We have been dishing out farm subsidies for around 80 years now, without many clear victories on which to hold our hats.
As the current free fall in food prices shows, we are trapped in a cycle that sees subsidies to stabilize production countered by subsidies to absorb excess supply. Worst of all, most of these subsidies aren’t even reaching the small-time farmers they are intended to benefit, but are going to large corporations and special interest groups.
With that in mind, it’s time to reconsider the merit of our farm subsidy system.
History of subsidies
With the rise of industrialization, the farm industry in the 1920s was experiencing Uber-like disruptions. Due to the advancements of technologies, farmers enjoyed the fruits from increased productivity. Though midway through the decade, overproduction and global competition caused prices to plummet along with the incomes and jobs of farmers.
In 1929, President Herbert Hoover, a native Iowan, enacted the Federal Farm Board, that, with its $500 million budget, would loan out money in order to strengthen cooperation among farms by incentivizing them to control production and bring crops to the market more efficiently.
The Farm Board also fixed a price floor for wheat and cotton, in which, if the price went under 80 cents per bushel of wheat or 20 cents per pound of cotton, the government would come in buy the crop, pay to store it, and sell it later for a “decent” price. With federal funding to protect them from any losses, farmers continued to produce as much as they possibly could.
More subsidies to correct for the subsidies
Consequently, President Roosevelt, Hoover’s replacement, came through with the Agricultural Adjustment Act (AAA), as one of his many New Deal initiatives. The AAA went further than the Farm Board, as it would initially straight up pay farms to not produce. Corn would be burnt as fuel instead of sold in the market.
As prices increased, farmers would slaughter their livestock because they could not afford to feed their animals. Beyond this, consumers would also feel the pain of increased prices. But even after the subsidies, the reduction in food surpluses were attributed to a severe drought and the increased global demand of WW2.
Today, this pattern of subsidies and counter subsidies for domestic farming through purchases, grants, and crop insurance continues, with much of the funding going to large corporations, as opposed to small local farmers.
Food is “deflating”
Food is cheaper today than last year. The wholesale price for a bushel of corn, or eight gallons of corn kernels, is hovering at around $3.30, close to a 22 percent drop since June. Soybean and wheat have also seen a sizable dip in price in the last several months.
Because of the cheap feed, aka corn, a number of other food products are cheaper as well. The overall price of beef and veal has dropped almost 8 percent in the last year. Milk and cheese are down 3.1 percent, poultry has dropped 3.2 percent and eggs are a whopping 29 percent lower than prices in July of 2015!
The E-corn-omic demand
Agricultural analysts have accredited the drop in prices to several reasons including the end of the “Midwest Drought” with splendid weather, increased technological advances, and a demand that can’t keep up with the supply.
One culprit for this lackluster demand is the increased purchasing power of the dollar compared to other currencies. Like anything in economics, the strong dollar comes with trade-offs. American consumers can now purchase more with their dollars than before, but for consumers using other currencies, American goods have become more expensive. So, global consumers of our farm products are being redirected to cheaper options around the world.
In addition, consumer trends of healthier diets, supporting local businesses, and fear of widespread food contamination have also added to the slower growing demand. As a result, U.S. farmers can’t sell their product fast enough. So, you guessed it, prices plummet. Seeing as corn is pretty much in everything we eat we can see the price drop affecting tons of other food products.
Subsi-cheese for farmers
As per usual, to counter this downturn in agricultural commodities, the government announced that it will purchase $20 million worth of cheese from private inventories, weighing at approximately 11 million pounds. Dairy farmers have stocked up so much that they have incurred the highest surplus of cheese in the last 30 years. Along with this purchase, the government will also come through with $11.1 million in financial assistance to dairy farmers enrolled in the “dairy margin protection program” aka, U.S. milk insurance.
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Although hardly a dent in the federal budget, roughly $20 billion in subsidies are still provided to the farm industry annually to protect farmers from low prices and stabilize production. However, due to the longevity of this farm program, it raises the question of whether or not it has worked. In 2006, The Washington Post examined agricultural subsidies only to find that much of the aid was just going to private interests in Wall Street, landowners that don’t plant anything, and other outright wasteful ventures—not the small time farmer trying to hack it.
Our take
For more than 80 years, subsidies have been intended to help farmers be profitable, maintain steady prices, and sustain a steady supply. But actually, farm subsidies have incentivized farmers to overproduce and have lined the pockets of special interests with taxpayer dollars.
Instead of solving the problem of oversupply, it has created a perpetual cycle of subsidies that will never end unless we become educated on the issue. $20 billion feels like pennies to the average consumers, but that amount could really be used in a much more efficient manner elsewhere, maybe back into our pockets.
Nonetheless, let us rejoice in these increasingly affordable grocery trips while this haven lasts. Stock up on eggs and and use the savings for some pointless gifts to buy for the coming holidays.
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Header image: Getty
