predicted farm bankruptcies never materialized -- with just 1 percent of farmers going out of business.
  • The value of farm output soared 40 percent in constant dollar terms since the mid-1980s and agriculture's share of national output rose from 14 percent to 17 percent today.
  • Since subsidies were removed, productivity in the sector has risen 6 percent annually -- compared with just 1 percent before reform.

New Zealand's farmers have competed successfully in world markets against subsidized producers in much of the rest of the world.

Agricultural subsidies account for just 1 percent of farm production in New Zealand and consist mainly of scientific research funding. That compares to 22 percent of the value of farm production here.

The Organization for Economic Cooperation and Development confirms that New Zealand has the least subsidized farm sector among the industrialized nations -- and concludes that its reforms "resulted in a dramatic reduction in 'market distortions.'"

Source: Chris Edwards and Tad DeHaven (both of the Cato Institute), "Save the Farms -- End the Subsidies," Washington Post, March 3, 2002.

 

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