Unintended Consequences of Farm Subsidies

Every time the state interferes with the market they create unintended consequences. This year’s weather can be summed up as hot and dry, which isn’t ideal for growing crops. Needless to say that bitch Mother Nature has greatly reduced the yields on foodstuff and that is leading to increasing food prices:

The price of many food products could rise later this year as much of the country is hit with the worst drought in a generation. Wholesale corn prices shot up nearly 5 percent yesterday, and soybean prices are also heading higher. Crop losses will be a blow to America’s rural economy and cut farm exports. The US Agriculture Department slashed its estimate of this fall’s corn crop by 12 percent – compared with last month’s forecast. Officials say 38 percent of the corn crop is in poor condition because of the drought. A shortage of corn and soybeans is raising concerns about global food shortages and inflation. That said, it would be easy to overstate the impact on the national economy and American consumers, especially if the weather improves soon. It may take months for some food and meat costs to rise in supermarkets. According to a government estimate, cereals and grains accounts for just 2 percent of the US consumer price index.

Nobody should be surprised by this, less supply combined with steady or increasing demand has a tendency to lead to higher prices. What does this have to do with government interference in free markets? Consider a free market in foodstuff for a moment. As food prices continue to fall producers are likely hold onto the food they’ve produced until prices increase sufficiently. Effectively a surplus is created with the intention of selling it at higher prices at a later time.

This is where state interference in the agriculture market comes into play. Through various agricultural subsidies the state has discouraged farmers from creating a surplus of food, instead they are paying farmers to destroy surpluses [PDF]:

In 1936 the U.S. Supreme Court ruled that the federal government had no authority to administer land-idling acreage controls under New Deal farm legislation, on the Constitutional grounds “that powers not granted are prohibited. None to regulate agricultural production is given, and therefore legislation by Congress for that purpose is forbidden.” (U.S. Supreme Court 1936). Subsequently, the Court’s alleged respect for precedent was not extended to this decision, and many later production control measures have passed Constitutional muster.4 At the time, the result of the Court’s decision was a merger of prior concerns about conservation with measures to remove acreage from commodity production. This was done in the Soil Conservation and Domestic Allotment Act of 1936 principally by defining “soil-depleting” crops (the main basic commodities) and “soil-conserving” crops (grasses and legumes), and paying farmers to substitute the latter for the former.

Instead of having surpluses of food waiting to be sold during times of low yield (which are also times of higher prices) farmers have been paid to destroy surplus crops meaning a low yield will necessarily create an actual shortage. Once again an unintended consequence emerges from from state meddling in economic affairs. While the short term gain to farmers was notable the severity of hazard being placed on the rest of society, namely a possible food shortage, has the potential of being extremely damaging.

4 thoughts on “Unintended Consequences of Farm Subsidies”

  1. And the real kicker is that we are the world’s breadbasket when it comes to all things grain, except for rice, we export many times the amount of corn and wheat than we consume but now we are in the position of triggering a potential global depression because our weather was a bit lousy this year. In fact the weather was so bad my mother and her business partner had to sell all of their cattle for lack of ability to feed them with the drought in Missouri as bad as it has become.

    1. That is an issue with centralization. Too many countries decided it was OK to rely on the United States for a majority of their foodstuff and now are facing the real possibility of having food shortages because this country had a very bad year. At least those “crazy preppers” with their gardens and canned food will be sitting decently well.

  2. Yeah everyone thinks Mormons are crazy for having a year’s supply of food for their family at all times but its really one of the smartest things I have seen in a religion.

  3. I bet the high prices will be blamed on speculators. When, ironically, the farmer-speculator with his surplus for higher prices would have actually helped.

    It’s the same thing that happens with gasoline. Speculators working to stockpile on grounds that the price will go up are demonized as somehow *causing* the higher prices.

    And the public will gobble up this economic nonsense because the majority are fools.

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