Food Subsidies 101

Why is it You Can Buy a Burger For a Dollar When You Can’t Buy [insert fruit/vegetable variety of choice] For the Same or Less? Unshared Bounty is here to give you the basic breakdown to this extremely complex question.

This blog aims to give a brief history and overview of the Agricultural Act of 2014, the food subsidy programs within the Act, and how the Act effects current food costs. To first understand food cost, it is necessary to understand the Agricultural Act of 2014 (commonly known as the Farm Bill), which sets the policy for our food system.

A more apt name for this legislation would be the “Food Bill.” The statute is much more than a bill regulating farms; it touches every aspect of our food system. Not only does it set the policies for horticulture (including farmers markets and organic produce), it also sets the rules for marketing crops, conserving land, how our commodities are traded globally, how the nation provides nutrition assistance programs, rural development, forestry, energy, crop insurance, and how livestock are bread, fed, and cared for.

Although the bill has many beneficial aspects, it also creates heavy subsidies for “commodity crops,” crops that are traded in the market, that are subsidized by the barrel. From 2005 to 2014, five crops — corn, cotton, wheat, rice, and soybeans — accounted for roughly 90% of federal subsidy payments.[1]

What is a Subsidy? It’s money paid, (in this case, by the government) to keep the price of a product low or to help a business or organization to continue to function. Farm subsidies pay farmers to produce commodity crops.

Farm subsidies have a lengthy history, starting with the increase in demand for American crops during World War I when European agriculture was significantly disrupted. American farmers stepped up production to meet Europe’s demand, but when the war ended, demand dropped and crop prices fell. Prices continued to fall during the Great Depression, and farmers struggled. The very first farm bill – The Agricultural Adjustment Act of 1933 – passed as part of President Roosevelt’s New Deal, and launched a program to raise agricultural prices by paying farmers to reduce crop production. It also made price support mandatory for “designated ‘basic’ (storable) commodities: corn, wheat, and cotton.”[2] These crops were considered “basic” because of their multi-faceted uses and ability to be stored in large quantities.

Through the 2014 Farm Bill, payments for commodity crops have been adjusted and contain two major subsidy programs: (1) Price Loss Coverage (“PLC”), and (2) Agriculture Rick Coverage (“ARC”). Under PLC, farm payments are made to commodity growers when the price for a covered crop declines below its “reference price” (set by statute). Under ARC, payments are made to cover a portion of a farmer’s out-of-pocket loss when crop revenues decline.

 

So Why is it Important to Know Commodity Crops are Subsidized? It all comes down to the many purposes of CORN.

 

What’s the Deal with Corn? Not only is corn frequently used as feed for livestock, it can be transformed into HIGH FRUCTOSE CORN SYRUP (“HFCS”), the common and highly controversial sweetener.

Salt, fat, sugar are genetically hardwired into human tastes – these things are very rare in nature but now available 24/7 in incredible quantities thanks to the development of high fructose corn syrup. These days, HFCS can be found everywhere on supermarket shelves.

 

Ingredients in A Stereotypical Fast Food Meal:

Burger

 

We have all heard the catchy jingle…. “Two all beef patties, special sauce, lettuce, cheese, pickles, onions – on a sesame seed bun!” …but have you ever wondered what else lies behind one of America’s favorite burgers? An in-depth look at the Big Mac reveals not 7, but over 90 ingredients of which HFCS plays a major role.

 

 

But, How Does this Translate to Cheaper Product? Not only is it cheaper to produce larger cattle on a corn-fed diet (and thus more meat to sell), it is cheaper to sweeten a large variety of foods with HFCS, and losses and profits are protected through government subsidies thus making corn an attractive commodity to produce. Corporate growers are able to produce large quantities of corn and sell it to a variety of buyers who, in turn, can process it into HFCS. The sweetener can then be used to produce a plethora of food items we see on grocery store shelves.

In order to be profitable, growers must sell their crop for more than it costs to produce. For example, a Big Mac (made with subsidized ingredients) can be produced for cents on the dollar and turn around with an average sale price of $4.79, whereas a 3-pound bag of organic Fuji apples retails for $4.99. Corporate entities producing “junk food” do not usually have to worry about costs such as land preparation, irrigation, pest management, fertilizing, harvesting, and shipping that fruit and vegetable growers do.

Additionally, fruits and vegetables (known as “Specialty Crops”), do NOT receive the direct benefit from the subsidy programs that the commodity crop producers do. In fact, fruits and vegetables are ineligible for both PLC and ARC subsidies. So, unlike corporate commodity crop growers, many local specialty crop growers have additional sources of income other than income from their specialty crop to ensure their businesses stay profitable.

Support for specialty crops is relatively recent (See the Specialty Crops Competitiveness Act of 2004), mostly indirect, and accounts for a small share of the total Farm Bill spending. Typically, specialty crop producers only receive assistance if there are natural disasters or other special circumstances. While the Secretary of Agriculture has the discretion to support prices of other commodities (e.g., fruits and vegetables) this authority has been used “cautiously and infrequently.”[3]

Overall, the reason you can buy a typical fast food burger for less than a bag of potatoes is that it is produced by a corporate entity, without additional costs (e.g. fertilizer, pest control, harvesting, etc.), using cheap subsidized ingredients. Fruit and vegetable growers, not eligible for federal subsidies, must take these additional costs into consideration when selling their products so their farms stay profitable. Therefore, “fast food” companies are able to price their products at a range that is less expensive than raw fruits and vegetables, making these “junk food” products more financially appealing to American consumers concerned with food cost.

Want more information on food equity issues? Check out our Resources page!

 


Post by Katelyn Canning – Research Fellow


 

[1] Farm Commodity Provisions in the 2014 Farm Bill, Page 2, http://nationalaglawcenter.org/wp-content/uploads/assets/crs/R43448.pdf

[2] Farm Commodity Legislation: Chronology, 1933-2002. Page 2, http://nationalaglawcenter.org/wp-content/uploads/assets/crs/96-900.pdf.

[3] What is a Farm Bill?, Page 4, http://nationalaglawcenter.org/wp-content/uploads/assets/crs/RL30956.pdf