Introduction and Objectives
One of the most hotly contested aspects of United States (U.S.) trade policy is the program of subsidies the United States provides its farmers. Trade partners object to U.S. farm subsidies, saying they unfairly block out foreign competition and this has been one of the primary sticking points during trade negotiations. The counterargument holds that U.S. farm subsidies are necessary to prop up the U.S. farm industry, particularly given the role that has been assigned to corn-based ethanol in the United States energy security plan.
This brings us to the issue at hand; do United States farming subsidies need to continue, or should they be eliminated? This work will attempt to clarify why both sides of the argument feel they are correct and it will also attempt to show that repairing or fixing farming subsidies, not completely eliminating the program is in our best interest as a country.
Method
Most of the research that was unearthed on this topic came from the professionals in the field. Among the research found are debates from the CATO institute, website articles from the National Center for Policy Analysis, and information from the Heritage Foundation.
Findings and Observations
As it is often argued, governments are going to be involved in agriculture and a country’s food supply. As is often the case, if governments are involved, you as a consumer want them to err on the side of more production, not less. Estimates of the future cost of subsidies are, exactly just that, estimates. However, given the extent to which we have turned to agriculture to provide some of our nation’s energy needs, it is very likely that spending levels will decline significantly from those observed in previous farm programs. Levels of support have been held constant in nominal dollar terms since the early 1980s. The target price for corn in 1982 was $2.70 per bushel. Today it is $2.63 per bushel. The wheat target price was $4.05 in 1982. Today it is $3.92. This implies significant declines in real terms. Because we have essentially been operating off of fixed-payment yields, some dating back into the early 1980s, the proportion of the crop actually covered by support has also fallen significantly. On average, the target prices carried in the 1996 Farm Bill covered 83 percent of the production costs of the program crops and was provided on 79 percent of production. Assuming the 2007 bill extends those same levels, the target price will cover only 70 percent of production costs on 65 percent of production. In other words, we are already on a path to reduce the real level of support and have been since the early 1980s. Why jump off now?
The Farm Bureau supports the idea of reduced government support when we are able to get access to foreign markets. We have been a supporter of the administration’s proposals in trade negotiations. Although because of those negotiations, it makes no sense to make a unilateral leap of faith. Agricultural products entering the United States face an average tariff rate of 12 percent. We have some of the lowest agricultural tariff rates of any country in the world. Our exports, on the other hand, face average tariffs of 62 percent. Even the oft-cited New Zealand charges an average of 7 percent. Consequently, the United States does not have a substantial amount of leverage on the tariff front.
The primary leverage for the U.S. in this round is our domestic support programs. To date, other countries in trade negotiations have not been willing to come forward with significant enough reductions in their own tariff rates. At least not enough reductions to provide the potential for improvements needed in order to offset the domestic program reductions they are requesting from the United States. Again, the Farm Bureau is on record as being ready to support an agreement, including the cuts in domestic programs, but only when these objectives are met (Griswold, 2015).
Americans can and do enjoy reliable and affordable access to food without the expensive and distorting programs that supporters of subsidies advocate. We enjoy plentiful supplies of fruits, vegetables, and meats without paying a premium through import quotas or production subsidies. There is no dismissing the New Zealand experience. The New Zealand government largely dismantled its farm programs, and none of the consequences that subsidy supporters had predicted came true. Its citizens did not suffer any shortages or disruptions of food supplies. Productivity of New Zealand farms accelerated after reform and they now compete successfully in global markets, especially as dairy and livestock producers.
In contrast, the output and income of America’s most supported crops have lagged behind the performance of non-supported products that compete in free and open markets. According to the U.S. Department of Agriculture, cash receipts for the most supported crops, including corn, soybeans, wheat, cotton, sugar beets, and sugar cane, rose an unimpressive 14 percent from 1980 to 2005. Meanwhile, cash receipts for non-supported crops, including fruits, vegetables, nuts, and greenhouse products, soared by 186 percent. Subsidized farmers are selling out their future competitiveness in the market for the sake of federal handouts (Griswold, 2015).
Despite many efforts to trivialize the cost, America’s farm programs are expensive by any measure. Dividing the cost into thinner and thinner slices (what’s next, “per mouthful”?) cannot hide the fact that these programs cost Americans tens of billions of dollars year after year. As the OECD (Organization for Economic Cooperation and Development) accurately calculates, they cost us not only as taxpayers but as consumers and producers because of tariff barriers that artificially inflate domestic prices. The $7 billion figure for future annual spending represents the kind of wishful thinking that accompanies every budget projection. A fall in global commodity prices would send that number soaring, as it did in the late 1990s. During the past twenty years, farm programs have cost America’s non-farm households a cumulative $1.7 trillion. That is how much non-farm households would have in the bank today if they had been allowed to save and invest what they have been forced to surrender to favored farmers through our never-ending farm programs. We need to insure that Americans are not on the hook for another $1.7 trillion during the next 20 years.
Those who favor government farming subsidies imply that ranchers and fruit and vegetable farmers are less responsible stewards of the land because they do not receive production subsidies. In fact, subsidies actually hurt the environment for the many reasons outlined earlier. If we want to encourage better stewardship, we can achieve it through direct, non-distorting incentives without subsidies for over production (Griswold, 2015). Farm programs survive year after year because they benefit a small but concentrated and politically active group of farmers. Bearing the cost of those programs are tens of millions of American households who pay through higher taxes, higher prices at the grocery store, and lost opportunities for future growth (Bandow, 2013). It is time for Congress to pass a farm bill that serves all Americans, not just a favored few.
Conclusions
Agricultural subsidies have helped bring us high-fructose corn syrup, factory farming, fast food, a two-soda-a-day habit and its accompanying obesity, the near-demise of family farms, monoculture and a host of other ills. Yet, like so many government programs, what subsidies need is not elimination, but reform that moves them forward. Imagine support designed to encourage a resurgence of small and medium-sized farms producing, not corn syrup and animal-feed, but food like apples and carrots while diminishing handouts to agribusiness and its political cronies. Farm subsidies were created in an attempt to reverse the effects of the Great Depression, which makes it ironic that in an era when more Americans are suffering financially than at any time since, these subsidies are mostly going to those who need them least. That was not the plan, of course. In the 1930s, prices were fixed on a variety of commodities, and some farmers were paid to reduce their crop yields. The program was supported by a tax on processors of food and was intended to be temporary. It worked in the short term; prices rose and more farmers survived. However, land became concentrated in the hands of fewer farmers, and agribusiness was born, and along with it the government paid farmers for not growing crops (Bittman, 2011).
Many of the subsidies go to farms that do not grow the fresh fruits and vegetables that should be dominating our diet. Indeed, if all Americans decided to actually eat the five servings a day of fruits and vegetables that are recommended, they would discover that American agriculture is not set up to meet that need. They grow what they are paid to grow; corn, soy, wheat, cotton and rice. The first two of these are the pillars for the typical American diet featuring an unnaturally large consumption of meat, never-before-seen junk food and a bizarre avoidance of plants. Take also into account the fortunes of Pepsi, Dunkin’ Donuts, KFC and the others that have relied on cheap corn and soy to build their empires of unhealthful food. Over the years, prices of fresh produce have risen, while those of meat, poultry, sweets, fats and oils, and especially soda, have fallen. In the short term, that has saved consumers money, prices for these foods are unjustifiably low, but at what cost to the environment, our food choices, and our health?
Eliminating the billions in direct agricultural payments would level the playing field for farmers who grow non-subsidized crops, but only marginally, perhaps not even noticeably. There would probably be a decrease in the amount of HFCS (High Fructose Corn Syrup) in the market, the 10 billion animals we process annually, the ethanol used to fill gas-guzzlers, and in the soy from which we chemically extract oil for frying potatoes and chicken. Those are all benefits we could compound by taking those billions of dollars to use them for things like high-speed rail, fulfilling our promises to public workers, maintaining Pell grants for low-income college students, or any other number of worthy forward-thinking causes.
However, this would only be a temporary fix. Although the urgency for across-the-board spending cuts does not extend to the public according to a recent Pew poll, most people want no cuts or even increased spending in major areas, once the billions are gone, they are not coming back. Calling the current system a joke is barely arguable: wealthy growers are paid even in good years, and many receive drought aid even when there has been no drought. It has become so bizarre that some homeowners lucky enough to have bought land that once grew rice now have subsidized lawns. Fortunes have been paid to Fortune 500 companies and even gentlemen farmers like David Rockefeller (Bittman, 2011).
Left and right can perhaps agree that these are payments we do not need to make. Instead, suppose we use this money to steer our agriculture and our health in the right direction. By making the program more sensible the money could benefit us all. For example, it could fund research and innovation in sustainable agriculture, so that in the long run we can get the system on a better track. Corrective action could also save more farmland from development and provide support for farmers who currently grow unsubsidized fruits, vegetables and beans; while providing incentives for monoculture commodity farmers to convert some of their operations to these more desirable foods. Proper corrective action could also work toward leveling the playing-field so that medium-sized farms big enough to supply local supermarkets, but small enough to care what and how they grow, can become more competitive within agribusiness (Bittman, 2011).
The point is that this money, which is already in the budget, could encourage the development of the kind of agriculture we need in the U.S., one that prioritizes caring for the land, the people who work it, and the people who need the real food that is grown on it. Reforming the broken system would by far outweigh the benefits of eliminating it entirely. The United States farm bill is a gigantic piece of legislation, and unearthing all of the contents that are in need of reform would be almost insurmountable, but the potential gains from doing so could be revolutionary. In fact, my research has led me to believe that not giving it our best effort would almost be considered criminal.