Why Does a Salad Cost More than a Big Mac?

In: Food Politics Source: NYT

11 Feb 2012

Originally from PCRM, but I link to the NYT commentary below. Farm subsidies are a joke. Actually, almost all subsidies are a joke, now that I think about it.

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10 Responses to Why Does a Salad Cost More than a Big Mac?

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Richard Dunks

February 11th, 2012 at 12:34 pm

I disagree that farm subsidies are a joke. I think there is a compelling interest in having a strong and vibrant agricultural sector, while ensuring market stability at the lowest price possible for staple farm products like grains and vegetables. Having a purely market-based approach to food production would likely result in huge price swings and starvation as large firms constrained production in order to increase prices. Government subsidies bridge the gap. I would like to see a more flexible and rational system put into place, supporting smaller family farms and increasing the production of organic fruits, vegetables, and grains to bring down prices, but I don’t think any modern economy can forgo its support of agriculture without courting economic and social disaster.

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Scott

February 11th, 2012 at 7:01 pm

Although there is a compelling interest in having a “strong and vibrant agricultural sector,” as well as low prices for consumers, the idea that farm subsidies accomplish this is the real joke.

Farm subsidies often take the form of price floors, where the government steps in to prevent prices of certain foods going below a certain level. Without farm subsidies, we would have lower prices for many meats, for dairy products from milk to butter, for sugar, for some vegetables like corn and for every product that uses any of those as an ingredient.

These price floors are often enforced by restricting supply– exactly what Richard is worried about if we left it to the market. Agribusiness doesn’t constrain production, the government does! Under current government policy, the United States actually pays “farmers” to sit on their land and not farm it. How does that contribute to a “strong and vibrant agricultural sector”? Agriculture would be stronger and more vibrant without the farm subsidies. (And I haven’t even gotten to the trade restrictions necessary to prop up the whole system!)

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Richard

February 12th, 2012 at 12:06 am

Farm subsidies come in many forms. For example, tariffs preventing foreign crops from competing with domestic production (as in the case with sugar) to maintain a higher price, direct payments to farmers ensuring a set price for a particular crop, direct payments for farmers not to put parcels of land into production, and the direct purchase of certain amounts of agricultural products by the government for distribution to poorer countries as food aid.

All of these are more or less intended to stabilize the price of food staples and provide farmers with a guaranteed return for their crops because price fluctuations can be disastrous for farming families who are often highly indebted. Farmers typically respond to a fall in prices by increasing yield to make up in volume what they are losing in price. This leads to overproduction and while the consumers would benefit from the collapse of food prices in the short-term, the eventual destruction of farms across the country would likely lead to underproduction in future years, or at the very least, massive consolidation in the farming sector around a handful of large firms able to produce at scale to make a profit. The irony of this would be that after the dust settles, we would find ourselves again at a place of relative price stability. This new system would be maintained in the interest of corporate profits and come at the cost of thousands, if not hundreds of thousands, of families bereft of a livelihood and whole communities decimated virtually overnight.

So the government puts a price floor in place to stabilize the market to maintain economic and social stability. Is it the best solution? I highly doubt it. As enacted, the subsidies are highly focused on only a few core staples (corn, wheat, soybeans, cotton, and rice), doing little to develop biodiversity or build stronger locally-based agricultural economies, not to mention encourage good nutrition as the graphic above so eloquently shows, but none of those who lived through the Great Depression, brought on in large part by a spasm in agricultural overproduction, would find the system of agricultural subsidies a joke. They may poke fun at its excesses, but no one who understands the role these policies play in stabilizing our economy and our society can find much to laugh at.

However, I think most would find humorous the assertion that a free and unsubsidized market would always provide the best of all possible worlds. Markets are always imperfect and can never deliver in practice what they offer in theory. I think this, above all else, has been the lesson of the past 5 years.

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Scott

February 12th, 2012 at 3:19 am

You’re right, farm subsidies do take many forms and I focused on just one. But you still don’t address the ridiculousness of paying farmers not to produce when you’re worried about underproduction!

You say overproduction will lead to price changes that will then lead to underproduction, but why won’t underproduction also lead to price changes? The market works on the downswing same as on the upswing. If allowed, the market finds the appropriate equilibrium. The problem is, we’re not allowing it to reach that equilibrium because of farm subsidies.

You worry a lot about stability, and perhaps rightly so, but there’s no reason why the stability you seek could not be achieved by the farmers themselves through private insurance. Of course, that would require the farmers to pay for their own insurance premiums, so I understand why they want the taxpayers to pay the premiums for them. But that’s not a reason why we should.

Markets are always imperfect, but if you think price floors make things better, you need to think again. There is a role, in certain situations, for the government to address certain market failures, but agricultural subsidies spectacularly fail to do so.

Moreover, the problems of the last five years for the most part originated in housing and finance. Neither of those industries is exactly a free market. Housing is dominated by Fannie and Freddie, and finance was the most heavily regulated industry in the country even before Dodd-Frank. Painting the recent economic problems as market-driven problems simply doesn’t match the facts.

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Richard

February 12th, 2012 at 11:03 am

Do you mean crop insurance programs like this one that are already a part of the farm subsidies program?
http://www.usda.gov/wps/portal/usda/usdahome?navid=CROP_LIVESTOCK_INSUR

The point I’m making is removing subsidies will lead to price decreases and consequent overproduction, leading to the crash of the agricultural sector and likely underproduction as families cease farming, exiting the industry and the farming sector reorganizes, likely with massive consolidation and far fewer individuals involved in agricultural production. Controlling the level of production is a meaningful way to manage production to ensure there aren’t boom and bust cycles in an industry vital to economic and social stability.

While your argument has the advantage of superficial clarity, you’re arguing ideological ideals against practical realities. Farmers will not take the long-term view towards profitability and risk that will ensure a balanced market (if there ever was such a thing) because they have mortgage and loan payments to make, not to mention families to feed. Crop insurance, whether privately or publicly financed, only supports the farmer at the end of production.

Farm subsidies as a whole are intended to support at the various stages of production, from accumulating capital in the form of loan guarantees, through production, to the eventual harvesting and delivering to market. Direct subsidies are a means to control the process and manage a stable farm output. There is nothing ridiculous in that idea once you understand the nuances and necessities in our food system.

At the end of the day, would you rather we pay farmers not to farm land in order to manage production, or pay the social benefits necessary to keep them and their families clothed, housed, and fed after their mass evictions from the land they once farmed courtesy of US farm subsidies?

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Walter Hawn

February 12th, 2012 at 11:25 am

The whole system was put in place, back then, to put a floor under prices in order to keep farmers on the land. When a price is below production cost, the farmer loses the land, because it’s been mortgaged in order to finance the crop. With a floor price, the farmer has a chance to at least get by. Taking land out of production helps two ways; by holding the floor price, and by keeping land available for farming and for other uses, such as wildlife forage and the like. It also encourages crop rotation, as the farmer can assign ‘non-production’ status to a different piece of land each year.

Recall that this was set up in the day of the real family farm. Since then, the corporate ‘farmer’ has learned to bend the rules in favor of largeness, not at all what was intended. The system must be reformed, as an earlier commenter said, to keep the families on the farm, but it’s not likely to happen, now that ConAgra and others like it are in the tractor seat.

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Hawke

February 13th, 2012 at 12:52 am

What federal agency was instrumental in establishing that food pyramid seen in the chart? The United States Department of Agriculture (USDA). Guess it shouldn’t be so shocking that we’re all wrongly encouraged by the federal government to have grains as such a high % of our diets.

(Wasn’t sure what I should comment on more – my dislike for any subsidies or my dislike for the carb/sugar driven diets destroying our health)

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Kelli

February 13th, 2012 at 3:30 pm

I don’t believe in paying people to NOT do their jobs. I understand that small farms may need help financially every now and then. Who doesn’t. But if they were allowed to grow the food they needed to grow it, the way it needs to be grown, than all would benefit. We would have good food at a fair price. Instead the government thinks it has to stick it’s nose in where it doesn’t belong. People need to quit depending on the government and start depending on themselves. If you refuse to work, you should not eat. If you want to eat, than find some kind of work to support yourself. There is always something that can be done. I don’t trust the government to tell me how to eat anyway.

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Sun

February 14th, 2012 at 1:38 pm

Why not have the government subsidize products the FDA recommends? Oh, that makes too much sense.

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Jan

March 29th, 2012 at 5:05 pm

without joining a discussion…just a remark about a graph -> No way that the orange part of the left graph creates 73,8 %…has to be much more!

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