Farm subsidies: even worse than you think

Matt Zeitlin takes Robert Samuelson to task, not for his opposition to farm subsidies, but for his poor argument:

Robert Samuelson should be shooting a fish in the barrel, launching to a perennial column about the the evil of agricultural subsidies. Before I criticize Samuelson, let me make something clear, I support the total elimination of all agricultural subsidies, protections, tariffs, quotas and price supports. Not only do they distort the domestic market, but they also have a fair amount of culpability for hundreds of thousands of deaths and persistent poverty in the agricultural sector of the third world. Samuelson, seemingly afraid to argue that having a domestic supply of food isn’t all that important, tries to go the other way and ensure his readers that even without agricultural price supports and subsidies, there’d still be agriculture in the US…

I’m not going to re-quote the lengthly Samuelson excerpt Matt provides. I will key in on one conclusion he (Zeitlin) arrives at, however, that I believe is erroneous (even as I wholeheartedly agree with both Zeitlin and Samuelson about the evil of agricultural subsidies):

So if the US meat sector is doing well, it is largely because we subsidize it indirectly through keeping the price of corn low. This is, however, not an argument against getting rid of subsidies.

I’m extremely skeptical of Matt’s argument here, but it’s one I hear often. I think there’s a widespread belief out there that, although farm subsidies are a harmful policy as a whole, they at least keep food cheaper. I’m pretty sure this logic isn’t sound however, and here’s why.

In a nutshell, taxpayer money flowing to farmers tends to prop prop up inefficiency. Without subsidies, some acreage devoted to corn or soybeans or whatever would indeed be allowed to go fallow (or converted to golf courses, or whatever). But, to the extent that the domestic market (read meat producers and food processors) demanded it, any decrease in US agricultural output created by the ending of government subsidies would simply be met by higher efficiency farms. In other words, farmers in Iowa or Alberta or Brazil would meet the demand, and they’d do so on an economically efficient basis (otherwise they’d not be profitable). Over the long term this would almost certainly have the effect of lowering the price of agricultural commodities, and, by logical extension, meat and other foods.

By “enabling” inefficient producers to stay in business, or to control greater market share, or simply to produce less efficiently than they would need to in a subsidy-free environment, taxpayer supported subsidies mean that animal feed and other agricultural commodities are probably more expensive, and this must surely hurt the profits of meat producers. It also means we all get hit with higher prices at the dinner table.

Farm subsidies indeed create all kinds of economic distortions, and they absolutely hammer both taxpayers and developing world farmers. Thing is, though, they’re even worse than most people think.