Why Food Subsidies Can Make You Hungry

Submitted by Dianna Long on Wed, 11/19/2008 - 08:00

2008 has been a tumultuous and expensive year for the American people. At the same time that the average American family is struggling to pay the mortgage, fill the gas tank and put food on the table, some major businesses are getting an unwarranted helping hand from the government.

The financial bailout is old news, you may say, but in this case the big businesses benefitting from taxpayer support aren’t the few remaining banks; it’s the agricultural industry. The $700 billion dollar bailout to the financial industry is substantial, but the $10 to $30 billion dollars a year the government hands out to large commercial farmers like Cargill and Archer Daniels Midland isn’t exactly pocket change either.

If the subsidies supported small farmers, ensured the national food supply or put cheaper food on Americans’ dinner tables, this protectionist policy might be worth saving. The reality is that only a small amount of the subsidies go to small farmers, while the majority goes to large, industrial agribusinesses that raise only a few commodities such as wheat, rice, cotton, corn and soybeans. As of 2000, farms that grossed over $250,000 (7 percent of all farms) received 45 percent of the government payments. As a result, small farms are shrinking while large agribusinesses use their advantage in economies of scale and government subsidies to remove any pretense that the agriculture market in the U.S. is competitive.

The government subsidizes commercial farmers by setting a floor price for certain crops and paying them the difference if the market price is lower. This gives these companies incentive to produce more crops and drive down the prices of commodities. Again, that might not be such a terrible thing if those savings were going into the pockets of consumers, but since subsidies don’t grow on trees, the consumers end up paying the difference through their taxes.

Chances are the consumers don’t even see the lower prices at the market. Food prices stay artificially high because of another unique scheme enacted by the government – paying farmers not to grow crops on their land under the Conservation Reserve Program. By freezing approximately 40 million acres from cultivation, the supply of crops consumers can purchase is artificially limited. A lower supply means higher prices, which means the consumer not only pays some farmers to produce too much of one crop, but also less of other crops (or the same subsidized crop). In this way, taxpayer dollars are used to alternately raise and lower agriculture prices at the same time.

Farmers also specialize in subsidized crops because they’re insured against disaster. Without the subsidies, crop prices can shift due to weather changes or crop diseases. Fewer farmers produce the (potentially riskier) unsubsidized crops, like oranges, apples, spinach, and tomatoes. Fewer producers of those crops mean more high prices for consumers.

If farm subsidies were going to young, new farmers trying to break into a business that requires expensive land and equipment, supporting scores of farmers might be just the thing the industry needs to create more competition and allow consumers to benefit from lower prices. But because subsidies are based on the amount of land a farmer already owns and its historical yields, they actually discourage young farmers from entering the business. This greatly benefits commercial farmers who cultivate vast tracts of land using high-tech equipment. Young farmers can’t afford to buy large swaths of acreage, and they don’t have historic yields. The result is that new farmers don’t enter the market and large commercial farming companies put established small farmers out of business.

I don’t claim to argue that the financial crisis we’re experiencing now can be fixed be ending the farm bill, or that we can recreate the farming industry by removing or dramatically reducing these farm subsidies. But at a time when the government is supporting big businesses from every direction, taxpayers paying higher prices to feed their families while hoping that they won’t get caught in the next round of layoffs is especially heinous.

Congress should remove all farm subsidies. Then Americans might find some relief in one place they need it most – their dinner tables.

Dianna Long's father runs a small hobby farm and, in true libertarian fashion, refuses to take subsidies. Dianna left the farm and studied English literature and philosophy 30 miles away at Austin College in Sherman, Texas.

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