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Case Study

Jan 14, 2014

Removal of Agricultural Subsidies in New Zealand

Due to the removal of agricultural subsidies in New Zealand, irresponsible grazing practices have declined. Image Credit: Mark Coote/Bloomberg

Agricultural subsidies are generally the policy of countries wealthy enough to afford them. By and large, the practice is destructive to the land, distorting markets, and, in the age of a global economy, detrimental to the livelihoods of farmers in countries without subsidies. And because subsidies promote the production of commodity crops beyond market demand, they encourage farmers to rely on them instead of consumer demand. This reliance on industrial production of single crops has had disastrous consequences for the environment the world over.

Recognizing these pitfalls, the government of New Zealand removed its subsidy regime in 1984. The move offers a classic illustration of the relationship between agricultural subsidies, farming economies, and the environment. Before 1984, New Zealand farming boomed, largely in response to aggressive subsidies. During this period, a steady trend of increasing agriculture intensification occurred. Stocking rates increased, as did the use of agricultural inputs like fertilizers and pesticides.1

Immediately after dismantling its subsidy regime, farmers were afraid and furious, marching on the capitol in protest. However, despite predictions that 10 percent of its farms would go bankrupt, New Zealand retained 99 percent of its farms. Herds were consolidated, and breeds that reflected market demand—producing leaner milk, for instance—rose to prominence. And benefits to the land were dramatic. Pesticide use declined by 50 percent. Soil erosion, land clearing, and overstocking also declined. The entire agricultural sector was forced to shift toward better practices that increased efficiency and yield. Livestock farming, previously stimulated by output subsidies, was curbed and, for the most part, relocated away from erodible hillsides to more sustainable pastures.

Today the agricultural sector is New Zealand’s export lifeblood, dominated by family farms and experiencing constant, enviable growth. Milk and wool are the country’s biggest exports, and there are more livestock in the country than people. Despite evidence that a new era of intensification is underway in the country – and though the applicability of its policies might not be relevant for larger, subsidy-dependent countries like the United States – the case of New Zealand shows that aggressively dismantling subsidies may not be as disastrous as is conventionally believed.2

Macleod, C. and Moller, H. (2006) Intensification and diversification of New Zealand agriculture since 1960: an evaluation of current indicators of land use change. Agriculture, Ecosystems & Environment 115:201-208.

2 Ibid.