U.S. Rice Program Hurts Americans and the World’s Poor

Cato study recommends repeal of subsidies and tariff protection in the 2007 Farm Bill

November 14, 2006

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WASHINGTON — Current U.S. farm policy makes rice one of the most heavily supported commodities in the United States, with ramifications for U.S. taxpayers and consumers and rice producers abroad. Subsidies and trade protection have resulted in a “grain drain,” according to a study released today by the Cato Institute.

In the new Cato Trade Briefing Paper, “Grain Drain: The Hidden Cost of U.S. Rice Subsidies,” Daniel Griswold, director of the Cato’s Center for Trade Policy Studies, argues that government intervention has distorted the market for rice production and trade more than it has for any other commodity. As a result, Americans pay “for the rice program three times over—as taxpayers, as consumers, and as workers.”

Direct taxpayer subsidies account for half of all income for U.S. rice farmers, while costing American taxpayers an average of more than $1 billion a year since 1998. These subsidies are projected to average $700 million a year through 2015.

Global tariffs on rice average 43 percent and, when combined with direct subsidies, account for three-quarters of the income of rice farmers in the wealthy countries. Tariffs on imported rice drive up prices for American consumers and, along with rice subsidies, impose a drag on the U.S. economy through misallocation of resources. Griswold explains, “Consumers in countries with protected markets pay as much as four times the world price for rice, which reduces their standard of living,” while rice payments tend to be concentrated among a small number of large producers.
U.S. rice policy depresses global prices by 4 to 6 percent, making it more difficult for rice farmers in developing countries to lift themselves out of poverty, which undermines the U.S. bargaining position in global trade talks and leaves the United States vulnerable to challenges in the World Trade Organization.
Griswold proposes that “Congress and the president should work together to adopt a more market-oriented rice program in the upcoming 2007 farm bill, including repeal of tariffs and a rapid phaseout of subsidies.” Such reforms would not be “unilateral disarmament,” but an appeal to national interest, regardless of what other countries may choose to do.

Griswold concludes: “The rice program is not an asset to be jealously guarded; it is a national liability to be jettisoned as soon as possible. By reforming the rice program unilaterally, the U.S. government would bolster our national economic well-being, create goodwill among less developed countries, and enhance our nation’s role as a leader in the world economy.”

Trade Briefing Paper #25