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Understanding the Farm Bill: Who Benefits From the Current Commodity Programs?

In my last Farm Bill post, I wrote about the argument for directly subsidizing agricultural production: farm income is erratic, and in order to keep farmers in the business of supplying the food and fiber we all need, they must be guaranteed an adequate income. Under the current system, farmers are given direct payments simply for growing an eligible crop, such as corn or soybeans. In years when prices fall below the target price for a particular crop, they also receive countercyclical payments. 

In recent years, advocates of Farm Bill reform have begun to ask if direct subsidies are the best way to ensure farmers a reasonable income. In these discussions, farmers are often portrayed as wealthy businessmen who are getting rich at taxpayers’ expense. Certainly some large landholders and corporations do receive hundreds of thousands of dollars in subsidy payments, and this is problematic: the top 1% of payment recipients in 2003 got 24% of payments. But for the average family farmer, working the land is not a get-rich-quick scheme. Although gross farm income has risen since the first farm programs in the 1930s, low prices and high costs of production mean that net income has not grown during this time. Farm expenses have increased 45% since 2002, while farm payments averaged $11,922 in 2008. This represented one-fifth of net income for those farmers. 

If most farmers are not getting rich, who really benefits from government subsidies? Advocacy groups argue that it is really the suppliers of farm inputs and consumers of farm outputs who reap the benefits of subsidies. Because subsidies are tied to the number of acres in production of a particular crop, these policies encourage farmers to plant “fencerow to fencerow,” or as much as they possibly can on their land. Extensive row crop production uses seeds (the majority of which are patented and controlled by a handful of corporations), chemical pesticides and fertilizers, and expensive heavy equipment like tractors and combines.  

On average, only 20 cents of every dollar spent on food goes to the farmers and ranchers that produced it – 80 cents are spent on processing, packaging, and marketing (people don’t eat field corn until it’s transformed into flakes or syrup). Subsidies allow farmers to continue growing commodities like corn and soy even though the market prices for these crops are below the cost of their production. Processors profit from low commodity prices, and the surfeit of corn and soybeans is used to make inventive new foodstuffs, such as the infamous high fructose corn syrup. Of course, the ready availability of cheap calories contributes to our nation’s alarming obesity epidemic

One of the largest beneficiaries of cheap grain is the livestock industry: 60% of domestic corn and 50% of soy are used to feed poultry, cattle, and hogs, largely in concentrated animal feeding operations (CAFOs). Because feed costs make up a significant proportion of the cost of livestock production, this represents an indirect subsidy to the livestock industry, which is itself concentrated in a few large corporations. 

Clearly, the current system of agricultural subsidies works for agribusiness, but not necessarily for farmers or consumers. Additionally, our nation’s commodity subsidies impact not only the U.S., but also the world. Tune in next time, when I’ll discuss how decisions made on Capitol Hill affect farmers all over the world, and what the rest of the world has to say about it. 

Sources:

  • Wise, Timothy. 2005. Identifying the Real Winners from U.S. Agricultural Policies. Global Development and Environment Institute Working Paper No. 05-07. Tufts University.
  • Wise, Timothy. 2005. Understanding the Farm Problem: Six Common Errors in Representing Farm Statistics. Global Development and Environment Institute Working Paper No. 05-02. Tufts University. 
  • 10 Myths from the Mainstream Media about U.S. Farm Policy.  2008,  IATP.
  • Government Payments and the Farm Sector: Who Benefits and How Much? USDA ERS. http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

If you haven't yet "Liked" our Facebook page, Understanding the Farm Bill: A Citizen's Guide to a Better Food System (jointly created with folks from IATP), please visit us there, let us know what you think, "Like" us, and tell your friends.

Ann Butkowski is happy to be back in her native Minnesota after spending the last two years in Boston. She’s learning to bike the streets of Minneapolis and grow tomatoes in her backyard. Ann has a master’s degree in nutrition science, but doesn’t let that stop her from eating ice cream right out of the carton. Ann is Simple, Good, and Tasty's resident Farm Bill expert. Her most recent post for us was Understanding the Farm Bill: Digging Into the Commodity Programs.

Comments

Thank you for excellent articles on the subsidy issue! While we can agree on the distortions subsidies cause, in practice it can prove very tough to eliminate or even amend them as they represent vested interests. This has been the experince in many countries (India, for one, has also been wrestling with this issue)and it will be interesting to see how it plays out in the Farm Bill. I look forward to reading more on this from you!

Thanks Thought_Food, I agree! We need to be careful not to confuse the idea of subsidies with the way they currently work. It might be the case that eliminating subsidies altogether would be the wrong approach, but we need to re-evaluate WHAT we currently subsidize and the true effect it has.

Nice post, but I think it should be updated to reflect current realities and not when Tim Wise wrote those papers (though I appreciate Tim Wise - nothing to take away from his good work). Currently corn is selling for $7 a bushel and soybeans are $15 a bushel. We're seeing historic high prices and net farm incomes(even when accounting for the increasing cost of production). For better or worse, policy is crafted and debated in the here and now and not based on what net farm income was in 2008. In this era of budget deficits and a "Cut and go" Congress, the money to pay for farm bill programs has to come from somewhere. Direct payments are going to be under the knife and better them than programs that support conservation, local food, and beginning farmers.

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The sources, IATP and Tim Wise, are among the few good ones available, but they are weak at writing for a food movement audience, as opposed the the choir, long time farm justice (family farmer) advocates, (ie. who already know the correct policy solutions). 

There's a key myth here, that's incredibly widespread.  First, family farm movement advocates (ie. nffc.net) have long known that all subsidy solutions are bad, compared to the previous great programs (1942-1952,) fair trade no-subsidy Price Floors, backed up by supply reductions, as needed, to balance supply and demand (and Price Ceilings and Reserve supplies for times of shortages).  More importantly, the PRESENCE of subsidies merely correlates with the problems and benefits, while the reducing (1953-1995) and eliminating (1996-2013) or ABSENCE of Price Floor programs is the cause.  So it's like a praire fire destroying our farm and food system, and subsidies are like fire trucks that show up to help farmers after the fact, during the damage.  But fire trucks don't cause fires.  It's just a correlation, not a causation.  

Likewise giving subsidies to farmers in don't really "allow" farms to grow crops at below cost.  Farmers could be hired to drive machinery at $1.25 per day, as in other countries, after they lose their farms.  The crops would still be grown.  Historically, with the Price Floor reductions, most farmers went out of business, (even with subsidies [and even lower prices]).  The subsidies didn't allow them to keep farming.  In 6 USDA-ERS studies, prices plus subsidies averaged below full costs, even with subsidies.  Even more, cutting subsidies to farmers does not hurt the AgBiz buyers of commodities, any more than cutting food stamps hurts Walmart, or forces it to raise wages.  Subsidies divert attention away from needed solutions, and help to quiet down angry farmers.  

So agribusiness buyers don't benefit from subsidies.  They only benefit from low/zero Price Floors.  Any time Price Floors are NOT mentioned, Agribusiness support is fostered.  Those selling inputs to farmers would seem to benefit by farmers being able to afford them, with subsidies helping.  But really, they benfit from low prices that run farmers out of business, because increasingly, with bigger farms, only capital-intensive, high-input methods (bigger tractors, chemicals instead of labor) can be used.  They also benefit from zero supply reductions, as there are more acres on which to sell inputs. They also benefit from cheap grain to CAFOs, so that farmers lose livestock, and then lose the need for pastures and hay and Resource Conserving Crop Rotations, so they must then grow more row crops, even on fragile ground, (formerly used only for livestock,) which are more input-intensive.

Also missing is data on the farmer reductions, which I've calculated, using a 1942-1952 standard, or parity.  By that standard, adjusted for  inflation every year, then farmers got about $0.5 trillion in subsidies.  So who benefited from that?  Well, first, farmers got $4 trillion in reductions below the previous standard, so farmers got a $3.5 trillion net reduction.  Did AgBiz get $0.5 trillion, the subsidy amount, in benefits?  No, the buyers are the ones who got the full $4 trillion that farmers lost.  And then consumers were subsidized.  How much of the $4 trillion taken from farmers were passed along to consumers, who as taxpayers, paid the $0.5 trillion that gave farmers only $3.5 trillion in reductions instead of $4 trillion.

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