Tariffs and the Corn-Soybean Industrial Complex

Recent trade policy talks and tariffs imposed by the Trump administration have had an impact on soybean prices (see: Trump's And China's Tariffs Could Do Permanent Damage To Soybean Farmers). As a result, one time payments have been proposed to help farmers but going into the next marketing year nothing is on the table.

An interesting observation is that some folks typically critical of the Trump administration have found this to be a silver lining. Their story goes something like this: Not all that is Trump is bad because hopefully he's breaking down the corn-soybean industrial complex. The trade war is overpowering the effects of the subsidies that usually keep the machine churning out the kinds of crops that are harming the planet and making us sick at the expense of more sustainable and healthy fruits and vegetables.

This isn't really new, its just another version of the same criticisms we often hear from the politically correct food activist crowd (i.e. the pro organic, pro-heirloom/nostalgic market,anti meat, anti-grain, anti-commodity anti-biotech agriculture folks)

Subsidies (primarily crop insurance) can impact marginal changes in the mix and total acres of corn and soybeans each year, but they are not a primary driver in the decision to grow those crops vs. vegetables etc. The difference has more to do with biology than policy.

Economist Jayson Lusk discusses the impacts of reducing or removing these subsidies: 

"complete removal of crop insurance subsidies to farmers would only increase the price of cereal and bakery products by 0.09% and increase the price of meat by 0.5%, and would also increase the price of fruits ad vegetables by 0.7%.  So, while these policies may be inefficient, regressive, and promote regulatory over-reach, their effects on food prices are tiny"

When we try to connect this to food consumption and the impacts on obesity, the evidence is very weak.

Alston (2010) found:

“Eliminating U.S. grain subsidies alone would lead to a small decrease in annual per capita caloric consumption—simulated to be 977 calories per adult per year, which would imply a 0.16% per year reduction in average body weight assuming 3,500 calories per pound. In contrast, removing all farm subsidies, including those provided indirectly by trade barriers, would lead to an increase in annual per capita consumption in the range of 200 to 1,900 calories—equivalent to an increase in body weight of 0.03% to 0.30%.”


The difference in prices between grains and vegetables won't change much with changes in subsidies and the impact on obesity is less than trivial. One reason commodities and grains are favored over other crops is they are more affordable, cost less to produce, and store much better. As Tamar Haspel notes in a previous Washington Post article:

"Factor in that corn delivers 15 million calories per acre to broccoli’s 2-ish million, and the cost to grow broccoli (25 cents per 100 calories) is 50 times larger than corn (half a cent per hundred calories). And that’s just the difference on the farm. After harvest, that broccoli needs to be refrigerated and transported to where it’s going before it spoils. Broccoli has nutrients that corn doesn’t, of course, so it’s a good thing that we eat some. But an all-vegetable, or mostly vegetable, diet is prohibitively expensive for most people"

At the end of the day, labeling the complex network of producers, scientists, retailers, merchandizers, processors, and traders involved in feeding a hungry global population as the 'corn-soybean industrial complex' may have dramatic appeal. But the biology and economics involved tell another story.

References:

Choices. 3rd Quarter 2010 | 25(3)
FARM POLICY AND OBESITY IN THE UNITED STATES
Julian M. Alston, Bradley J. Rickard, and Abigail M. Okrent
JEL Classifications: I18, Q18

Are Soda Taxes Effective

Over at RealClearAgriculture I have been blogging about food subsidies and soda taxes.

Research from the American Journal of Clinical Nutrition finds no link to obesity and soft drink consumption.

"We showed no association between sugar-sweetened
beverage consumption, juice consumption, and adolescent weight
gain over a 5-y period. A direct association between diet beverages
and weight gain appeared to be explained by dieting practices.
Adolescents who consumed little or no white milk gained significantly
more weight than their peers who consumed white milk. Future
research that examines beverage habits and weight among adolescents
should address portion sizes, adolescent maturation, and dieting behaviors."

This corroborates previous findings from the journal Nutrition:

"Our analysis shows no evidence for an association between SSB consumption at age 5 or 7 y and fat mass at age 9 y in this cohort of British children"

A recent blog post (link) gets close to accurately reporting the issue of high fructose corn syrup- a sweetener chemically identical to table sugar found in soft drinks:

"Fructose and high-fructose corn syrup aren't the same. It appears that the writer, Lois Rogers, conflated the two and jumped to all kinds of incorrect conclusions. For example, that the research had anything at all to do with "the obesity epidemic." It didn't."

"The environmental site Grist tends to see everything through an ideological lens, and so is always on the hunt for evidence that high-fructose corn syrup is somehow more harmful than common sugar"

But then the article starts to get off track in stating:

"It is cheap (high fructose corn syrup) in large part because of farm subsidies. As a result, it is ubiquitous and is making a lot of people fat, diabetic, and prone to heart disease."

Research taking the claim of a connection between obesity and farm policy in a more direct fashion can be found here( from UC Davis).

"'The culprit here is not corn subsidies; rather,it is sugar policy that has restricted imports, driven up the U.S. price of sugar, and encouraged the replacement of sugar with alternative caloric sweeteners...Given that consumers generally show limited responses to retail food price changes, eliminating the corn subsidy would reduce corn-based food consumption by at most 0.2 percent.""

Similarly, this weak response of consumers to food prices undermines policies that advocate taxing soft drinks to reduce consumption and obesity. Research ( from the Mercatus Center at George Mason University) indicates that the taxes required to have any real affect on obesity would be in the 1200 percent range, and even if taxes eliminated ( in this case soda) consumption, the impact on obesity would be very small. The study concludes that "the sensitivity of individuals to changes in relative food prices is not sufficient to make “fat taxes” a viable tool to lower obesity."

These campaigns are nothing more than emotional appeals designed to solicit support for new taxes and regulations that ultimately undermine the agriculture industry and family farms.

References:

Media Gets Stuck in High-Fructose Corn Syrup
Dan MItchell
Daily Bread, The Business of Food Blog
The Big Money by Slate

Am J Clin Nutr doi: 10.3945/ajcn.2009.27573
Adolescent beverage habits and changes in weight over time:
findings from Project EAT1–3
Michelle S Vanselow, Mark A Pereira, Dianne Neumark-Sztainer, and Susan K Raatz

Nutrition July-August 2007, Volume 23, Issues 7-8, Pages 557-563
"Is sugar-sweetened beverage consumption associated with increased fatness in children?"

Taxing Sins: Are Excise Taxes Efficient
The Mercatus Center
George Mason University

Farm Subsidies and Obesity in the United States
Julian M. Alston, Daniel A. Sumner, and Stephen A. Vosti
Agricultural and Resource Economics Update
University of California
V. 11 no. • Nov/Dec 007

What's the big deal about farm subsidies? Four big questions about big ag, subsidies, food, and GMOs

There are a lot of misperceptions about farm subsidies that tend to surface in the media and in political discussions coming from commentators on both the right and the left. Below are four questions with answers that address issues related to farm subsidies that I have found to be most often misunderstood.

1) Do farm subsidies encourage farmers to plant biotech or GMO seeds?

There are no specific subsidies that target biotech crops. It is true in general that many corn and soybean growers receive subsidies related to their crops, and they are largely biotech, but a grower receives the same subsidy for a conventional vs. organic vs. biotech planted acre of field corn. Where the climate permits, most growers rotate corn, wheat, and soybeans, and while wheat crops qualify for many of the same subsidies associated with corn and soy, there are no biotech/GMO wheat crops planted in the US today. What would happen if we eliminated all farm subsidies? Because of the relative production benefits and risk reduction associated with planting biotech crops, elimination of subsidies might make these crops more attractive and increase their planting. Because we are largely subsidizing risk, removal of subsidies would lead the market to more efficiently price risk, and biotech traits would play a large role.

2) If subsidies drive the production of commodities and most of these are GMO,  aren’t we indirectly subsidizing GMOs?

The overall impact of completely eliminating U.S. commodity protection and subsidies at the commodity level in terms of total acres produced and commodity prices would be minimal, as reported by researchers at UC Davis. As their projections show, from a production standpoint, the impact is very small for the major biotech crops including corn and soybeans. If anything, the supply of wheat is impacted the greatest among row crop commodities, and it is not a biotech crop. Note that during the 2012 Midwest drought the impact on production was much greater than the impact of farm subsidies.  Even with the drastic drop in crop prices that have followed as the drought eased during the last two years (prices for corn have fallen almost 50% from the peak in 2012 to current futures prices) we have continued to have record acres planted.  And during the immediate post drought period, we did not see these record commodity prices translate into high retail prices or reduced consumption of processed foods. Extreme prices did not drastically alter the behavior on either the production or consumption side of the equation. The ‘positive’ impacts on fruit and vegetable production is modest at best and given the price elasticity discussion in the sections that follow, likely would not impact consumer choices at the retail level.




So why do we plant so much corn and soybeans? As stated in Alston et al (2010):

“Farm commodities have indeed become much more abundant and cheaper over the past 50 years in the world as a whole as well as in the United States, but not because of subsidies.This abundance mainly reflects the effects of technological innovations and increases in farm productivity, which has alleviated hunger and poverty throughout the world while at the same time reducing pressure on the world’s natural resources.”

3) Do farm subsidies make unhealthy foods cheaper and contribute to obesity?

Because subsidies have such a small impact on the overall supply of commodities, and wholesale prices (as illustrated above), the consequences of removing subsidies on prices at the retail level would be too small to have any meaningful impact on consumer choices. As stated in Alston, et al (2010):

“U.S. farm subsidies have had generally modest and mixed effects on prices and quantities of farm commodities, with negligible effects on the prices paid by consumers for food and thus negligible influence on dietary patterns and obesity. This result is consistent with some previous work by economists on the issue”


The implied price elasticity for retail food calculated in Alston (2007) is .08%. So a 1% increase in the retail price of food reduces consumption by .08% If we had another drought, causing corn prices to increase 50%, and even if that translated into a retail price increase of corn based food products by 50%, we would see a reduction in consumption of about 4%. More specifically, Alston (2010) found:

“Eliminating U.S. grain subsidies alone would lead to a small decrease in annual per capita caloric consumption—simulated to be 977 calories per adult per year, which would imply a 0.16% per year reduction in average body weight assuming 3,500 calories per pound. In contrast, removing all farm subsidies, including those provided indirectly by trade barriers, would lead to an increase in annual per capita consumption in the range of 200 to 1,900 calories—equivalent to an increase in body weight of 0.03% to 0.30%.”

4) Do farm subsidies largely prop up wealthy farmers vs. helping small farmers thrive in a volatile, competitive global and corporate dominated marketplace?

It's true that many subsidies are tied to commodity production. Those that grow more commodities (i.e. larger farms) will get more money from the government. As a result larger producers take in a larger share of all subsidies (especially those related to commodities). However, subsidies account for a much smaller percentage of income for large producers, and make up a much larger percentage of total income for medium or small producers.


As the chart above (from the USDA) shows, in 2008 farms earning less than $250,000 /yr recieved a much greater percentage of their income in the form of government payments, while subsidies only accounted for 4% of income for producers with the largest incomes. The chart below indicates that this relationship seems to hold across years for the last decade.



In general, a lot of perceptions about farm subsidies are incorrect. They do not favor large farms or biotechnology, and they do not encourage the consumption of unhealthy foods or impact obesity.


Further Reading and References:

Reduced costs and risk, chemical application, and production and environmental benefits:

Journal of Agribusiness 19,1(Spring 2001):51S67 © 2001 Agricultural Economics Association of Georgia
Biotechnology in Agriculture: Implications for Farm-Level Risk Management
Shiva S. Makki, Agapi Somwaru, and Joy Harwood

Genetically Engineered Crops: Has Adoption Reduced Pesticide Use? Agricultural Outlook ERS/USDA Aug 2000

GM crops: global socio-economic and environmental impacts 1996- 2007. Brookes & Barfoot PG Economics reportOctober 2010:Vol. 330. no. 6001, pp. 189 - 190DOI: 10.1126/science.1196864

Greenhouse gas mitigation by agricultural intensification Jennifer A. Burneya,Steven J. Davisc, and David B. Lobella.PNAS  June 29, 2010   vol. 107  no. 26  12052-12057


Impact of Subsidies on Commodity Production, Food Prices, and Obesity

Farm Subsidies and Obesity in the United States
Julian M. Alston, Daniel A. Sumner, and Stephen A. Vosti
Agricultural Resource Economics Update
V. 11 no. Nov/Dec 007
U.C. Davis

Choices. 3rd Quarter 2010 | 25(3)
FARM POLICY AND OBESITY IN THE UNITED STATES
Julian M. Alston, Bradley J. Rickard, and Abigail M. Okrent
JEL Classifications: I18, Q18

USDA Sources on Subsidies by Farm Type

USDA Report- Government Payments and the Farm Sector: Who Benefits and How Much?
http://www.ers.usda.gov/Briefing/FarmPolicy/gov-pay.htm

USDA Report-Farm Income and Costs: Farms Receiving Government Payments
http://www.ers.usda.gov/Briefing/FarmIncome/govtpaybyfarmtype.htm