FREE’s seminar series for federal judges and law professors is in its 12th year. I’ve heard many excellent presentations from some of the nation’s leading scholars and last week I heard two of the best.

Bob Thompson is the former Dean of Agriculture at Purdue University and recently retired as Director of Agriculture and Rural Development for the World Bank. Thompson is particularly concerned about reducing rural poverty while improving environmental quality.

Eighty percent of the world’s poor are farmers. Thompson emphasized that no country has solved the problem of rural poverty through agricultural subsidies. Only off-farm employment, either within the rural communities or in distant cities, has substantially reduced rural poverty. This is true in the U.S., where most farm families earn more than half of their income from non-farm sources. Some of these jobs involve creating “value-added” farm products (Wheat Montana has excelled here). Many jobs however, are completely unrelated to agriculture.

Rural peasants are desperate for employment. They covet jobs others shun (e.g., Mexicans making beds in Big Sky). In many developing countries their only escape from poverty is found in crowded, polluted urban areas. Slowing this migration requires providing more attractive opportunities in rural areas. Investments in rural roads, communications, electrification, education, and health care are universal preconditions for economic progress.

Here’s an ethical and economic problem: agricultural policy in the developed world harms rural folks in poor nations. Agricultural subsidies transfer well over $300 billion to farmers in rich nations. This is six times the amount of all the aid sent to developing countries. Typically 80 percent of the subsidies go to the largest and usually richest 20 percent of the producers. Only a vanishingly small fraction, if any, reaches the “family” farmer.

Millions of impoverished farmers worldwide cannot compete with the rich nations’ subsidized harvest. The U.S. and Europe’s failure to reform is cruel and hypocritical. For example, the EU defends an agricultural policy that subsidizes dairy farmers to the tune of $2.50 per cow per day. This is morally indefensible when almost half of the world’s people live on less than $2 a day.

Subsidies are pernicious. They distort the market process by giving incentives to overproduce goods already in surplus. This further hurts Third World farmers. An OECD study shows that it can take up to $4 of support payments from taxpayers to increase the net income of a producer by $1. This negative return on investment is a double outrage, inequitable and inefficient.

Subsidies also damage the environment when they create incentives for expanding intensive production practices onto marginal lands. Here’s an example from the American West.

The Ogallala Aquifer underlies approximately 225,000 square miles in the Great Plains region, particularly in the High Plains of Texas, New Mexico, Oklahoma, Kansas, Colorado, and Nebraska. The aquifer has long been a major source of water for agricultural, municipal, and industrial development.

Use of the aquifer began a century ago. After World War II the withdrawal of groundwater surpassed the aquifer’s rate of natural recharge. Some places have already exhausted their underground supply.

As Thompson explained, “Any resource priced at zero will be wasted.” Aside from pumping costs, water is free. Most of it irrigates corn, which is used for livestock feed. A water-intensive crop, corn is generally not well suited to the ecology of the High Plains. But huge subsidies to growers, combined with cheap water, create little incentive to transition to more drought-tolerant crops such as sorghum.

Rapid technological change and intense international competition drive down commodity prices. This creates hardships. Then political forces lobby governments to insulate their agricultural constituencies from these pressures. Farm support programs follow. But such protectionism is pathological. As Michael Porter noted in his 1998 book, The Competitive Advantage of Nations, “subsidies dull incentives and create an attitude of dependence. Government support makes it difficult to get industry to invest and take risks.... Attention is focused on renewing subsidies rather than creating true competitive advantage.”

Ultimately, farm subsidies cannot insulate producers from the pressures of world markets. Their unintended consequences both reduce the viability of many producers by increasing their dependency on government support and harm the environment.

I wish to thank Dr. Robert Thompson for his comments on this piece.