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“You Reap What You Sow,” Plus the Subsidies

[Major Major’s father’s] specialty was alfalfa, and he made a good thing out of not growing any. The government paid him well for every bushel of alfalfa he did not grow. The more alfalfa he did not grow, the more money the government gave him, and he spent every penny he didn’t earn on new land to increase the amount of alfalfa he did not produce. Major Major’s father worked without rest at not growing alfalfa. On long winter evenings he remained indoors and did not mend harness, and he sprang out of bed at the crack of noon every day just to make certain that the chores would not be done. He invested in land wisely and soon was not growing more alfalfa than any other man in the county. Neighbors sought him out for advice on all subjects, for he had made much money and was therefore wise. “As ye sow, so shall ye reap,” he counseled one and all, and everyone said, “Amen.”

— Joseph Heller, from Catch-22

One of my oldest memories of my stays in Belgium was seeing a cucumber when I was about six years old. At one of my relatives’ place, I wanted to have cucumbers in the salad for dinner, so I asked my uncle who was going shopping to get a few cucumbers. He chuckled, “few you say!”

When he was back with the shopping bags, he took out just one cucumber. I mean, we have cucumbers in Turkey too, but they are about 10-12 centimeters at most. The one he brought was basically as long as my whole arm. I was just baffled, how do you have cucumbers this big!? I asked him how much it cost—it had to be a special cucumber after all, it ought to be expensive—and he said it was about fifty cents. It just blew my mind!

After two years in the Netherlands, it’s a lot more normal to me to have these gigantic cucumbers, and they are still about fifty cents each. It still feels oddly cheap though, and that’s not because the cucumber is large. A kilogram of tomatoes or carrots are right around three euros each, but considering all the investment that goes into the farming equipment, land, labour, depreciation, time period from sowing until reaping… it seems very accessible. Almost a bit too accessible.

For us living in the European Union, the system that makes foods accessible is the Common Agricultural Policy (CAP). It consists of three main groups of expenses:

  1. Income support for farmers and assistance for complying with sustainable agricultural practices

  2. Rural development measures

  3. Market-support measures

The first one is more or less a fancy phrase for direct agricultural subsidies. Fortunately, these subsidies are a bit tougher to get, as opposed to the ones Major Major’s father gets for not growing alfalfa. In order to be eligible for them farmers must follow a very strict list of guidelines with regards to food safety, environmental protection and animal health and welfare.  Expenses in this group account for the large majority of CAP’s budget, at approximately 70% of the total.

Rural development measures taken to help farmers modernise their farms and increase their competitiveness. These can also be considered subsidies, but most often they are more indirect in the sense that the contributions are made by individual member countries over long periods of time—they work more like investments rathers than direct benefits.

Market-support measures are for exceptional cases where the supply is disturbed to the extent that intervention is necessary, for cases such as the Courgette Crisis. It is a small chunk of the expenses, at the final 10%.

The European Commission notes that “the average EU household spends 15% of its budget on food – half as much as in 1960,” which goes to show the significance of the CAP for Europeans.

It sounds all well and good at first sight, but although agricultural subsidies make our food cheaper, it is not a necessarily good solution to our problems with regards to agricultural supply and demand. One of the primary criticisms of the CAP is that it encourages farmers to supply well over the market demand—this supply is bought by the EU and stored for later use, in forms of exports or crisis intervention. In 2007, it was revealed that the EU had a significant excess supply of staple grains, dairy, and wine. That storage has been mostly exhausted through exports, which help people living in urbanised regions of developing countries by bringing them cheap food.

Another criticism is regarding its effects on international trade and comparative advantages against developing countries. Although consumers in developing countries can benefit from the cheaper produce imports from the EU, farmers from developing countries cannot compete with the price or quality of the produce coming from developed countries. As these farmers generally lack any form of subsidy from their own governments, the gap of competitiveness between developing and developed countries’ farmers is widened even further. Seeing that it’s not viable for developed countries to willingly forego their advantage, the alternative option seems to be subsidising developing countries. Unfortunately, that’s not a viable option either. A study by the Danish International Development Agency shows that such programmes are very expensive and not particularly effective in prioritising the poorest and most vulnerable households due to the fact that subsidies are not able to cure the underlying problems of high input procurement costs and market failures.

Finally, we already know from our Economics of Markets and Organisations class that such subsidies may lead turn into perverse incentives, where a lack of regulatory oversight may lead to farmers overloading croplands and increase pollution from synthetic fertilizers. CAP has received a great deal of criticism for incentivising production growth while allowing farmers to disregard the environmental consequences of bad farming practices. Excessive use of fertilisers and pesticides can lead not only to soil that’s weaker both in terms of the necessary minerals and structural strength, but also be extremely dangerous to the ecosystems surrounding conventional farms.

The overall situation is even worse in the United States, where extensive lobbying directs a heavy share of subsidies into crops such as corn and soy, while vegetables and fruits get a significantly smaller share. In Texas, which receives the largest share of commodity subsidies, only around 15% of all farms received a subsidy. This uneven distribution creates market discriminations in favour of certain types of over-subsidised crops. The situation is better in Europe due a stronger set of eligibility rules for these subsidies, yet 37% of the annual EU budget for 2017 was allocated on the CAP. It seems that the EU is on a good path with the way it approaches the matter of direct subsidies and crop insurance, but shifting the focus more towards the development of sustainable-yet-efficient farming methods may be a better long-term goal.

The next time you reach for that delicious box of Dutch strawberries, consider the amount of taxpayer money that went into subsidising it. Setting aside the subsidies, incorporating the costs of depleting soil fertility and environmental damages alone would simply make many currently profitable conventional farming methods unsustainable and unprofitable. No matter how sweet those strawberries are, knowing that it should cost almost twice as much as it does now leaves a sour taste in my mouth.


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