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Breakingviews

Breakingviews - U.S. farm aid bonanza is free market nightmare

Corn stalks are seen on Roger Hadley's corn and soybean farm in Woodburn, Indiana, U.S., October 16, 2020. REUTERS/Bing Guan

NEW YORK (Reuters Breakingviews) - America’s farmers are living on the public dime. They should receive around $50 billion in federal aid this year – a new record. Even without handouts, the government could find ways to help them out. Food producers deserved some help to offset the impact of Covid-19 shutdowns. But propping up struggling farms long term just creates an unsustainable market imbalance. The government could help more by doing less.

Agriculture was enjoying hefty handouts long before the coronavirus. Last year’s over $22 billion in promised aid, mostly to offset trade-war-related losses, was the highest in over a decade. In the previous five years, annual support averaged almost $12 billion, according to the U.S. Department of Agriculture, with the majority going to the wealthiest.

This is partly because farmers often punch above their weight politically. They only represented around 1% of total workers in 2019, according to the USDA. But Iowa – with the country’s second-highest agricultural receipts – kicks off the presidential nomination season. Tellingly, President Donald Trump announced the most recent aid boost, some $14 billion according to the USDA, at an election rally in Wisconsin – an agricultural powerhouse pivotal to his 2016 victory.

The U.S. government could also enlist policies that control supply – something farmers might support in the absence of further handouts. But these cause unsustainable distortions. For example, the Food and Agriculture Act of 1977’s dairy support resulted in the government amassing roughly 560 million pounds of cheese by 1981. And the Organization of the Petroleum Exporting Countries has discovered that raising prices by reducing supply can just invite new entrants.

The better solution may be to let farms fail. This shouldn’t cause food shortages: large family farms represent only 3% of the total, but generate around half of the value of all production, according to the USDA. Meanwhile, small operations – roughly 90% of all farms – only produce around a fifth of the nation’s agricultural output. And over a third of corn production is currently used not for food, but for ethanol because of federal policy.

Governments still have a role. They should enforce environmental, animal welfare and labor rules, which larger farms are better equipped to comply with. But using subsidies to mask the unsustainability of most farms is just putting lipstick on a pig.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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