Sunday, December 26, 2004

Farm Subsidies

Reading the New York Times this morning, I found myself immersed in this article, "Big Farms Reap Two Harvests With Subsidies a Bumper Crop." The main topic in the article is well expressed in this paragraph:

For despite the fact that farm income has doubled in two years, federal subsidies have also gone up nearly 40 percent over the same period - projected at $15.7 billion this year, and $130 billion over the last nine years. And that bounty is drawing fire from people who say that at this moment of farm prosperity, the nation's subsidy system has never made less sense.
Yes, farm subsidies. How could I have blogged this long without going crazy about farm subsidies? I don't see any economic rationale for them, and the statements above (and supporting information in the article) suggest that they fail in their main purpose of providing the most income in the years when farm income is lowest. (It seems like they focus too much on price and not enough on price x quantity, as a first pass.) Certainly the obligatory "get the farmers' point of view" quotes in the article are not very reassuring:
Farm groups say the subsidies provide for a stable food supply, and ensure that major sectors of American agriculture will be competitive on the global market.

"When people ask me what the justification for this is, I point out that in nearly every country in the world you find government involved in the food supply," said Bob Young, an economist at the American Farm Bureau Federation, the powerful trade group for major agricultural producers.
This is standard interest-group pandering. Eventually, all farm subsidies ought to go, but I don't know enough about agrarian America to know what that would do to families, livelihoods, and communities in the short run. I'm open to suggestion as to how these subsidies should be unwound and over what horizon that should happen.

The reporter (Timothy Egan) clearly has a view that the subsidy system is not adequately helping small and medium-sized farms. He even marshals bad statistics to support his case. Consider the next paragraph:
But because nearly 70 percent of the subsidies go to the top 10 percent of agricultural producers, the recent prosperity is not seen or felt among many small to medium-size growers who keep the struggling counties of the Great Plains alive.
We naturally would want to know how much of the production that top 10 percent accounts for. If it is about 70 percent, then we would figure that there is probably nothing perverse about the way the subsidies are being doled out. Several paragraphs later, we accidentally get this piece of information:
Farm production has doubled over the last 50 years, while the number of farms has fallen by two-thirds. Economists say about 150,000 of America's 2.1 million farms produce 70 percent of the major food crops. But only certain crops - wheat, corn, cotton, soybeans and sunflowers among them - qualify for subsidies.
So if we have 2.1 million farms, the top 10 percent would be 210,000. But it only takes 150,000 of them to get to the 70 percent of production (assuming these "major food crops" are analogous to the "agricultural producers" above). So this means that even though the top 10 percent produce more than 70 percent of the crops, they only get 70 percent of the subsidies. I don't believe that the article provides any evidence that the subsidies are distributed in accord with anything other than total production. It may be true--but the article hasn't shown it.

Bad NYT. Go get some fact-checkers and a professional research staff. Help your reporters to do a better job.

But the last sentence of that paragraph is the one that surprised me. I guess I should have known this all along, but only a few crops get subsidies. And, in particular, a few paragraphs earlier in the story, we find:
The subsidies have also drawn criticism from farmers who grow fruits, vegetables and nuts - nearly half of American agriculture - but have nothing like the elaborate safety net in place for corn, cattle, wheat and hog producers.
We are a nation with rising obesity rates, and we decide to keep in place extensive subsidies for wheat, corn, beef, and bacon, but not for fruits and vegetables. Now this looks like a government program. It provides little insurance, seems to reward patronage rather than need, and appears to be at odds with sensible nutritional advice.

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Adam O'Neill said...

I'm not sure that I understand your criticism. Egan's point is to question the widely held perception that farm subsidies accrue to the "small to medium-size growers who keep the struggling counties of the Great Plains alive" by mustering statistics that show that most subsidies accrue to a small group of large corporate farms. Your comments seem to suggest that this would be perfectly reasonable if the "subsidies are distributed in accord with ... total production." How does this make Egan's statistics any less correct? More importantly, why would this make these policies any more defensible?

Andrew Samwick said...

Egan is putting together several statements that strike me as inconsistent. He says that prosperity has returned recently, but not to the small/medium farms. He tries to draw a link between the location of that recent prosperity in large farms and farm subsidies with a statistic on the amount of the total subsidies awarded to the largest producers. Obviously, the distribution across farms is quite skewed. However, the later statistic shows that the largest producers appear to be receiving less of the aggregate subsidy per unit of production. That's the inconsistency.

As to the broader issues, we should be looking for ways to unwind this system over some reasonable horizon.