Thursday, August 6, 2009

Subsidies For Animal Welfare

A recent news story describes how the Irish government is subsidizing farmer to help them make the investments necessary to comply with new egg welfare standards (thanks to Paul Shapiro for the reference).

In one sense these subsidies are good. Egg producers have been producing the exact egg that consumers have been demanding. Then comes a government regulation forcing them to completely change how they raise eggs (partially due to a new consumer preference profile). This requires taking a million dollar building and spending thousands more to convert it to an enriched cage facility (why not cage-free, I wonder?). I have strong empathy for these farmers. For government to provide assistance in this conversion seems fair, and some of my survey work suggests that the financial welfare of farmers is twice as important as animal welfare, so it should be viewed favorably by citizens as well.

However, there is a long history of such subsidies becoming permanent welfare. After the conversion has taken place, I have no doubt that Irish farmers will devise a long list of alternative reasons for the subsidies. Perhaps farmers in another country receive more subsidies, allowing them to produce at a lower price. Perhaps corn prices rise, which increases the cost premium of producing enriched-cage eggs (as the birds in an enriched-cage system probably convert grain to meat less efficiently). Furthermore, if they remove the subsidies farmers will scream, but if they keep the subsidies in place no one will be screaming at the tax dollars used because it is almost invisible and a small sum to any one citizen, so why would a politician ever remove the subsidies? Remember the U.S. in 1996, when we thought farm subsidies would be dead in ten years? Of course, there has been instances when government boldly discontinued agricultural subsidies. New Zealand is an excellent example.

The subsidies might not even help the farmers. These subsidies encourage more production of enriched-cage eggs, lowering prices and profits to all farmers. Whereas if farmers were forced to pay for the conversion themselves, it would discourage other farmers from making the conversion, leaving them in a market with less eggs and higher prices. It is possible that the subsidies will actually decrease the profits received by farmers over a long horizon. It depends on the competitiveness of the Irish market with international markets.

From a social perspective, if subsidies are used, it is best that the legislation make clear they are temporary, and pose significant obstacles to their continuation. I would bet $50 it doesn't happen. Any takers?