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00:00I'm delighted to announce this afternoon that the United States will be taking a small portion of the hundreds of billions of dollars we receive in tariffs.
00:09And we're going to be giving and providing it to the farmers in economic assistance.
00:16It's become almost impossible to think of U.S. farming without government payments supporting it.
00:22And the U.S. is far from the only country that intervenes in agricultural markets.
00:26But it turns out that there is one country, New Zealand, that has gone a very different way with some unexpected results.
00:34The government wiped those subsidies in one year and the net result of that has been staggering.
00:44America started down its path to paying its farmers back in 1933 in the midst of the Great Depression when President Roosevelt announced the Agriculture Adjustment Act.
00:54With the whole world in turmoil, even the united efforts of the farmers themselves would not have been sufficient without the cooperation of the government of the United States.
01:07In a recent report covering 54 countries, the OECD found that, quote,
01:12agriculture support policies generated on average $842 billion per year in transfers towards agriculture between 2022 and 2024.
01:22Dan Glickman was secretary of agriculture during the Clinton administration.
01:27Well, first of all, there's a huge amount of agriculture subsidies in the United States.
01:31I mean, it's billions and billions of dollars.
01:33I think that farm, first of all, farm programs are complicated and nobody understands them except people in farm countries.
01:40So, you know, you have people who have to deal with them all the time or largely the only ones that have been involved in the writing of them.
01:47But, look, farming is a precarious, tough business.
01:51These people have to deal with drought, disease, floods, tariffs, geopolitical issues.
01:59To a soybean grower, China was kind of the salvation.
02:01We were exporting, you know, millions and millions of tons of soybeans to China.
02:05And when the president announced his tariffs, they were kind of off again, on again.
02:11But the impact of that was for the Chinese to kind of cut us off and go to Brazil and Argentina.
02:17And it just created a lost market for America.
02:19And it was hard to make that up.
02:21And that instability that occurred as a result of that meant that a lot of grain elevators were full and the grain couldn't be sold or the uncertainty of production in the next year or two.
02:32So it was really, you talk about a dagger in the heart of American agriculture.
02:37Yet across America and around the world, businesses in all sectors are forced to adapt to changing macroeconomic conditions without the promise of government assistance should things go south.
02:49What makes farming different?
02:51In the Depression era, national food security was critical.
02:54But America now produces far more food than it consumes.
02:58There was a time that we thought that free markets helped discipline conduct in all sorts of places.
03:04Is there a risk with farm subsidies basically becoming less efficient in farming?
03:10That is a very good question.
03:11There's no question that farm subsidies kind of skew the economics, the market economics of agriculture.
03:18After all, if we're supporting a crop with government subsidies, then no longer is the market alone determining the price or location or what you produce.
03:27And that is a problem.
03:29And also, it skews the differences between the commodities.
03:32You may be supporting corn more than soybeans or wheat more than corn or those kinds of things.
03:36And so that does create inefficiencies within the marketplace.
03:40On the other hand, we will probably never get rid of farm subsidies.
03:44But what if America, or any country around the world, did get rid of farm subsidies?
03:51It turns out that there is one such country.
03:57In the early 1980s, New Zealand's economy was in trouble.
04:01Its main export market, Great Britain, had just joined what would later be called the European Union.
04:07And public spending was at an unsustainable level.
04:11We were within months of being bankrupt.
04:13Lockwood Smith is a farmer himself and a former agriculture minister in New Zealand.
04:18In 1984, he'd just been elected to Parliament for the first time.
04:23By the early 1980s, the level of support across our three main livestock industries, if you like, dairy, beef production, and sheep meat or lamb,
04:34the average sort of producer subsidy equivalent across all those industries got up to 30%.
04:40But it differed among the industries.
04:43For beef and dairy, it was only about 13%, less than 20%.
04:47But for lamb, the producer subsidy equivalent got up to 90%.
04:54Basically, 90% of the revenue coming into sheep farmers' pockets was from subsidies of various kinds.
05:01And of course, they responded to that, because they got more subsidy if they produced, if they had more sheep.
05:06And our sheep numbers climbed progressively up to 70 million.
05:11By 1984, we had 70 million sheep.
05:16And we couldn't export all the product of those 70 million sheep.
05:20We ended up turning thousands of frozen sheep carcasses into fertilizer, because we didn't have the markets to export that stuff.
05:29And so the economy was in crisis, saw the writing on the wall.
05:34I mean, we were within months of bankruptcy, if you like.
05:37And in 1985, they decided action had to be taken, and they abolished.
05:42In one year, they abolished all those subsidies.
05:46They wiped many of the tariffs protecting other industries.
05:50They abolished all of the subsidies for agriculture.
05:53Wiped them in one year.
05:54I wouldn't recommend that anyone else should try to do that, but that's what happened here.
05:58The immediate aftermath was tough, and some farms went out of business.
06:03Probably the biggest protests I've ever seen on the front steps of the New Zealand parliament were that year in 1995.
06:10I remember the newspaper headlines, you know, the roar from the hills as farmers, you know, gathered on the steps of parliament
06:15and all the surrounding streets protesting against the removal of those subsidies.
06:23Peter Jex Blake is a retired farmer on New Zealand's east coast.
06:26He's since handed his farm off to his daughter, but remembers it all too well.
06:32Yeah, I remember I was part of a protest group that we, um, uh, the Prime Minister, David Long,
06:39a few of his ministers arrived at Gisborne Airport one day, and a whole of us went out there with placards
06:43and started banging on his car, windscreen, because he wasn't having a bar of talking to us.
06:49So he went to every, every intersection, and he was stopping and waving our placards and, you know, saying, well,
06:56holding up our bank statements, showing, well, you know, 18, 20% interest rates is, um, impossible.
07:02He just, or he said, well, change banks.
07:04I mean, they had no sympathy at all for farmers.
07:07I was probably too young, um, through the 80s.
07:14I was only a baby, so, no, I couldn't remember any of the hard times,
07:18but I always remember, even right through, mum and dad, um, always trying to save money in every way
07:26and never overspend.
07:29The immediate aftermath was tough.
07:31Although farmers did agree that there was a need for subsidy reform,
07:35they felt it was too swift, and that they were unfairly targeted.
07:39What happened is they, they sort of took the subsidies off before they did any other economic reform.
07:46Um, so farmers wore the brunt of it for a few years.
07:48Um, basically, you have income halved, land prices halved, um, interest rates went through the roof,
07:56inflation was, yeah, trucking along 15, 16%.
08:00So, because none of the other parts of the economy had been reformed, yeah, pretty tough going, um,
08:05fertiliser use dropped in half.
08:08So, basically, you just toughed it out where everybody of my generation were living on a smell of an oily rag.
08:14Yeah, it took, um, from the time, from 1984, which is when the s*** really hit the fan,
08:21it was 10 years, really, of not making much progress at all.
08:25You just, um, you're able to gradually do some improvements, but things didn't really turn the corner until the mid-1990s.
08:34But things did eventually turn a corner.
08:37The result has been quite, quite stunning, actually.
08:41It was hard initially, but the improvement in productivity since then has been stunning.
08:48Because you either changed what you're doing, or you did lose your farm, you went out of business.
08:54And so, you know, they started introducing new genetics into our sheep flock.
08:58Because the sheep industry was affected the most because it had the highest level of subsidies.
09:02They brought in new breeds of sheep, like finished land race, and a breed developed in New Zealand, Perrindales,
09:08to improve the fecundity, or the, you know, the number of lambs that a ewe had, from being just one lamb to two and more.
09:16Today, we have more than, you know, about 150% lambing percentages, compared with less than 100% back then.
09:23They introduced new terminal sires to improve the growth rate of the lambs being born in the flock.
09:30They improved our pasture management practices, so that we got better utilization of our pastures.
09:36Because in New Zealand here, of course, all our livestock farming is conducted outside,
09:40just out in the natural environment, just grazing pasture.
09:43And the net result of that has been staggering.
09:47Today, our sheep numbers have come down from 70 million in 1984 to less than 26 million today.
09:54Yet, the amount of lamb or sheep meat that we produce is pretty similar,
10:00not much less than we used to produce when we had 70 million sheep.
10:04And it's quite a stunning story.
10:06The productivity improvement in our sheep industry has been since 1990,
10:11when the things settled down after the changes.
10:14Productivity improvement has been 170%,
10:17which is, if any, if every other industry in New Zealand had done that, we'd be a wealthy country.
10:21Agriculture is still a major part of New Zealand's economy,
10:25accounting for around 70% of goods exports.
10:28But it remains largely unsubsidized, and its farmers wouldn't have it any other way.
10:35We're not getting any assistance from other than what we generate on farm to, yeah,
10:41to mitigate emissions, et cetera.
10:43And that, you know, everything we do is a plus for the environment.
10:49And, in fact, you know, you put fertilizer, you build up the organic netter in the land.
10:53Pretty cool when you see other farming systems around the world have relied on grain and subsidies.
10:58So could the New Zealand model be applied elsewhere?
11:02We spoke with farmers in Iowa last summer about the role of subsidies in their work.
11:07Biggest thing, you know, I guess for me as a farmer is I want to make sure we have markets.
11:12I don't want direct payments. I would rather not have direct payments from the government.
11:17If we can have markets that will buy the grain and stuff from us,
11:22not have to depend on the government for it and develop those markets.
11:26We don't want to rely on government payments.
11:29That's the last thing that we want to do.
11:31We've worked to try to eliminate that,
11:34and we want to try to create demand through domestic markets, through exports, to offset that.
11:41It's easy to think about a world where farmers don't rely on direct payments from the government,
11:46where we create products for the market instead of creating markets for the products,
11:50where we encourage innovation through competition.
11:54Dan Glickman says that what might be thinkable as a matter of economics
11:58may well be unthinkable as a matter of politics.
12:02Every senator has large amounts of farm country and farm products and farmers,
12:09and they're a huge part of their constituency, and they have equal power.
12:14So the senator from North Dakota has equal power to the senator in California.
12:18That's the dominant factor.
12:19Then you have other factors, like the fact that Iowa has been the first caucus in the country historically.
12:25That's changing, but Iowa's people go there, and they talk about corn.
12:30Even Bernie Sanders talks about corn subsidies and doesn't really rail against them,
12:36and it doesn't matter what political party you're in, Republican or Democrat, liberal or conservative.
12:41For the most part, everybody kind of talks about markets working,
12:48but it looks like we're going to have subsidies of some sort forever.
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