Reasons to Love New Zealand, Part V: Free Market Agriculture

Free market agriculture in New Zealand:

...ever since a liberal but free-market government swept to power in 1984 and essentially canceled handouts to farmers -- something that just about every other government in an advanced industrial nation has considered both politically and economically impossible -- agriculture here has never been the same.

The farming community was devastated -- but not for long. Today, agriculture remains the lifeblood of New Zealand's economy. There are still more sheep and cows here than people, their meat, milk and wool providing the country with its biggest source of export earnings. Most farms are still owned by families, but their incomes have recovered and output has soared. ''Farming in New Zealand is now a cold, hard business,'' said Mr. Lumsden, who at the time of the farming revolution was president of Federated Farmers in the Waikato region, the heart of New Zealand's dairy country. ''I think we have benefited hugely.''

New Zealand's farmers are not the only ones convinced that eliminating subsidies, or at least sharply cutting them, is a good idea. As negotiators struggle to revive the failing global trade talks and Congress moves ahead on a new farm bill in the United States, New Zealand and Australia -- which also cut subsidies but not as drastically -- are being extolled by economists and advocates for poor countries as models for Americans and Europeans to follow.

So can New Zealand compete with the rest of the (subsidized) world? You bet!

...unlike the United States, where most farm output is consumed domestically, almost all of New Zealand's milk, meat and wool is sold abroad. ''There's a lot of differences between New Zealand and the United States,'' Tom Buis, president of the National Farmers Union in Washington, said in a telephone interview. ''They are almost completely export oriented, and that's quite the reverse of the U.S.''...the response in New Zealand's dairy industry to the end of subsidies is broadly instructive. Output has quintupled since the end of subsidies, positioning New Zealand to take advantage of a global boom in demand for dairy products, driven from China and India.

So how did New Zealand wake up to this gift of capitalism?

After growing rich in the early 20th century off the byproducts of its pasture, New Zealand imposed subsidies not so much to protect farming but as part of a plan to insulate its domestic manufacturers from global competition. It offset the costs to its farmers from higher industrial tariffs by giving them subsidies. But farming is not a small part of the economy as it is in the United States; it is the nation's largest, most important sector.

''It was wacko,'' said John Yeabsley, a former trade official who is now an economist at the New Zealand Institute of Economic Research in Wellington. ''Who's going to pay for the subsidies?''

Farmers eventually realized that it was them. They responded to their higher tax burden by maximizing their subsidies. ''The whole thing,'' Mr. Wooding said, ''was a game to try to get as much government money as possible.''

Wow, they just figured it out for themselves. Instead of trying to get a bigger piece of the pie, they decided to grow the pie.

Agriculture subsidies distort food prices, make farmers grow unwanted crops, encourage misuse of land and invite crony capitalism. Take a look at what is happening in India where farmers eschew government subsidies and have a far better farming experience.

Since the system works so well in India and New Zealand, how could we implement it here? Well, there are plenty of lessons learned from the New Zealand experience. This knowledge would help us get there, but there is a bigger problem. The square states won't let us give up subsidies. As Carl puts it: "Half of the states are net recipients of farm subsidies, meaning they're "over-represented" in the Senate. In Washington, the mid-West is know as "the square states" or "the farm team," a political bloc seeking subsidies that's tough to defeat."

As ever, once initiated, it is damned difficult to get rid of government programs, no matter how broken they are, and despite broken promises to the contrary. Once again, less government is better government, and another reason to Love New Zealand: Free Market Agriculture.

Check out the other top reasons to love New Zealand.