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Agricultural free trade. Really as good as expected?
Sebastian Terlunen
Today we're going on a trip to economics. We are looking at free agricultural trade and small farmers in industrialized and developing countries. Does this lead to more prosperity for small farmers, as expected, or rather not?
In advance, the areas of responsibility that agriculture should fulfil are shown. These are roughly divided into providing healthy food for the population and maintaining the cultural landscape and biodiversity.
How did the idea of free trade come about? This is based on the theory of so-called comparative advantages. This originated with economist Ricardo, who developed it in 1817. What the theory says can be illustrated using the example of a lawyer and his secretary.
The lawyer can write his letters faster and even better than his secretary. However, since he accepts assignments from clients during the time the secretary writes letters for him and thus earns more money overall, despite the costs of an employee, than if he had written the letters himself and thus “lost” time, he hires a secretary.
Transferred to countries, the theory is that wealthy countries, which have the opportunity to practice better agriculture than less wealthy and advanced countries, refrain from using it and import the products because they generate more wealth with the profits from their industry and services, minus the cost of imported food, than if they had farmed themselves. The less advanced countries, on the other hand, would use the profits from exporting food to buy other goods, such as consumer goods, which they cannot produce themselves. Both sides would therefore be better off with trade than without trade.
In reality, smaller agricultural producers in particular are even worse off as a result of agricultural free trade. In addition, imported products in industrialized countries are only slightly cheaper for consumers. The further fall in prices and the associated crowding out of domestic agriculture, e.g. in Germany, would also have far-reaching consequences. Germany would be completely dependent on food supplies and prices from other countries. This leads to problems in crisis situations and, in addition, it is no longer possible to preserve the cultural landscape and biodiversity.
What is the current state of the small farm in Germany?
The problem is producer prices. The food can be imported from abroad more cheaply. In addition, trade and processing margins are steadily increasing, with productivity gains only lagging behind and not leading to more profits for producers, but rather to even lower prices. As a result, so-called price dumping takes place. In addition, the subsidies are not being received by the “small farm” as planned. Of 59 billion euros in agricultural subsidies in the EU, 6.3 billion euros of this flow to Germany. But where is the majority of the money stuck? A large part ends up in government agencies and environmental associations. It is clear that this is also an important task and that money is needed for the work. However, it is questionable if farmers do not receive enough money for the goal of supporting domestic agriculture.
“Increased local direct sales by farmers or farmers' cooperatives of everyday products, such as milk or meat, could make a significant contribution to regaining added value on the farm,” says Binswanger.
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