There are plenty of other examples
of similar disastrous price support schemes
with varying flavors, varying systems of operation.
So for example in the 1970s and 1980s,
the New Zealand government had price supports
on some of its main agricultural products.
And because agriculture is a large proportion
of the economy in New Zealand, these price supports
and the subsidies that were provided to farmers
became a massive burden on government.
And eventually after a change of government they were removed,
but that caused a lot of dislocation, a lot of pain
to farmers who were used to receiving these subsidies.
And it was very difficult for them
to go through the transition to not receiving them.
The European Common Agricultural Policy in the 1970s and 1980s
also had prices that were well above market prices,
and this led to very large stockpiles.
There was a milk lake, a butter mountain, other big stockpiles
of produce.
This led almost to the collapse of the European Union
budget in the 1980s and caused major cost
to farmers in developing countries,
because it reduced the world prices
of agricultural products.
And recently we had a similar scheme in Thailand
to increase the price of rice.
The Thai government set the price of rice
for domestic producers at roughly double the world
price, the world market price.
And this caused massive problems with corruption,
with rice being imported into Thailand from other countries
so that unscrupulous people could sell it
at double the market price, big wastage of produce that
was being stored in not very good conditions.
And overall, a cost to government in Thailand
that's estimated to be about $19 billion US.
Another one of these policies that
really is very poorly designed, really stupid in fact.
So the moral is, those who defy the markets will eventually
lose.
They may lose slowly or they may lose in a spectacular collapse,
but they will lose.
The solution is obvious.
Governments shouldn't artificially
inflate agricultural prices because the problems
dramatically outweigh the benefits.
If the government wishes to provide support to farmers,
that's fine, but there are many other ways to do it.
The assistance shouldn't be built into prices.
So once they recognized this, the European Union
went through a process of what was called decoupling.
That means that the assistance that farmers received
wasn't linked to prices.
They now receive a payment that's
not affected by how much output they produce,
so they don't have the incentive to increase their production.
There probably still is a bit of over production because
of this, but it's much less dramatic
than it was when the assistance was built into prices.
So in summary, policies to increase prices
for agricultural products to benefit farmers
have been common historically and they still
arise from time to time, but they cause numerous problems
and massive costs.
And they're probably the worst possible way
to try and assist farmers.
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