NCPA - National Center for Policy Analysis

Put Farm Subsidies Out to Pasture

March 4, 2004

Government subsidies to farmers result in oversupply and are simply unnecessary, according to Russell Lamb, a professor at the University of North Carolina. Moreover, while small farms are all but disappearing, consolidation among farm producers has been increasingly common since 1970, and makes for more efficient per-unit production costs.

  • The number of hog farms has declined by about 90 percent over the past 30 years, but pork production has substantially increased.
  • Beef producers with more than 1,000 animals have 30 percent lower production costs than the smallest producers.

American agricultural policy is based on the assumption that small farm producers need subsidies to bring their incomes up to par with the rest of the country, and that commodity markets are so unstable that government intervention is needed.

  • However, the average farm family earned about $64,000 in 2001, which was 10 percent above the average American family income.
  • Additionally, the U.S. Department of Agriculture has misforecasted commodity demand and supply over several decades, resulting in undersupply in the late 1980s and oversupply in the late 1990s.

The practice of vertical integration, in which a food processing company owns the components of supply, including commodity production, helps to stabilize food prices and allow farmers to produce what consumers demand. Current agricultural policies fail to take into account vertical integration and contracting with commodity producers.

Hence, the market can do a better job than the federal government in determining future supply and demand, and subsidies are doing more harm than good.

Source: Russell L. Lamb, "The New Farm Economy," Regulation, Winter 2003-2004, Cato Institute.

For text

http://www.cato.org/pubs/regulation/regv26n4/v26n4-1.pdf

 

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