In the United States, the Farm Bill, which is passed every 5 years, determines this country’s agriculture spending on both food subsidies and food stamps.  The WSJ recently analyzed the state of the most current farm bill, identifying who benefits most from the resulting payments.  Focusing on farm subsidies, which account for approximately 20% of the Farm Bill’s spending, the following chart illustrates the tremendous amount of money spent on farm subsidies:

Farm Subsidies

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 military spending in the United States, $9.5 billion is not a trivial value (WSJ: Who Benefits from Farm Subsidies).  After adding in farm subsidies paid throughout the rest of the United States, total annual expenditures is close to $17.5 billion (George Mason University: Ending Farm Subsidies – Unplowed Common Ground)

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 (these are called “commodity” crops because, given the way they are grown, these crops 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.  The selling price for a bushel of corn, for example, is lower than the cost to produce a bushel; nevertheless, farmers continue to make a profit because of government subsidies (King Corn).  As one learns in any Econ 101 class, these subsidies ultimately distort the commodity crop market, leading to deadweight loss at the expense of American taxpayers (who are footing the subsidy bill).

Many support farm subsidies by stating that these subsidies are necessary for farmers to support themselves and that Mom-&-Pop farmers are the backbone of America.  Regardless of how you feel about Mom-&-Pop farmers, the above statement simply is 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.  Additionally, the subsidies given out by the US government do not favor the “everyday” farmer living the American Dream, but rather 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 (George Mason University: Ending Farm Subsidies – Unplowed Common Ground).

Thus it seems obvious that farm subsidies are negatively impacting this country 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 yet another 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 this 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.  (Live Science: Junk Food Subsidies Threaten American Health)

Obviously, I believe that farm subsidies are ridiculous.  They necessarily create deadweight loss and place additional burden on the American taxpayer.  Additionally, by indirectly increasing health care costs, farm subsidies cost this economy exponentially more than the $17.5 billion of subsidy payments given out each year.  As such, I propose a gradual tapering of farm subsidies.  While in the short run, doing so will likely cause marginal increases in food prices, in the long run, I think the reduction in government expenditure and health care costs will certainly justify the additional costs.

11 thoughts on “Why Farm Subsidies are Stupid

  1. psseo

    I heard about huge amount of farm subsidy in several occasions. This post gives me a very clear understanding of problems of farm subsidy. It seems clear that in terms of farm related policy, politics has more influence than any other economic rationale. I hope that in the future, more responsible and brave politicians will change the problems of this absurdity.

  2. cjamesj

    I agree that the current farm subsidies are an extreme unnecessary waste. A while back while watching the news I saw a number about a large percent (I believe 90% or so) of farm subsidies went to a small percent of the farmers (less than 20% I believe) and that of these farmers the majority were big industrial farmers. To me that just sounds like the big corporate farmers were abusing the system to make some extra money.
    I too understand the DWL from subsidizing mom and pop farms, however I don’t think these can disappear completely. I think simply comparing the mom and pop farmers average income to the rest of america is over simplifying the problem. Is it possible that a loss of the subsidy would directly result in few farmers and turn to foreign dependence on common crops?

    1. mhupp

      I see what you mean, and I think it’s possible that the higher average income goes hand in hand with higher average expenditures, so we’d really need data on the available income after necessary expenditures. Although the domestic market is still heavily distorted, and there are probably more sensible uses for the money that now goes to subsidizing agriculture. I also think that the international aspect of this issue is something to think about. However, I don’t agree with the dependence argument (or at least with the implications you’re assuming it would have).
      Even in a relatively simple trade model, you can show that subsidizing exports can help your country (i.e. increase its welfare). However, that’s always at the expense of your trading partners, and total global welfare will always decrease. What hasn’t been discussed here so far is the impact that US subsidies have on the world prices of the crops it exports, and on foreign producers of those crops who aren’t receiving subsidies from their home country. Especially in ‘developing’ countries, domestic producers are really hurt by artificially cheap US imports (and imports from the EU, which are just as subsidized and cheap). Plus, the welfare increase from subsidizing exports that you could theoretically achieve disappears if you subsidize too much, and the US might well be above that threshold. So none of this is an argument in favor of keeping the subsidies.
      About foreign dependence… well, it’s true that if you don’t produce the food you consume, someone else has to. And that means you ‘depend’ on their imports. But the US exports a ton of different things to the rest of the world as well. So just as many places depend on US imports. Which means that even if you assume that deep down, all those foreigners wish for nothing but your demise, they can’t just stop selling to you. Because you could easily retaliate by just not exporting to them anymore (plus I don’t really believe that most other countries hate the US enough to just start an embargo). So personally, I think that the fear of dependence is somewhat of an irrational obstacle to mutually beneficial trade agreements.

  3. wyna

    Very good analytical post. You did a fine analysis on how our taxes may be wasted. I believe that initial plan to subsidize farmers was not mal-intended per se, but the structure has a hole in the system. People who benefit from these subsidies are actually big corporations that makes contracts with local farmers for their rations. I guess there needs be a restructuring so that the intention of being free from famine (although this even seems almost implausible at current US agricultural output) and encouraging the farmers.

  4. agolicz

    Although farm subsidies may have a lot of negative effects on the corn markets, I wouldn’t blame only the corn subsidies. **TLDR, this is a very complex and multifaceted problem that involves the U.S. competitive advantage in agriculture and many different industries.
    -First, the shift from using cane sugar to high-fructose corn syrup in food was the result of the sugar tariffs and quotas the U.S. government enacted in 1977, which drove up the price of domestic sugar to more than twice the global price of corn. The large price difference between corn and cane sugar is therefore caused by both the high sugar tariffs as well as the corn subsidies. So the fault isn’t simply the corn subsidies but also a number of other federal policies.
    -Second, I’d guess the U.S. subsidizes corn rather than sugar because corn has a myriad of other uses (fuel, feed for livestock, use as a cereal grain, and of course in high fructose corn syrup), while sugar has fewer uses (could probably use it to make ethanol, use for flavoring, but it has fewer industrial and agricultural uses). I would speculate that there was a bit of a cost-benefit analysis that went into this decision, especially since the U.S. has a high capacity and optimal climate to grow corn, but there are few places in the U.S. where you can grow sugar cane (Hawaii and Florida being the main producers).
    Overall, I think it’s a much more complicated policy issue than the government simply deciding to give a few farmers a little extra spending money and to keep junk foods cheap.

    1. mhupp

      I think its interesting that you make the connection between high sugar prices and the substitution towards corn. I’m no expert on this, but I’d wager those tariffs and quotas were supposed to protect domestic sugar producers, right? And then they just ended up making sugar a whole lot less attractive, with the industry shifting to high fructose corn syrup instead. Its a little ironic to see those protective policies completely backfiring. Although corn producers get subsidies instead of being protected through import restrictions, so there does seem to be some learning going on (although from a global perspective it’s still a horrible policy).

  5. alexfigu@umich.edu'alexfigu

    I like your analysis on the subsidies and I would agree that it is ridiculous that subsidies are helping commerical farmers become richer rather than providing a means of survival for the farmers. I think your argument on high fructose corn syrup is a little ridiculous and probably has very minimal effect on health care costs.

  6. sekoch

    There certainly is a discrepancy as to who is receiving the subsidies, and one would think that commercial farmers are taking major advantage of the subsidies. However, many smaller farms are the ones that supply natural and organic foods, and are dependent on the subsidies. Do you believe that healthier foods – which require higher costs to produce – deserve subsidies?

  7. zsalem

    There are an abundant amount of goods with some form of corn in it, much of which is genetically modified “super corn”. A lot of them are patented and when seeds blow into rival farms fields, lawsuits are used to “protect intellectual property”. Not even the Grapes of Wrath could have predicted this.

  8. mrosidi

    I know that all subsidy, not just a farm subsidy cost American taxpayers. In the case of farm subsidy, I think besides the drawback, we have to see different angle also:
    1. To help farmers compete with imported product (it is most likely that when subsidy is gone, domestic price will increase above world price since other developed countries also subsidize their farming), there are only two other policy left, levying tariff and quota. Clearly, production subsidy is the best choice among these three alternative policies in term of welfare for American people.
    2. Although developing countries often protest developed countries’ farm subsidy because it cause their agriculture products become not competitive, but it is known that this subsidy also help many poor household afford their food, since most, or many, farmers in developing countries are net consumers, they do only subsistence farming. High price of food will not help them rather it will hurt them more.

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