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The illogic of today's farm subsidies

The following is a lengthy quote from a New York Times Magazine article by Michael Pollan on how the abundance of food in the United States is contributing to the obesity problem. Along the way, Pollan explains a key factor in today’s farm subsidy debate: how a sensible program to protect family farmers turned into a blatant give-away, uncoupled from any sensible policy, under the direction of Nixon’s Secretary of Agriculture, Earl Butz. The rest of the article is worth reading, too, but anyone who ever wonders about farm subsidies should read and bookmark this part (the original, not this page). Registration may be required, so feel free to visit bugmenot.com if that’s not your thing.

The underlying problem is agricultural overproduction, and that problem (while it understandably never receives quite as much attention as underproduction) is almost as old as agriculture itself. Even in the Old Testament, there’s talk about how to deal not only with the lean times but also with the fat: the Bible advises creation of a grain reserve to smooth out the swings of the market in food. The nature of farming has always made it difficult to synchronize supply and demand. For one thing, there are the vagaries of nature: farmers may decide how many acres they will plant, but precisely how much food they produce in any year is beyond their control.

The rules of classical economics just don’t seem to operate very well on the farm. When prices fall, for example, it would make sense for farmers to cut back on production, shrinking the supply of food to drive up its price. But in reality, farmers do precisely the opposite, planting and harvesting more food to keep their total income from falling, a practice that of course depresses prices even further. What’s rational for the individual farmer is disastrous for farmers as a group. Add to this logic the constant stream of improvements in agricultural technology (mechanization, hybrid seed, agrochemicals and now genetically modified crops—innovations all eagerly seized on by farmers hoping to stay one step ahead of falling prices by boosting yield), and you have a sure-fire recipe for overproduction—another word for way too much food.

All this would be bad enough if the government weren’t doing its best to make matters even worse, by recklessly encouraging farmers to produce even more unneeded food. Absurdly, while one hand of the federal government is campaigning against the epidemic of obesity, the other hand is actually subsidizing it, by writing farmers a check for every bushel of corn they can grow. We have been hearing a lot lately about how our agricultural policy is undermining our foreign-policy goals, forcing third-world farmers to compete against a flood tide of cheap American grain. Well, those same policies are also undermining our public-health goals by loosing a tide of cheap calories at home.

While it is true that our farm policies are making a bad situation worse, adding mightily to the great mountain of grain, this hasn’t always been the case with government support of farmers, and needn’t be the case even now. For not all support programs are created equal, a fact that has been conveniently overlooked in the new free-market campaign to eliminate them.

In fact, farm programs in America were originally created as a way to shrink the great mountain of grain, and for many years they helped to do just that. The Roosevelt administration established the nation’s first program of farm support during the Depression, though not, as many people seem to think, to feed a hungry nation. Then, as now, the problem was too much food, not too little; New Deal farm policy was designed to help farmers reeling from a farm depression caused by what usually causes a farm depression: collapsing prices due to overproduction. In Churdan, Iowa, recently, a corn farmer named George Naylor told me about the winter day in 1933 his father brought a load of corn to the grain elevator, where “the price had been 10 cents a bushel the day before,” and was told that suddenly, “the elevator wasn’t buying at any price.” The price of corn had fallen to zero.

New Deal farm policy, quite unlike our own, set out to solve the problem of overproduction. It established a system of price supports, backed by a grain reserve, that worked to keep surplus grain off the market, thereby breaking the vicious cycle in which farmers have to produce more every year to stay even.

It is worth recalling how this system worked, since it suggests one possible path out of the current subsidy morass. Basically, the federal government set and supported a target price (based on the actual cost of production) for storable commodities like corn. When the market price dropped below the target, a farmer was given an option: rather than sell his harvest at the low price, he could take out what was called a “nonrecourse loan,” using his corn as collateral, for the full value of his crop. The farmer then stored his corn until the market improved, at which point he sold it and used the proceeds to repay the loan. If the market failed to improve that year, the farmer could discharge his debt simply by handing his corn over to the government, which would add it to something called, rather quaintly, the “ever-normal granary.” This was a grain reserve managed by the U.S.D.A., which would sell from it whenever prices spiked (during a bad harvest, say), thereby smoothing out the vicissitudes of the market and keeping the cost of food more or less steady—or “ever normal.”

This wasn’t a perfect system by any means, but it did keep cheap grain from flooding the market and by doing so supported the prices farmers received. And it did this at a remarkably small cost to the government, since most of the loans were repaid. Even when they weren’t, and the government was left holding the bag (i.e., all those bushels of collateral grain), the U.S.D.A. was eventually able to unload it, and often did so at a profit. The program actually made money in good years. Compare that with the current subsidy regime, which costs American taxpayers about $19 billion a year and does virtually nothing to control production.

So why did we ever abandon this comparatively sane sort of farm policy? Politics, in a word. The shift from an agricultural-support system designed to discourage overproduction to one that encourages it dates to the early 1970’s—to the last time food prices in America climbed high enough to generate significant political heat. That happened after news of Nixon’s 1972 grain deal with the Soviet Union broke, a disclosure that coincided with a spell of bad weather in the farm belt. Commodity prices soared, and before long so did supermarket prices for meat, milk, bread and other staple foods tied to the cost of grain. Angry consumers took to the streets to protest food prices and staged a nationwide meat boycott to protest the high cost of hamburger, that American birthright. Recognizing the political peril, Nixon ordered his secretary of agriculture, Earl (Rusty) Butz, to do whatever was necessary to drive down the price of food.

Butz implored America’s farmers to plant their fields “fence row to fence row” and set about dismantling 40 years of farm policy designed to prevent overproduction. He shuttered the ever-normal granary, dropped the target price for grain and inaugurated a new subsidy system, which eventually replaced nonrecourse loans with direct payments to farmers. The distinction may sound technical, but in effect it was revolutionary. For instead of lending farmers money so they could keep their grain off the market, the government offered to simply cut them a check, freeing them to dump their harvests on the market no matter what the price.

The new system achieved exactly what it was intended to: the price of food hasn’t been a political problem for the government since the Nixon era. Commodity prices have steadily declined, and in the perverse logic of agricultural economics, production has increased, as farmers struggle to stay solvent. As you can imagine, the shift from supporting agricultural prices to subsidizing much lower prices has been a boon to agribusiness companies because it slashes the cost of their raw materials. That’s why Big Food, working with the farm-state Congressional delegations it lavishly supports, consistently lobbies to maintain a farm policy geared to high production and cheap grain.

I also admire this section for correctly using the word “loosing” (in paragraph 3 of the quote), and not as the familiar Internet typo for “losing.”

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