According to the Small Business Administration, 50 percent of all new businesses fail within the first five years. There are many reasons why so many businesses fail, such as an insufficient demand for the product or service, an inability to obtain capital, or production inefficiencies. Regardless of the details, businesses fail when they are unable to generate a sufficient profit for the owners.
But what if most of the risk associated with a startup were removed? What if competition was reduced or eliminated? What if there was a guaranteed market for a product? What if insurance was subsidized and these was an abundance of loan programs? If you are an American farmer, all of this and more is provided by the federal government’s farm programs. While these programs enjoy support from across the political spectrum, they provide unearned benefits, stifle innovation, and distort the marketplace.
For example, one program provides cash payments to the owners of land that was once used to grow rice. In 2006, The Washington Post reported that government farm subsidy programs paid more than $1.3 billion to non-farmers in a six year period. Some developers even advertise the fact that home owners can receive subsidies for their lawns.
In addition to subsidy programs, the United States Department of Agriculture (USDA) also provides marketing support, subsidizes crop insurance, and conducts research for farmers. These programs and services cost taxpayers up to $35 billion each year. But this is only a part of the cost government intervention in agriculture imposes on Americans.
As one example, government dairy programs cost consumers at least $1.5 billion per year, according to the group Citizens Against Government Waste. The same group reports that a study by the General Accounting Office “demonstrated that the sugar program costs consumers at least $1.9 billion annually in higher costs for their personal purchases of sugar and products containing sugar.” In total, America’s farm policies cost consumers more than $12 billion per year in higher prices.
If these programs have such harmful consequences to consumers and taxpayers, why do they continue? The answer can be found in one of Washington’s most popular activities: lobbying.
The agricultural lobby is one of the most powerful in Washington. For example, in 2008 agricultural interests donated $10.4 million to federal candidates. As another example, when dairy interests wanted passage of a bill that would stifle competition, they spent more $5 million on lobbying efforts over an eighteen month period. In exchange for campaign donations and other perks, the agricultural industry is rewarded with subsidies, import restrictions, and other unearned benefits. Interestingly, this mutual back scratching includes Congressmen representing districts with no obvious tie to agriculture. Urban representatives often support farm subsidies in exchange for programs such as food stamps. In other words, government intervention in agriculture (and indeed any industry) not only costs taxpayers and consumers, it also leads to another common complaint about politics today—the influence of money on elections and government policy.
Not surprisingly, the government’s farm policies are often contradictory and frequently accomplish the exact opposite of their stated intentions. Price supports guarantee farmers a fixed price for their crops, even when prices are low. This encourages farmers to plant more of the subsidized crops, resulting in a glut and lower prices. In turn, this results in higher government payments to the farmers. As one example, when the 1996 farm bill increased the subsidy for soybeans, farmers planted an additional eight million acres of soybeans, and prices subsequently declined 33 percent over the next two years. At the same time, other farmers are being paid to take forty million acres of farmland out of production, as part of the Conservation Reserve Program. On one hand, the government is enacting policies that encourage additional production, while on the other hand it is enacting policies that discourage production. And taxpayers get to the foot the bill no matter the program.
A number of arguments are offered in defense of these programs: Subsidies alleviate farmer poverty by raising crop prices; they help struggling family farmers; they help America maintain a cheap food supply. But the facts belie these claims.
As we have already seen, some programs encourage the planting of additional acres, resulting in depressed prices. In 2006, the USDA reported that the average farm household income was $81,420, which was 29 percent more than the national average. Further, the average farm household had a net worth of $838,875, which was more than eight times the national average. In general, farmers are doing much better than the taxpayers who are forced to subsidize them. However, subsidies seldom find their way to the family farmers they are allegedly intended to benefit. Because subsidies are paid on the basis of acres planted, most subsidies are paid to large agribusinesses, who often use that money to buy out smaller family farms. The Heritage Foundation reports, “Since 1945, the number of farms has dropped by two-thirds, and the average farm size has more than doubled to 441 acres.” These subsidies are also driving up the cost of farmland, making it more difficult for young adults to enter the industry. Finally, as we have already seen, government meddling costs consumers more than $12 billion each year because of the higher costs resulting from farm policies and price supports. How do higher costs create a cheap food supply?
Few claim that these programs are practical, but some argue that we shouldn’t end farm subsidies. Instead, farm subsidies should be used to promote a “proper” diet. Columnist Mark Bittman proposes that “we use this money to steer our agriculture—and our health—in the right direction.” Rather than let the market decide what crops farmers will grow, Bittman wants the government to “invest” in healthier crops, just as the government “invested” in U.S. Synfuels and Solyndra. Combined, these two companies wasted more than $1.7 billion of taxpayer money without producing any results. The same will happen with government “investments” in agriculture. As is common, the “solution” to one intervention is further intervention.
Consider what would occur if all government intervention in agriculture were abolished. Taxpayers would not be forced to subsidize agribusinesses and celebrity “hobby farmers.” (As one example, billionaire Ted Turner has received more than $200,000 in subsidies.) Consumers would not be forced to pay artificially inflated prices. Foreign farmers, who often produce products such as sugar more efficiently than American farmers, would have expanded markets. And the incentive for agricultural interests to donate huge sums of money to Congressmen would be eliminated. What would this mean for farmers? Would they be driven from business if they had to operate in a free market? Would Americans suffer from food shortages if the government removed itself from farm production?
Fortunately, we don’t have to engage in speculation. We can look at numerous examples to see what happens when the market, not politicians, drives production and prices. For example, fruits, vegetables, livestock, and poultry—which constitute two-thirds of all farm production—are not a part of the government’s subsidy programs, yet Americans do not suffer from a shortage of these products. More compelling examples can be found in New Zealand and Australia.
Like most developed nations, both New Zealand and Australia once provided substantial subsidies for farmers. In 1984, New Zealand sheep and beef farmers received nearly 40 percent of their income from government subsidies. By 1987, the New Zealand government had virtually eliminated subsidies, and today subsidies account for 1 percent of farmer income. Australian farmers now receive only 3.2 percent of their income from subsidies. In both nations, few farmers went out of business when subsidies were reduced. Instead, they did what rational business owners do—they cut spending, became more efficient, and diversified. Where wheat, beef, and wool dominated Australian agricultural exports in the 1980s, today the nation exports products such as cotton, wine, and rice.
As New Zealand and Australia demonstrate, along with American farmers of fruits, vegetables, livestock, and poultry, farmers can survive, and even thrive, without government subsidies. It is time to let the market determine what our farmers will grow, not the politicians and bureaucrats in Washington. It is time to get government out of agriculture entirely. Everyone—consumers, taxpayers, and farmers—will benefit.
1. Dan Morgan, Sarah Cohen, and Gilbert M. Gaul, “Dairy Industry Crushed Innovator Who Bested Price-Control System,” The Washington Post, December 10, 2006, accessed November 19, 2011, http://www.washingtonpost.com/wp-dyn/content/article/2006/12/09/AR2006120900925.html.[return]
2. Chris Edwards, “Agricultural Subsidies,” Cato Institute, June 2009, accessed November 19, 2011, http://www.downsizinggovernment.org/agriculture/subsidies.[return]
3. Morgan, “Dairy Industry Crushed Innovator.”[return]
4. “Sugar Program,” Citizens Against Government Waste, accessed November 23, 2011, http://membership.cagw.org/site/PageServer?pagename=policy_Sugar_Subsidies.[return]
5. Brian Riedl, “How Farm Subsidies Harm Taxpayers, Consumers, and Farmers, Too,” Heritage Foundation, June 20, 2007, p. 12, accessed November 23, 2011, http://www.heritage.org/research/reports/2007/06/how-farm-subsidies-harm-taxpayers-consumers-and-farmers-too#_ftnref36.[return]
6. “Agricultural Services & Products: Background,” OpenSecrets.org, accessed November 23, 2011, http://www.opensecrets.org/industries/background.php?ind=A07++.[return]
7. Morgan, “Dairy Industry Crushed Innovator.”[return]
8. Edwards, “Agricultural Subsidies.”[return]
9. Riedl, “How Farm Subsidies Harm Taxpayers,” p. 5.[return]
10. Ibid., p. 6.[return]
11. Ibid., p. 2.[return]
12. Ibid., p. 12.[return]
13. Mark Bittman, “Don’t End Agricultural Subsidies, Fix Them,” The New York Times, March 1, 2011, accessed November 24, 2011, http://opinionator.blogs.nytimes.com/2011/03/01/dont-end-agricultural-subsidies-fix-them/.[return]
14. Sara Fitzgerald, “End Farm Subsidies,” The Heritage Foundation, February 20, 2003, accessed November 24, 2011, http://www.heritage.org/research/commentary/2003/02/end-farm-subsidies.[return]