Monday, July 31, 2006

The cost of subsidies

Driving down to my grandfather's funeral last week, I could hardly help noticing corn growing. That happens when you drive in Illinois and Iowa. It's not all a bad thing. I love corn (even grits) and corn-fed beef. It would be a poorer world without it.

And so I wondered what the actual cost of agricultural subsidies might be. The first round of costs is pretty straightforward: about $5 billion for ethanol and another $20 billion or so in direct subsidies to grain and dairy farmers. Also, a few billion dollars annually to tobacco farmers, and some more billions for food subsidies for the poor. So maybe we're up to about $50 billion annually, right?

Well, no. Let's not forget what you get when you subsidize corn, tobacco, and dairy. You get a lot of foods fried in corn and soybean oil, lots of foods made from the same (american "cheese", velveeta, etc..), meats fed in feedlots (chicken, pork, turkey, beef), cheap liquor made with corn syrup, cigarettes, and the like.

In other words, you make the raw materials for obesity, heart problems, diabetes, alcoholism and lung problems cheaper. In doing so, you also end up creating ideal situations for water pollution (fertilizer, pesticides, herbicides, waste) and prevent those with good grazing lands from making a living.

The total cost? Subsidies can't take all the blame, of course, but the total costs associated with our bad diet choices, smoking, and drinking exceed one trillion dollars annually. Add to that the costs of subsidizing poverty, and we're talking about some serious money here.

Not to mention this; when you subsidize corn and dairy, you cannot use the land for other purposes. The farm my grandfather grew up on is a great example. 89 years ago, there were sheep, pigs, cattle, fruit trees, grazing land, and a garden there besides land for growing grains. Now it's just used for growing grain--and instead of barley, rye, oats, wheat, and corn, it's just corn and soybeans.

So it seems that subsidies are not only horrendously expensive, but they also make life boring. What a pity.


David McCrory said...


My condolences on your loss. And your right, cash-crop farming has eroded the once vibrant subsistence farmer who had the ability to sustain himself and his family through working and growing a diversified farm. Now farmer, like everyone else have grown dependent on big-brother to come and bail them out. The gov't puts you into the mess then they want to act like the savior who will pull you out.

Marklark said...

I was just reading something similar from a bit of informative SPAM called "Whiskey & Gunpowder" (I have _no_ idea how I got on their mailing list, but it's interesting most of the time). They mentioned that Brazil offered to sell us ethanol at $0.35 less per gallon than we can produce it, but "we" turned them down.

Did it look like there were problems with the crops due to Global Warming?

Bike Bubba said...

Actually, we didn't turn Brazil down. We put a 50 cents/gallon tariff on their ethanol, if I remember correctly.

The irony is that if we instead put a 10% tariff on imported petroleum instead, we'd end up promoting domestic oil and ethanol production without subsidies, and get a chance to cut taxes/deficits as well.

Methinks that much of our government's policy involves ethanol, but not the kind that's mixed with gasoline.