Discussion: (3 comments)
Comments are closed.
Expert analysis from AEI's Economics Policy scholars
The modern era of federal farm commodity subsidies began with the New Deal more than 80 years ago. At that time, a large fraction of American poverty was concentrated in rural and agricultural regions. Since then, subsidy programs, international trade measures, and commodity regulations have been repeatedly modified. The current version of these programs operates under the provisions of the Agriculture Act of 2014 (the 2014 farm bill).
This study investigates whether US farm subsidy policies help the food consumption and nutritional well-being of low-income Americans. We focus on the poor, because they are especially vulnerable to changes in food prices. We conclude that farm programs do not affect food prices in a direction that protects the poor, and the people whose incomes are most improved by farm policies are not the same people who are at risk of poverty and hunger. In short, the time is long past— many decades past—for thinking of US farm policies as a good way of helping the poor.
Our approach has two steps.
Effects on Prices. First, we outline the main farm commodity policies and programs and examine their impacts on food prices. It turns out that farm commodity subsidy programs in the United States have a quite limited potential to affect retail food prices. Most farm subsidy programs have at most small impacts on US production of farm commodities, even though they may increase acreage and production of some crops relative to others. For example, farm programs, including risk management programs, may encourage acreage of feed grains, oilseeds, and cotton relative to other crops. But even for these, the land retirement under the Conservation Reserve Program offsets these acreage impacts. Moreover, the more subsidized crops tend to be far removed from the food items in which they are an input. For example, soybeans are mostly either exported or used as livestock feed. Therefore, any impact on meat prices, for example, is indirect and very small. Even for livestock feed, much of the impact of subsidies would be to expand grain acres at the expense of hay or other forage acreage, so the net impact on the cost of production of beef or milk, for example, is mixed. On net, the impact of these programs on US consumer prices is tiny.
The impact of the complex array of dairy policy on milk product prices deserves special notice. After decades of propping up US milk prices, trade barriers and export subsidies now have no significant impact on retail prices. Farm price supports that raised dairy prices have also been eliminated. The new risk management program has the potential to raise milk production overall and lower US prices for dairy products slightly, but has had little impact yet. At the same time, the elaborate array of marketing regulations raises the price of milk used for beverage products and slightly depresses the price of more heavily processed dairy products and ingredients— such as cheese, milk powders, and butter—that are sold domestically or exported. Despite the complicated array of policies, the net result is no significant effect on prices or consumption of dairy products by the poor in the United States.
Some policies even raise consumer prices. For example, trade barriers raise the price of sugar and sugar-containing foods above what they would be if imports of raw or refined sugar entered the United States more freely. Trade barriers also raise the prices of orange juice and fresh market tomatoes. The impact of these trade barriers is not huge, but to the extent that they matter, they raise consumer prices for the poor rather than lower them.
Effects on Incomes. Second, we consider the extent to which those farm policies and programs affect incomes earned by poor households. Large and important US Department of Agriculture (USDA) programs provide income assistance and food-specific aid to low-income households that reduce poverty and lower the relative cost of food. These programs—Supplemental Nutrition Assistance Program (SNAP), school meals, Women, Infants and Children (WIC), and related programs—make additional resources available to enhance food consumption of the poor. Although operated by the USDA with authorization and oversight from the same committees in Congress, these programs are distinct from the farm programs.
The farm programs themselves have almost no impact on incomes of the poor in the United States. That lack of impact follows from the design and structure of the programs. The bulk of farm subsidy benefits is roughly proportional to output of bulk commodities, so these benefits are mainly distributed to large commercial-sized farms. That means that farmland owners and operators of large farms tend to receive these benefits, and few of these owners or operators are poor or food-vulnerable. We find that farm subsidies have slight impacts on incomes of the relatively few farm operators living in poverty, because they produce little farm output.
Farm employees also gain little. Impacts on wages through increased demand for labor may be slightly positive in the short run. But the most labor-intensive crops receive the smallest subsidy. Even where trade barriers raise acreage, such as in sugar or fresh market tomatoes, elastic labor supplies and farm worker immigration programs minimize any positive wage impacts. Finally, farm income and employment are small shares of the rural economy almost everywhere in the United States. Even with multiplier impacts that affect nonfarm employment and income opportunities, farm subsidies do little for rural poverty in the long run and thus have tiny impacts on food consumption and nutrition of vulnerable households. Food and income assistance are far more important than farm subsidies for poor rural households.
For completeness, we note three additional broad or indirect effects of farm commodity subsidy policy on incomes and welfare of low-income households and thereby indirectly on food consumption and nutrition patterns. First, farm subsidies affect the tax bill of the poor, but this effect is small. Second, although the environment is not a focus of this study, we note that farm subsidy programs, such as crop insurance, may increase agricultural production and facilitate production in marginal lands, with possible environmental consequences for rural populations. Third and of potentially most significance, farm subsidy policies may compete for budgetary support with federal nutrition assistance programs for the poor. Government expenditures on farm subsidies may reduce spending on food programs that benefit the poor, especially SNAP subsidies, school lunch subsidies, and other food and nutrition programs in the USDA budget.
Our bottom line is that, after reviewing many varied potential impacts and despite occasional claims to the contrary, farm subsidy programs have little impact on food consumption, food security, or nutrition of the poor in the United States.
Comments are closed.
1789 Massachusetts Avenue, NW, Washington, DC 20036
© 2017 American Enterprise Institute