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July 2011 Archive for Economic Sense

RSS By: Matt Bogard, AgWeb.com

Matt's primary interest is in the biotech industry and ag policy.

More Misconceptions About Subsidies

Jul 31, 2011

By Matt Bogard

 

In my last post, I took on the myth that small farms don’t receive any benefits from subsidies. A related myth is that if we eliminate ALL subsidies, the negative impact would mostly be on larger farms that don’t need the money any way. What we saw, on a dollar for dollar income for income basis, smaller farms get more subsidies than larger farms. In addition, if we consider that with smaller operations you may have fewer volume discounts  and fewer of economies of scale, this effect is even greater.  

Recently, I ran across a piece by the EWG titled 'Government's Continued Bailout of Corporate Agriculture' which, in addition to the title, made some statements that could easily be misinterpreted or misused by antiagricultural activists.

"From 1995-2009 the largest and wealthiest top 10 percent of farm program recipients received 74 percent of all farm subsidies"

 
Looking at subsidies as a percentage of income in combinaton with the data from EWG helps provde more perspective. Another quote:

"The vast majority of farm subsidies go to raw material for our industrialized food system, not the foods we actually eat. Even less money goes to support the production of the fruits and vegetables that are the foundation of a healthy diet."

This couldn't be further from the truth. It is true that most of the subsidies go to commodities, but it isn't true that they don't contribute to the production of foods that we actually eat. In fact, as Michael Pollan has stated:

"What I keep finding in case after case, if you follow the food back to the farm — if you follow the nutrients, if you follow the carbon — you end up in a corn field in Iowa, over and over and over again." -Michael Pollan 

 

 As I've pointed out many times before, it is a miracle that modern sustainable agriculture can feed so many people in so many ways, with just a few common staple crops, and do it sustainably! 

 

The EWG quote also could give some people the perception that healthy supplements in our diets, like fruits and vegetables, are more expensive than processed foods containing corn and soybeans because corn and soybeans are subsidized more heavily than fruits and vegetables. The agronomics, labor, risk, economies of scale, and capital costs associated with fruit and vegetable production make those crops expensive.  Eliminating commodity programs would have an insignificant impact on the relative costs of these types of foods at the retail price level. (which is why you can’t argue that subsidies contribute to obesity either, or have any solid empirical support for 'fat taxes.' or soda taxes).

 

Another quote:

 

"Finally, while this corporate giveaway has gone on unabated, conservation continues to be shortchanged."

 

And from a related story from the Baltimore Sun:

 

"This is good news. Agricultural subsidies cost taxpayers more than $15 billion each year, and until those subsidies are eliminated, farming in America will never be sustainable." - Baltimore Sun, May 18, 2011.

 

In terms of being short changed in the allocation of funds from the government, this may be true. However, conservation and sustainability in terms of on the farm practices isn't shortchanged in the least.  Many of the green technologies (herbicide and pest resistant GMO crops, pharmaceutical technology) used by modern farmers of all sizes dwarf the impact of other consumer green technologies like hybrid cars. Again, all the practices that make modern agriculture ‘sustainable’ agriculture are not hindered nor driven by subsidies, but are the result of voluntary market transactions. Money from the government is irrelevant. 

 

Some are willing to compromise, and instead of eliminating ALL subsidies, would like to means test or set income caps.  In a recent town hall meeting we hear the president state that 'very profitable big combines are getting a lot of money from taxpayers’ and that we should limit subsidies to ‘genuine family farms.’  

 

Unfortunately, these proposals are often presented by actvists using misleading rhetoric, chiefly the idea that what separates a family farm from ‘big ag’ or ‘industrial agriculture’ is annual sales.  Based on USDA numbers, 98% of all farms are family farms. There is no income cutoff.  And, as this farmer points out in the Huffington Post,it doesn't take but a few thousand acres to produce revenues near or above $1 million dollars and the land and capital necessary  for even these smaller grain farms could also put net worth into the millions (which is why the death tax disproportionately penalizes family farms so heavily):

 

"According to some, I am a giant agribusiness -- the worst kind of factory farmer…. Ironically, my business is probably more in line with what most of us consider a farm. It is family-run. It was passed down to me from my father and grandfather. It is a full-time effort to support my wife and kids.

And, in order to make it my livelihood, it has sales exceeding $500,000…A farmer may produce half-a-million dollars worth of goods but might have to spend just as much to grow the crop, making it a break-even proposition and sometimes a losing one. Seems odd to call these farms corporate titans, especially when you consider that the Small Business Administration classifies most businesses as "small" if their gross sales are under $7 million a year."


And of course, as I discussed a couple weeks ago, there is the myth that we should eliminate subsidies as a matter of fiscal responsibility. The amounts being spent make little or no difference to the budget deficit (<.5%) .

 

Conclusion:


So subsidies don’t make much difference in terms of government spending and many of the arguments for ending farm subsidies based on sustainability, nutrition, obesity, etc. lack empirical support. Ultimately the argument about farm subsidies comes down to your view on the role of government.

 

References:

 

Obama calls for "revamping" of farm support system, possible income caps for subsidies
http://www.cbsnews.com/8301-503544_162-20062208-503544.html

The Face of A Giant Agribusiness - The Huffington Post
http://www.huffingtonpost.com/noah-hultgren/face-of-a-giant-agribusin_b_861502.html

Agritalk- May 12, 2011
http://www.agritalk.com/podcast/?p=episode&name=2011-05-12_may_1211.mp3

 

End farm subsidies and make agriculture sustainable

Budget deficits, changing practices could spell end for agricultural subsidies

May 18, 2011|By Baylen J. Linnekin The Baltimore Sun

 

Government’s Continuing Bailout of Corporate Agriculture

Posted by

Don Carr

in

Subsidies

on May 5, 2010 | http://www.ewg.org/agmag/2010/05/governments-continued-bailout-of-corporate-agriculture/

 

 

 

 

 

 

 

Do Large Farms Benefit the Most from Subsidies?

Jul 26, 2011

By Matt Bogard

Most people contend that farm subsidies should be eliminated because they benefit mostly larger farms vs. saving the family farm. It's true that many subsidies are tied to commodity production. As a result, those that grow more commodities (i.e. larger farms) will get more money from the government. As a result larger producers take in a larger share of all subsidies (especially those related to commodities). However, subsidies account for a much smaller percentage of income for large producers, and make up a much larger percentage of total income for medium or small producers.

As the chart above (from the USDA) shows, in 2008 farms earning less than $250,000 /yr recieved a much greater percentage of their income in the form of government payments, while subsidies only accounted for 4% of income for producers with the largest incomes. The chart below indicates that this relationship seems to hold across years for the last decade.

This big vs. small conversation may have populist appeal, but it only invokes class envy, and is not supported by the data when looking at subsidies as a share of income across all farm sizes.

References:
USDA Report- Government Payments and the Farm Sector: Who Benefits and How Much?
http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

USDA Report-Farm Income and Costs: Farms Receiving Government Payments
http://www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm

 

 

1 Million Dollars...Pennywise Pound Poor Deficit Reduction Ideas

Jul 13, 2011

By Matt Bogard

Remember this scene from the Austin Powers movie?

Could this be a parity of our political leaders' discussion of budget cuts and tackling the deficit?

This especially reminds me of the political posturing we get from the right and the left  discussing cuts to farm subsidies. Cutting the entire farm program budget amounts to less than 1/2 of 1 % of total government spending. Given the problems with medicare and social security, it seems like an incredibly irresponsible waste of time and resources to focus on these issues now. That's what the long drawn out farm bill discussions are for. Some groups like the EWG have spent a lot of resources tracking farm subsidy data. Why? I guarantee it is not a fiscally minded agenda. They are more concerned with politically correct agriculture than sustainable farms or government, and I guarantee if subsidies were increased and redirected to organic and local backyard production, the EWG data base would probably go away while the deficit grows and the check is in the mail for wealthy special interests.

As a free market oriented economist, I'm not the greatest fan of subsidies and government intervention. (although many of the negative claims made about subsidies such as impacting food prices, obesity, environmnetal consequences don't hold up to the data). Regardless of your opinion about about cutting farm subsidies, they do not belong in the context of a serious conversation about deficit reduction.

 

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