The federal government has been paying out agricultural subsidies since the Great Depression in the colloquially-known “Farm Bill,” which gets updated every five years. The program began as a safety net when crop prices were far too low for family farmers to support themselves.
In spite of the facts that the number of farms in the US has plummeted 70% since the 1930s, that only 2% of American families are “directly engaged” in farming, and that the average farming family earns $84,000/year (25% more than the average household income in 2010!) – the US Department of Agriculture (USDA) spent $22 billion on farm subsidies in 2012.
This money was spent even though only 10% of subsidized farms took in 74% of subsidy payments from 1995 to 2012. This means that most of this federal funding goes to Monsanto rather than the idyllic Midwest farmer.
The big kahuna of agricultural subsidies is The Corn Behemoth. The corn business received $77.1 billion in USDA subsidies from 1995-2010. And we can thank the federal government’s long-standing affair with The Corn Behemoth for tampering with a major part of the entire economic sphere.
In essence, taxpayers give the government money to screw up all the prices at the local supermarket.
Updates to the 2008 Farm Bill were argued in the spring and summer of 2012, before Congress eventually extended it for one year rather than dealing with it. The Senate is posed to take up the Farm Bill again this month.
Funding The Corn Behemoth seems to be one topic on which liberals and conservatives can agree. Heritage argued against farm subsidies et al in 2007. Reason Magazine asserted that the cost of the food stamp program is so high partly due to the government-tainted food market. Some have argued that corn subsidies are to blame for junk food being cheaper than healthier options. Natural News went so far as to publish the following headline in 2009: “Ill-Conceived US Corn Subsidies Make ‘Liquid Satan’ High-Fructose Corn Syrup a Cheap Ingredient”
Actually one shouldn’t scoff at the notion that tampering with the corn industry has such price-shifting consequences, if sugar offers any indication. Due to the federal government’s deep involvement in the corn industry for over eighty years, sugar prices in the United States are 4-6 times higher than anywhere else on the rest of the planet.
Non-market prices at the grocery store aren’t only due to farm subsidies.
Consumers can also thank the federal government’s infatuation with ethanol – the other arm of The Corn Behemoth.
The federal government’s Renewable Fuel Standard (RFS) mandates that ethanol is blended into the nation’s gas supply at annually increasing amounts. Like most half-baked government ideas, the plan to make the US less dependent on foreign oil completely backfired. Ethanol production doesn’t actually reduce the 60% of fuel imported, because it only provides as much energy as the fossil fuels used to produce it.
So with the Farm Bill coming up for debate any day now, what is the current economic landscape in the corn industry? Will the government finally cut the cord this time?
One may point out, “Well, we’ve started that process already since companies making ethanol lost the .46 per-gallon-produced tax credit in the beginning of 2012. Besides, the National Corn Growers Association came out against continuing to give $10 billion of direct annual payments to corn farmers because of the budget deficit and all.”
The National Corn Growers Association accepts that because the RFS mandates at least 37% of the US’ 2011-2012 corn crop has to be converted to ethanol. This drives the current price of corn to three times what it was before the RFS.
The artificial price of corn is so high that the tax credits and direct payments are chump change.
The ethanol being produced isn’t really being used either. 10% of ethanol plants stopped production in 2012. This change is partly due to (1) drought that made commodity prices too high to produce ethanol and (2) a decrease in demand for gasoline. The demand for barrels of oil a day has gone down by 1 million since 2007, and the trend is expected to continue due to the mandate that average fuel economy for all vehicles must double by 2025.
As such, taxpayers are footing the bill, paying for barrels of unused ethanol to lay around because there isn’t enough gasoline with which to mix it.
The Corn Behemoth continues to be fed despite its disruptive footsteps in the free market.
The Corn Behemoth will be addressed sort of-kind of-not really in an upcoming proposal for updating the Farm Bill. Farms take out insurance to protect themselves against potential losses like declining prices and bad harvests. As it stands, the federal government already pays two-thirds of these insurance premiums. Democrats like Michigan’s Debbie Stabenow now claim that this paying-for-insurance program “would save taxpayers money [by] swapping $3 billion in new payments in exchange for eliminating $4 billion in direct payments.” And the corn lobby hasn’t raised a ruckus about this suggestion because it doesn’t actually affect the corn industry whatsoever.
Essentially Congress is gesturing toward the Corn Behemoth while playing a sleight-of-hand magic trick. Trigger words like “direct payments” and “tax credits” are meant to placate the average citizen, making him or her think that the government is placing blows on the Corn Behemoth.
In reality, these particular measures do not reduce the amount of the subsidies at all. The federal government will continue to use taxpayer money to flood the market with unneeded corn that doesn’t get used in gasoline and drives up the prices of other commodities.
The federal government’s passionate relationship with The Corn Behemoth doesn’t benefit consumers. It benefits only the corn industry. The Corn Behemoth is fed more funds, and politicians get more favors from lobbyists and donations from the interests they represent. It is another example of big business getting into bed with big government.
There is no tragic conjunction of the Great Depression and the Dust Bowl. In the United States, food is always in demand, is always in supply and it is not a niche product. Barriers to entry are too high to allow for new small family farms. Natural competition is deluded.
And taxpayers continue to give their money to the government so that they can be hornswaggled at the grocery store.