Sorry!! The article you are trying to read is not available now.

Why Cut Subsidies to Multinational Corporations When You Can Cut Food Stamps Instead?

Print comment Post Comments
This is the United States of America, yet 44.1 million people -- 13.1% of the population -- struggle to afford food.

Well, what better time to further entrench automatic subsidy payments to monolithic agribusiness multinationals and cut unnecessary expenditures like the SNAP program, otherwise known as "food stamps."

Tim Fernholz at the National Journal writes:

The House Agriculture Committee endorsed a letter this week to Budget Chairman Paul Ryan arguing that the Supplemental Nutrition Assistance Program, which helps low-income Americans purchase food, would make a better target for cuts than automatic subsidies to farms.

The move comes as food prices are rising -- the Department of Agriculture expects overall food prices to rise 3 percent to 4 percent this year -- making it harder for the beneficiaries of SNAP to stretch their existing benefits, even as farmers profit from the tightening market. Critics across the political spectrum have called agricultural subsidies wasteful and unnecessary, and they question the logic of maintaining them as lawmakers hunt for budget cuts.
He notes that President Obama "has endorsed cuts in agricultural subsidies as a way to lower the deficit without targeting essential programs, and lawmakers from both parties, like Ryan, R-Wis., have expressed similar opinions," but the Ag committee is "dominated by members of Congress from farm states; Chairman Frank Lucas, R-Okla., has reported $445,714 in political contributions from the agricultural industry during the course of his career, and ranking Democrat Collin Peterson of Minnesota reports $809,097 in career donations."

Farmers themselves aren't even solidly behind subsides; as Fernholz points out, even the Iowa Farm Bureau voted its opposition to direct payment subsidies earlier this year.

What are direct payments, how much do they cost taxpayers, and what makes them so bad?

Politico explains the direct payments program:

The direct payments program itself is rooted in the early years of the so-called Republican Revolution of the mid-’90s and the famous Freedom to Farm Act, which promised to wean producers off federal support. The payments were billed as a temporary measure but have stubbornly endured, paid out under a formula driven by past production levels and not what prices or costs are for farmers today.

Brian Riedl of the conservative Heritage Foundation makes the case that, far from being helpful, farm subsidies actually have multiple negative impacts:

We are told the farm economy cannot function without subsidies. However, nearly all subsidies go to growers of just five crops: wheat, cotton, corn, soybeans and rice. By contrast, fruit, vegetable, livestock and poultry operations receive nearly nothing, yet still produce two-thirds of the farm economy, with stable prices and healthy incomes. Why can’t the Big Five crops function in the same free market?

More than merely ineffective, farm policies impose substantial harm. They cost Americans $25 billion in taxes and another $12 billion in higher food prices annually. Environmental damage results from farmers overplanting crops in order to maximize subsidies. By undermining America’s trade negotiations, subsidies raise consumer prices and restrict U.S. exports. Cotton subsidies undercut African farmers, keeping them in desperate poverty. And as Michael Pollan, author of “The Omnivore’s Dilemma,” has written, by promoting corn and soy (from which sugars and fats are derived) rather than healthier fruits and vegetables, farm subsidies contribute to obesity, rising health care costs, and early death.

The left-leaning Environmental Working Group breaks down the waste, program-by-program:

With the passage of the 2007 energy bill and 2008 farm bill, Congress has managed to devise an interlocking maze of subsidies that, taken together, force taxpayers to spend billions of dollars no matter what the condition of the farm economy. First off are the so-called "direct payments" that go out to farmers and landowners even if crop prices and farm profits are setting record highs–and most such records have been set in the past few years–or even if the recipient plants no crop at all. Direct payments have averaged around $5 billion per year since 2005.

Next are the "counter-cyclical payments" that go out when crop prices fall below a level set in law by Congress. These payments have declined from about $4 billion in 2005 to $1.2 billion in 2009, because crop prices have been higher than average over those years. That is a savings of about $2.8 billion.

"Market-loss" payments comprise another type of crop subsidy that slows to a trickle when prices are robust but can gush by the billions from the Treasury when prices dip. The last time that happened, farm subsidy costs topped $20 billion in one year.

The cost to taxpayers of yet another subsidy subsystem, the federal crop insurance program, mushroomed from $2.7 billion in 2005 to $7.3 billion in 2009, precisely because prices were high. The cost of crop insurance goes up as crop prices increase because the government's premium subsidies, and its subsidies to crop insurance companies for administrative and operation costs, are tied to the cost of policies–and policy expenses rise with crop prices. And since it is taxpayers who pay a good portion of crop insurance claims, the costs we incur for any crop losses climb along with crop prices.

Money manager Shawn Hackett, president and CEO of Hackett Financial Advisors, a Boynton Beach, FL firm with a special focus on agricultural commodities, was, surprisingly, unsurprised by the move to cut SNAP in favor of continuing farm subsidies.

"ADM certainly doesn’t need subsidies, but poor people who can’t put food on the table need food stamps," he told me. "Corporate power rules and the pendulum has gotten way out of balance. What we have in this country is pretty much an oligarchy with almost all the power concentrated in the hands of a very few. The pendulum will eventually go the other way, but it’s going to be a difficult process. The people currently holding the power aren’t gonna go quietly, I’ll tell you that."
POSITION:  No positions in stocks mentioned.