High Food Prices: Another Reason To Get Rid Of Farm Handouts

Yesterday’s Wall Street Journal article highlights another reason why farm subsidies need to be put to rest.

Land prices are way up and so are bank deposits, as high corn and soybean prices mean local farmers are making the most money in their lives. At Sloan Implement, which sells John Deere tractors, “This could be our best year ever,” says chief executive Tom Sloan.

CEI has blogged about the archaic subsidy program before. With the budget crisis looming, Congress had a reason to cut the tax squandering program. It looks like the current economic outlook for the farming industry simply adds fuel to the fire.

What’s the reason for agriculture’s new found fortune?

The global grain markets shifted in 2006 when Washington began to require that the oil industry mix billions of gallons of corn-derived ethanol with gasoline annually. Around the same time, rising numbers of middle-class consumers in emerging economies such as China began seeking more grain-fed meat and milk, boosting demand for soybeans, pork and, most recently, corn from the U.S.

Ignoring the ethanol bit, this is another perfect reason support free trade. The United States may have a comparative advantage over many nations in producing certain farm goods. Expanding free trade allows poorer nations to receive these goods at a cheaper price, thus decreasing the likelihood of starvation, and our farmers, in certain sectors, benefit from the increase in demand. Both parties win. If we continue to open markets, this wonderful process could continue for quite some time.

Yes, the price of food will go down as profits incentivize farmers around the globe to produce more and discover more efficient farming technology. But, that doesn’t mean we should continue subsidizing our farmers. The subsidy program started 80 years ago. Its intent was to “tackle rural poverty during the Depression era, when a quarter of Americans lived on farms. Today, less than 1% of the population is in farming.” Given that less than 1 percent of the population farms, it’s difficult to understand why we give out billions in subsidies.

“But, if food prices fall and farm subsidies don’t exist, then many farmers will go out of business.” No one wants to see a family go out of business, but maybe the U.S. shouldn’t be subsidizing so many people in the first place. Maybe the U.S. only needs a few people to produce all the food that we need and want.

Efficiency, by definition, means that we produce more with less. We get more bang for our buck. That’s not a bad thing. It allows us to spend less time and energy producing one good and more time and energy on producing another good which wouldn’t exist without economic efficiency.

Let’s recap. Food prices are at an all time high. Many U.S. farmers will reap the benefits from high prices and will continue to do so in the near future as the United States expands free trade. Farm subsidy programs are immensely wasteful programs that benefit an extremely small portion of the U.S. population and are not needed. The U.S. is nearing a budget crisis and Congress needs to cut programs to reduce the deficit. Let’s hope these reasons are enough to convince Congress to end the charade.