How Agriculture Subsidies Distort Food Prices
Note: This is a revision of a previous article that was entitled “Falling Prices: Why is Food Not Part of This Trend?”. The author has made the revisions to reflect the fact that crop commodities are in fact deflating, while maintaining that agriculture subsidies did in fact play a role in pushing the prices artificially high, prior to the current correction.
Lew Rockwell posted an excellent article (“The Force Is With Us”) on the downward trend in prices we are seeing in some sectors of the economy, and why this is a good and absolutely necessary thing to be happening. As we all know, the powers-that-be at the Federal Reserve, in the federal government, and on Wall Street are trying their best to make sure that prices do not come down. In seeing falling prices as one of the big problems of “the economy”, they fail to understand that housing prices (for example) must be allowed to fall to market levels so that more people can afford to buy houses at mortgages they can afford, and so that the huge surplus of housing that won’t sell at previous prices will be able to sell. In other words, take the shackles off of the free market and allow natural forces to bring prices where they should be.
At the moment, it appears that some relief from high food prices may be on the way, as crop commodity prices are deflating (see http://www.larouchepac.com/news/2008/10/06/world-commodity-prices-deflate-u-s-farmbelt-faces-below-brea.html). It seems likely, however, given the attitude described above and the fear that appears to be rippling through the agriculture world, that the prices will not be allowed to fall for very long, as there will be much pressure upon Congress to enact more subsidies, price supports, quotas, and other forms of intervention in an attempt to “rescue” the situation, much as was done with Franklin Delano Roosevelt’s New Deal. What we are really seeing, however, is a very necessary correction from the distortions to the food markets caused by agriculture subsidies.
These programs, which were a huge part of the New Deal, and have remained a pillar of U.S. agriculture policy, have been responsible to a large degree for pushing crop commodity prices high, resulting in higher food prices for consumers. The basic strategy of the New Deal was to “prop up” the prices of agricultural goods (in other words, making them artificially high), so that farmers would be “helped” by more money from the higher prices. (Never mind that people who had very little money to spend couldn’t afford food at the artificially high prices, having instead to subsist on as little as one meal a day, with farmers meanwhile getting no income from food that wouldn’t sell). Prices supports, quotas, and subsidies for non-production (setting aside or “idling” land) aimed to make crops more scarce at a time when more food was needed at lower prices. Of the last example, the late Senator Barry Goldwater once said, “I cannot conceive of a more absurd and self-defeating policy than one which subsidizes non-production.” He was absolutely right. It is worth pointing out that most farm subsidies these days go to large, corporate operations that have come to be known as “agri-business”, as opposed to the “family farm”.
Agriculture subsidies have also had the effect of placing American farmers of certain crop commodities at an artificial disadvantage to those of other commodities, as well as to farmers of the same in other countries. For example, the sugar subsidy program, with its upward pressure on sugar prices, led the U.S. food industry to rely more heavily on corn, substituting corn syrup for sugar cane syrup, which, for example, was originally found in recipes for famous cola beverages (such as coca-cola). At the same time, imported sugar is cheaper that American-grown sugar, for the same reasons, posing a further disadvantage to U.S. sugar farmers. An interesting article (http://www.newyorker.com/archive/2006/11/27/061127ta_talk_surowiecki) in The New Yorker from about two years ago discusses in detail the role the sugar subsidy program has played in keeping U.S. sugar prices much higher (almost double, as of 2006) than those of imported sugar.
Meanwhile, the corn ethanol subsidy program, which is one of the greatest scams foisted on the American people in the name of “environmentalism”, pushed the prices of corn products used in food (again, corn syrup among them) higher, and further impacted the world markets by pushing prices of wheat higher by making wheat more scarce, because the land that could be used to grow wheat is being used instead for corn. Corn is actually harmful to land when grown for too many seasons without relief. Farmers who are not under the tempting pressures of such subsidies would instead rotate their lands seasonally for different kinds of crops, including giving the land a rest from farming when necessary. It is also known that more carbon-based fuels are consumed in the production of corn-based ethanol than would be the case without the program. It’s no wonder that more perceptive environmentalists have come to oppose not only the corn ethanol program, but also farm subsidies in general. Farm subsidies are yet another example of government intervention that is harmful to the environment and to conservation.
The existing policies of agriculture subsides make no sense whatsoever. It’s arrogant of those in government to think that they have the wisdom and the intelligence to determine, via subsidies, quotas and price supports, how much farmers ought to be growing and what the prices ought to be, and whether they should rise or fall. These are decisions that can only be properly made by the complex decisions of millions of consumers charged with feeding themselves and their families, in concert with the decisions made by farmers on how best to provide for those needs in an economical fashion. It’s time to end agriculture subsidies, once and for all, and to allow the forces of the free market to set prices and production levels for our nutritional needs. Only then can the prices be allowed to adjust to a level that more people can afford, especially in the difficult times which lie ahead. And perhaps then we can see the demise of the undue influence of the agriculture-industrial complex (“agri-business”) in its never-ending quest for corporate subsidies, and the simultaneous “rise from the ashes” of the nearly extinct family farm. And perhaps small farming operations, such as those specializing in organic farming methods, will be better able to compete without the unfair advantages of corporate farm subsidies.