- Author: Julian M Alston
America’s rising obesity rates are exacting a high cost on society. In looking for solutions, many people blame federal farm subsidies for the current obesity problems. The Farm Bill is up for reauthorization this year. As Congress considers changes, I think it is important to understand that the Farm Bill is not to blame for America’s increasing weight gain.
It may seem obvious that subsidies make certain foods cheaper, therefore contributing to overconsumption, but every serious analysis of the relationship by economists has found the notion untrue. In fact, U.S. farm policies have had generally modest and mixed effects on prices and quantities of farm commodities; the overall effect on the prices paid by U.S. consumers for food has been negligible; consequently, eliminating farm policies would have a negligible influence on dietary patterns and obesity.
Farm subsidies have at times resulted in lower U.S. prices of some farm commodities, such as certain food grains or feed grains, and consequently lower costs of producing breakfast cereal, bread, or livestock products. But in these cases, the price-depressing (and consumption-enhancing) effect of subsidies has been contained (or even reversed) by the imposition of additional policies that restricted acreage or production. In addition, for more than a decade, about half of the total subsidy payments have provided limited incentives to increase production because the amounts paid to producers were based on past acreage and yields rather than current production. Moreover, for the commodities that are subject to U.S. import barriers, the effect of the policy is to increase farm and food prices domestically, providing a disincentive to consume foods that use these commodities as ingredients. Trade barriers that apply to imported sugar, dairy, orange juice and beef cause the prices of these agricultural commodities to increase, and thereby increase the cost and discourage consumption of foods that use these commodities.
What about corn? Farm subsidies are responsible for the growth in the use of corn to produce high fructose corn syrup (HFCS) as a caloric sweetener, but not in the way it is often suggested. The culprit here is not corn subsidies; rather, it is sugar policy that has restricted imports, driven up the U.S. price of sugar and encouraged consumers and food manufacturers to replace sugar with alternative caloric sweeteners, especially HFCS. Combining the sugar policy with the corn policy, the net effect of farm subsidies has been to increase the price of caloric sweeteners generally, and to discourage total consumption while causing a shift in sweetener use between sugar and HFCS. This discouragement has been enhanced recently by U.S. biofuels policy. The current U.S. ethanol policy benefits U.S. corn growers by driving up the demand for corn as feedstock. This effective subsidy to corn growers much more than offsets any impact of other farm policies that might increase the availability of corn for use in food and livestock feed. So the overall effect of the full set of policies is to make all of the corn-based food products more expensive, not less expensive to consumers.
Even if the effects of policy on the prices of farm commodities were large and in a direction that would contribute to obesity, the ultimate impacts on food prices would be comparatively small. Farm commodities used as ingredients represent a small share of the total cost of retail food products, and this share has been shrinking for all farm commodities over the past three decades. On average the farm commodity cost share is approximately 20 percent, but it varies widely: for grains, sugar, and oilseeds, it is less than 10 percent; for soda, a food product that is often associated with obesity, the share is approximately 2 percent.
U.S. farm policies might well be seen as unfair and inefficient. But whether we like these policies or not for other reasons, their effects on obesity are negligible. Farm subsidies are a red herring in the obesity context just as obesity is a red herring in the context of farm subsidy policy. Our careful quantitative analysis of these issues indicates that U.S. farm subsidy policies, for the most part, have not made food commodities significantly cheaper and have not had a significant effect on caloric consumption. In fact, eliminating all farm subsidies, including those provided indirectly by trade barriers, may, if anything, lead to an increase in annual per capita consumption of calories and an increase in body weight. Farm policies have more likely slowed the rise in obesity in the United States—but any such effects must be small. Compared with other factors, the policy-induced differences in relative prices of farm commodities have played only a tiny role in determining excess food consumption and obesity in the United States.
Julian Alston is a Professor in the Department of Agricultural and Resource Economics at the University of California, Davis, and a member of the University of California’s Giannini Foundation of Agricultural Economics.