WASHINGTON, Jan. 25, 2017 - A study by three former USDA agricultural economists, the first of a series by a conservative think tank, concludes that the impact of farm subsidies and related programs on food prices and consumption are “surely tiny.”
Outlined at a briefing at the American Enterprise Institute here Monday, their report concludes that commodity programs, “land retirements, market regulations, and trade policies have an array of small and offsetting impacts on farm commodity prices.”
In “Poverty, Hunger and U.S. Agricultural Policy,” authors Joseph W. Glauber, Daniel A. Sumner and Parke E. Wilde conclude that “our bottom line straightforward is that, despite occasional claims to the contrary, farm subsidy programs have little impact on food consumption, food security, or nutrition in the United States.
“Proponents of U.S. farm subsidy programs have often argued that these programs reduce poverty and food insecurity,” AEI said in introducing the paper. “However, there is little evidence to suggest that U.S. agricultural policy has effectively reduced overall food prices or improved the incomes of poor Americans.”
“This is a paper that we actually never thought we would write because we thought the issue was settled,” said Sumner, a professor at the University of California, Davis, and former assistant secretary for economics at USDA. “But a year ago we found there were still influential people, people who should know better, who seemed to claim that an important rationale for farm programs was food security. This is not so.”
Glauber, former USDA chief economist and now a senior research fellow at the International Food Policy Research Institute (IFPRI), pointed out that most farm programs have been decoupled from production “and have a very small impact or in a few cases actually raise prices. They have a very limited impact on farm prices, let alone food prices” because the farm share of retail food prices is so low. “Most of the decline in farm prices over the past 75 years can be attributed not to farm price and income support policies, but to gains in productivity” made possible by research.
Wilde, associate professor in the Friedman School of Nutrition Science and Policy at Tufts University in Boston who worked earlier at USDA’s Economic Research Service, agreed, pointing out that the farm gate cost is only 10.5 cents of every dollar spent for retail food. He also argued that existing commodity programs were not particularly helpful for the small number of farmers with poverty-level incomes or for farm workers “because the subsidies go principally to highly mechanized sectors, not to fruits and vegetables” where farm labor is concentrated.
“The whole premise is a bit of a straw man,” said the Farm Journal Foundation’s Stephanie Mercier, a former Senate Agriculture Committee chief economist, on a panel reacting to the paper. “I don’t think many people are making this argument now. Most of what I heard on the Hill was that it allows farmers to produce a low-cost food supply. If the analysis were to include agricultural research in addition to commodity support, she said, it would show that government intervention actually reduces food prices.
Scott Faber, vice president of the Environmental Working Group (EWG), said the study countered arguments by farm organizations and farm-state members of Congress that farm subsidies are the lifeblood of rural America. “This excellent paper shows that farm subsidies play little role in the economic health of rural America because subsidies overwhelmingly flow to the largest farmers. It’s hard to see how those subsidies in any way benefit rural America.” Faber said that many counties with the highest farm subsidies have the highest poverty rates.
The paper also noted that some policies 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,” it said. “Trade barriers also raise the prices of orange juice and fresh market tomatoes,” but their impact is not huge.
It also concludes that “the complex array of dairy policy on milk product prices” has “no significant effect on prices or consumption of dairy products by the poor in the United States.” After decades of price supports and trade barriers, the new risk management program “has had little impact yet.” However, marketing orders raise the price of drinking milk “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.”
The paper is the first in “a whole series of papers over the coming year to inform the farm bill discussions,” said Montana State University economics professor Vincent H. Smith, AEI visiting scholar and co-director of AEI’s agricultural policy initiative.
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