In the United States, the Farm Bill, which is passed every 5 years, determines our agricultural spending on both food subsidies and food stamps. This post will focus on the subsidies portion of the farm bill, which accounts for approximately 20% of the bill’s spending. The following chart from the Wall Street Journal helps illustrates the tremendous amount of money spent on farm subsidies each year:
As this chart makes apparent, the ten states that consume the most farm subsidy dollars consumed $9.445 billion in 2012. While this expenditure doesn’t compare to the government’s massive defense or social security budget, $9.5 billion is not a trivial value. After adding in farm subsidies paid throughout the rest of the United States, total annual expenditures is close to $17.5 billion.
It’s interesting to examine what crops the government is subsidizing. If you watch the movie King Corn, or you read the Live Science article “Junk Food Subsidies Threaten American Health,” you’ll learn that the most commonly subsidized crops are commodity crops like corn or soybeans (they are called “commodity” crops because, given the way these crops are grown, they are not edible until processed into secondary products like High Fructose Corn Syrup). Furthermore, without the existing government subsidies, many farmers would not profit from the production of commodity crops. For example, the selling price for a bushel of corn is lower than the cost to produce a bushel; nevertheless, farmers continue to earn profits because of government subsidies. As anyone who has taken Econ 101 knows, these subsidies ultimately distort the commodity crop market, leading to deadweight loss at the expense of American taxpayers (who are footing the bill for these subsidy payments).
Many support farm subsidies because they believe subsidies are necessary for America’s backbone (ie: Mom-&-Pop farmers) to support themselves. Indeed, Thomas Jefferson believed that “Those who labor in the Earth are the chosen people of God.” Whether or not you agree with Jefferson, the above statement about subsidies is simply not true. Per the US census, farm household income has exceeded the average household income in America for over a decade and a half, and today the average farming household earns 53% more than the average non-farming household (maybe farmers really are God’s chosen people). Additionally, the subsidies given out by the US government do not favor the Mom-&-Pop farmers living the American Dream. Instead they support enormous commercial farms. Of the $17.5 billion of farm subsidies paid out by the US government each year, 80% goes to the wealthiest 15% of farmers, whose wealth is usually measured in millions of dollars.
Thus it seems obvious that farm subsidies are negatively impacting the United States in three ways: (1) they distort the market for commodity crops (2) they place an additional tax burden on Americans who indirectly pay for farm subsidies (3) they contribute to economic inequality by favoring already wealthy, commercial farmers.
That said, there is another and more important way that farm subsidies adversely impact the economy: health care bills. The American Heart Association identifies cardiovascular disease as one the most pressing health problems in the United States, with over 40% of Americans expected to suffer from cardiovascular disease by 2030. With this increase in prevalence comes an increase in the costs associated with treating cardiovascular disease, which are expected to grow from $273 billion in 2010 to $818 billion in 2030. So how is cardiovascular disease relevant to farm subsidies? One of the leading causes of cardiovascular disease is obesity, and one of the leading causes of obesity is the exorbitant consumption of high fructose corn syrup. And why are Americans consuming so much high fructose corn syrup? Because US farm subsidies favor the production of commodity crops that make high fructose corn syrup so cheap to produce.
It is true that come 2030, the United States government will not be paying all $818 billion of the costs associated with cardiovascular disease. But these rising health care costs will have a significant impact on Medicare and Medicaid payments, which already represent over $700 billion of federal spending (which is over 20% of the federal budget – see chart below). And the onus of funding these payments will ultimately fall on the American taxpayer, depressing real wealth levels and spending. Given the magnitude of Medicare and Medicaid payments, health care costs are responsible for the majority of the economic loss brought about by farm subsidies.
Certainly there are many logical reasons to support farm subsidies. While most farm subsidies support huge commercial farms, it is true that some Mom-&-Pop farmers would go under without government support. Additionally, farm subsidies, by keeping commodity crop prices low, help keep food prices more affordable (especially highly processed foods, which typically are staples in the diets of low-income Americans). Despite these benefits, I strongly support a gradual elimination of food subsidies. And fortunately, the newest version of the Farm Bill, passed earlier this year, is doing just that (I believe tapering should be more aggressive, but you can only ask for so much at once). While in the short-run, this tapering will likely cause marginal increases in food prices and adversely impact some Mom-&-Pop farmers, in the long run, I think the reduction in government expenditure and health care costs will certainly justify the tapering.