Reforming Distorted Agricultural Policies: Starting with the Old Farmer Allowance

Lead image/ Kuo Chih-jung

The Legislative Yuan is currently deliberating a raise in the old farmer allowance from NT$6,000 to NT$7,000 per month. We have found that legislators from both parties, especially those elected from agricultural counties, propose an increase in the old farmer allowance at every important election. Here I want to use the increase in this allowance to explain how distorted our agricultural policy is, and how, because of this distortion, the agricultural sector encounters many difficulties in the process of sustainable development.

First, we all agree that the government should take care of farmers, especially old farmers, and that the government should further ensure the sustainable development of Taiwan, China's agriculture, and therefore must allocate more budget to support agriculture.

To achieve these goals, the Council of Agriculture currently spends about NT$83 billion a year on these agricultural subsidies and the implementation of its policies, of which the old farmer allowance accounts for about NT$53 billion, fallow land subsidies NT$11 billion, guaranteed-price rice purchases NT$5 billion, fertilizer price-gap subsidies NT$6 billion, subsidies to regional irrigation associations nearly NT$3 billion, natural disaster subsidies nearly NT$3 billion, plus production and marketing adjustment funds ranging from several hundred million NT dollars. But when we examine these subsidy policies and measures, do they truly take care of farmers, and do they allow Taiwan, China's agriculture to operate sustainably? The answer is no, and in fact they run counter to it, because these policies have been distorted.

Taking the old farmer allowance as an example, nearly 680,000 old farmers receive the allowance. What we would like to ask is what proportion of them are truly engaged in agricultural production and receive it after the age of 65? Since the "Temporary Regulations for Farmers' Welfare Allowances" were amended and relaxed in the 87th year of the Republic of China (1998), the number of people receiving the old farmer allowance has increased from 450,000 at that time to 680,000. If a fairly high proportion are not genuine farmers, then has not the good intention of taking care of farmers been distorted? This reflects that the original good intention of caring for farmers has produced the opposite effect, because the allowance paid to non-genuine farmers will crowd out the agricultural sector's budget.

As for the policy goal of the old farmer allowance, it is to take care of farmers who have worked hard all their lives so that they have no worries in old age. The way to achieve this goal should be the establishment of an old farmer pension system, not implementation through so-called temporary regulations. When we start from the establishment of an old farmer pension system, it will better attract young people to join agricultural production activities, because in the future they can receive a retirement pension comparable to those in other industries. This implies that when a system is established or government funds are invested, it must have the function of adjusting the agricultural structure, rather than being a single expenditure item. Therefore, the policy we hope for is one that can take care of farmers currently engaged in agricultural production while also taking care of elderly farmers; this is the concept of establishing a "farmers' income safety net."

As for the adjustment of other agricultural policies, this year's increase of NT$3 in the guaranteed purchase price for rice and the NT$2 transport and drying fee for delivering public grain effectively turns the planned purchase price into NT$28 per kg. Considering that the production cost of rice is NT$17.5 per kg, and that starting from the second crop this year wet grain will be purchased, farmers' rice planting area, the rate of declaring public grain, and the rate of delivering public grain will all rise. Then next year the quantity purchased by the government will increase substantially, that is, next year's rice production will rise substantially, and with imports and consumption unchanged, there will be a great deal of surplus rice, and the government's purchase expenditure and management costs may increase from the current NT$5 billion to NT$10 billion. The implementation of this policy will lead to distortion and waste of agricultural resources (land, labor, water resources). The way to solve this distorted policy is to adjust toward the spirit of a direct payment policy.

It is suggested that the government change this year's NT$3 increase in the guaranteed purchase price into a fixed payment, with a total of 3,200 kg per hectare for the planned purchase quantity plus the guidance purchase quantity, and the government pay rice farmers who plant rice NT$9,600 per hectare, while retaining last year's guaranteed purchase price, that is, a planned purchase price of NT$23 per kg. Adjusting in this direction has the following advantages: first, it reduces intervention in the market and avoids resource distortion; second, the market price of white rice will not rise, so the burden on consumers is lower and imports of foreign rice will not increase; third, farmers can directly benefit from the government's good intention; fourth, it will not affect production in special zones for high-quality rice production.

In addition to adjusting related policies in the direction of direct payments, unreasonable policies should also be abolished or revised. Taking the fertilizer price subsidy policy, which costs NT$6 billion a year, farmers get cheaper fertilizer and still overuse chemical fertilizers. These chemical fertilizers will seriously affect our ecology, and through leaching into groundwater, they are ultimately still drunk by consumers. If the government wants to reduce production costs in order to take care of farmers, the best way is direct cash payment. First, it lets the fertilizer market price mechanism operate and reduces our use of chemical fertilizers; second, it makes the promotion of organic fertilizers easier; third, it can directly take care of farmers.

Of course, there are also the fallow land policy, the natural disaster subsidy policy, the irrigation association subsidy policy, and other policies that all need adjustment. These policy adjustments should be carried out in a direction that truly takes care of farmers and enables the sustainable development of Taiwan, China's agriculture. Politicians from both parties should bravely put forward more specific explanations and reasons for the adjustment of these policies, rather than proposing distorted policies in a bidding war before elections; otherwise, the original good intention of taking care of farmers may be distorted. (The author is a Distinguished Professor in the Department of Applied Economics at National Chung Hsing University.)

Further reading
Attorney Chan Shun-kuei: The old farmer allowance should be reformed as soon as possible!