The Corner

Harvesting Taxpayers’ Money, Farm Subsidies Edition

Yesterday, Vince Smith and Brad Wassink had a very good piece in the Hill where they show all that is wrong with farm subsidies through two examples: Dairy Margin Protection Program (DMPP) and the Dairy Market Stabilization Program. They explain:

The Dairy Margin Protection Program (DMPP) . . . effectively guarantees an operating profit for dairies. The program would cut checks to farmers when the difference between milk prices and a formula-based estimate of feed costs falls below $4.00 for each hundred pounds of milk they produce. DMPP also includes a heavily-subsidized supplementary insurance program, allowing farmers to insure higher revenue-cost spreads on more of their production.

The DMPP may be unwarranted and wasteful, but its companion program—the Dairy Market Stabilization Program—is destructive. When margins fall below a $6.00 target, the program would prevent wholesale milk purchasers from paying dairies the full price for their milk. Instead, dairies would be required to sacrifice up to 8 percent of their revenue to the USDA. The program would drive up milk prices by providing USDA with funds to buy up “excess supply”, while punishing large dairy farms for producing more milk than Leahy and Peterson think they should. …

The dairy stabilization program would drive up milk prices to benefit small scale dairy farmers. That hurts all consumers, but impacts the poor—who spend more of their income on staple food products like milk, cheese and yoghurt—most. In 2012, families in the bottom 20 percent of the income distribution devoted 15.8 percent of their spending toward food, while families in the top 20 percent used only 11.4 percent. As a share of after-tax household income, poor families spent 5.7 times more on dairy products than wealthy families, according to BLS data.

Current federal milk programs already impose substantial costs on consumers. Marketing orders, which regulate farm milk sales, require many processors to pay predetermined prices for the milk use. And the Dairy Price Support Program (DPSP) has used government purchases to prop up the prices of dry milk, butter, and cheese. A recent AEI analysis estimated that, on average, current programs cost U.S. consumers $724 million every year. Replacing flawed policies with new programs that will have similar or more costly impacts is not progress.

These particular policies give an incentive to dairy farmers to artificially increase milk prices by reducing milk supply (with all the side effects — jobs losses, etc. – that this behavior triggers for the dairy industry and those industries that depend on it directly or indirectly). And yet, in spite of some strong opposition in the House, there is a chance that they will be implemented.

Why is that? As my colleague Matthew Mitchell explains in a new study, farm subsidies (like other subsidy programs) concentrate the benefits on a small group of actors, who are committed to lobby for their perks. The money donated by the farm lobby to members of Congress is one visible sign of this transaction. Meanwhile, farm subsidies distribute the costs onto  a large number of people, who may not realize how much they’re paying overall or where the money is going. Do you know how much of your tax bill goes to pay for farm subsidies? And do most Americans know how much lower the price of sugar or milk, for instance, would be without farm subsidies? No, of course not.

Finally, to end on a depressing note, the desk is stacked against subsidy reformers, as the Cato Institute’s Scott Lincicome explains in this recent post. In most cases, lawmakers end up supporting crazy and unfair subsidies rather than implementing any reforms.

Relatedly, I have written about the craziness of our sugar policies recently, hereAbolish all the farm subsidies already!

 

 

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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