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Arcite
01-29-2011, 11:51 AM
Many people in this thread (http://boards.straightdope.com/sdmb/showthread.php?t=594103) thought that corn subsidies contribute to the obesity epidemic. Indeed, one hears talk of these corn subsidies often in any health-related discussions. So I turned to Google to find out something about these corn subsidies... and faced a disappointing lack of information.

No one seems to be writing articles or putting up web pages with information about these subsidies. There's no Wikipedia article about them. Lots of news articles mention them in passing, but I wasn't able to find any which explain where they came from or their reason for existence.

So does anybody here know? Why does the federal government of the USA pay farmers and agribusiness to grow corn? What interest do the feds believe they have in keeping the price of corn artificially low?

Chronos
01-29-2011, 11:59 AM
Ultimately, the reason is that corn is big business, and has a particularly large and powerful lobby.

Ostensibly, it's to ensure that American farmers stay in business, because if they went out of business, the food supply would be in jeopardy, and we could starve.

Darth Panda
01-29-2011, 12:06 PM
There are quite a few states where agriculture has traditionally been a powerful force in politics, because it was/is a big part of the state economy and affected a lot of voters. So the voters elect someone sympathetic to the business (ie, someone who supports the subsidies). Everyone in Congress brings earmarks back home for their constituents - that's how bills get passed. The earmarks for a few states are corn subsidies. It's basically just politics - Democracy means that if enough people want someting, regardless of why they want it, they're probably going to get it.

Rumor_Watkins
01-29-2011, 12:13 PM
Each state has 2 senators, that's why.

The cornbelt states are 1) numerous, 2) low popuation (the majority of them, IL is a big exception). Consequently, they have very powerful senators (i.e. each senator represents comparatively few people).

These cornbelt states have nothing else going for them other than agriculture, by and large. And corn is the predominant crop.

Therefore, corn subsidies are the way you buy those senators off. And those corn subsidies are how those senators get re elected.

Some states it's corn. Other states it's military bases. It's all the same thing.


and OP, here's a good starting off link: http://en.wikipedia.org/wiki/Agricultural_subsidy#United_States

yabob
01-29-2011, 12:19 PM
The big push for corn subsidies came in 1973, under Earl Butz, Secy. of Agriculture under Nixon. The 1973 farm bill was a response to ballooning food prices, intended to bring costs under control. From the standpoint of that era in history, it worked - large scale agribusiness efficiently producing enormous amounts of corn made it cheap. High fructose corn syrup gained as a cheap alternative to sugar. From that vantage point, it had a defensible utility - doing something about the prices people were seeing in the supermarkets had become a hot political issue. Unfortunately, government programs are always likely to live on past an era where they made sense.

jayjay
01-29-2011, 12:21 PM
And remember that agriculture subsidies are linked to alternative-fuel ethanol, as well, since (in the US, anyway) it's made from corn.

yabob
01-29-2011, 12:37 PM
And remember that agriculture subsidies are linked to alternative-fuel ethanol, as well, since (in the US, anyway) it's made from corn.
And in Brazil, it's made from sugarcane, which is arguably worse, given the cultivation methods. Nonetheless, I still hold out hopes for cellulosic ethanol, and I'm aware that putting the brakes on corn based ethanol is likely to kill commercialization of cellulosic ethanol production, and retard the acceptance of ethanol as a fuel. I don't want that to happen as long as I think ethanol from waste and low-impact feedstocks like switchgrass might work. Corn ethanol subsidies aside, I would really like to see most gasoline automobiles being made flex-fuel. It doesn't impose much cost to do it, so it's not like it's really a lot of wasted effort if ethanol doesn't pan out.

jayjay
01-29-2011, 12:42 PM
And in Brazil, it's made from sugarcane, which is arguably worse, given the cultivation methods.

At least sugarcane-derived ethanol doesn't divert food crops, since it uses the cane after the juice has been crushed out of it.

Rumor_Watkins
01-29-2011, 12:47 PM
At least sugarcane-derived ethanol doesn't divert food crops, since it uses the cane after the juice has been crushed out of it.

or feed crops for cattle.

and it's more energy efficient per acre of crop.

Little Nemo
01-29-2011, 12:57 PM
At least sugarcane-derived ethanol doesn't divert food crops, since it uses the cane after the juice has been crushed out of it.You're looking at the problem from the wrong direction. Many alternative fuel programs were created partly in reponse to a glut of unsellable corn. The government is paying people to grow so much corn that consumers can't eat it all. So the government has to turn around and sponsor program to develop new ways to use the excess corn. That's the reason you see so many products that have corn-based additives.

yabob
01-29-2011, 01:01 PM
Point taken. But offset by the destruction of rainforest for large scale sugarcane production for food OR fuel. Might make more sense grown somewhere else.

Rumor_Watkins
01-29-2011, 01:40 PM
You're looking at the problem from the wrong direction. Many alternative fuel programs were created partly in reponse to a glut of unsellable corn. The government is paying people to grow so much corn that consumers can't eat it all. So the government has to turn around and sponsor program to develop new ways to use the excess corn. That's the reason you see so many products that have corn-based additives.

Cite?

Corn Ethanol has driven the price of both feed corn and food corn up as farmers replace the food types of corn with the ethanol types of corn (white vs. yellow)

Alternative fuel programs are created in response to the looming shortages of easily sellable crude oil, they aren't in existence to sop up the excess amounts of corn due to inefficient market operations by way of subsidy.

Rumor_Watkins
01-29-2011, 01:56 PM
I should correct myself. both white and yellow are varieties of sweet corn. this is the stuff you eat on the cob. apparently is also used in certain kinds of foods

feed corn is used for all the rest of the stuff. it accounts for 98% of maize acreage.

ralph124c
01-29-2011, 02:14 PM
The Federal Ethanol Program is also a big energy waster-it causes higher imports of oil to grow and process the corn. It is another aspect of this foolish policy, which distorts the market for corn. Suppose corn was not subsidized-it would be grown according to supply and demand. With a subsidy, farmers can keep increasing the amount of corn they grow-they get paid for whatever they grow, at the pegged price. What happensn to the surplus? It gets turned into corn syrup-which is now so cheap that it has become a major food additive (it is a reason why Coca-Cola, USA, used corn syrup instead of cane sugar). Corn syrup is blamed by many for the obesity epidemic-so the subsidy of corn may well be a major factor in rising healthcare costs (diebetes is now epidemic in the USA).
A bad deal all round-except for the farmers.

Little Nemo
01-29-2011, 03:12 PM
A bad deal all round-except for the farmers.Actually it's a pretty bad deal for many farmers as well. Some obviously benefit financially if they get themselves into the subsidy system - but they do so at the cost of becoming dependent on a system over which they have little control. And the farmers who can't or won't farm for subsidies find themselves getting crowded out of farming by the subsidy farmers.

Derleth
01-29-2011, 04:33 PM
At least sugarcane-derived ethanol doesn't divert food crops, since it uses the cane after the juice has been crushed out of it.The real question to ask is, "How much petroleum do we use (in the form of vehicle fuel, fertilizer production, and so on) to produce this alternative to petroleum? Is it really less than one gallon of petroleum (or gasoline) per gallon of ethanol?"

I fear politics will prevent a real answer to this question.

kunilou
01-29-2011, 08:39 PM
Let's backtack a little. The reason we have corn (I'm talking about the 98% feed corn that Rumor noted, not the sweet corn people eat off the cob) is that it's very good for feeding livestock -- beef, chicken and pork. Livestock producers want lots of it, and they want it cheap. And because corn only grows well in a few parts of the world, especially the U.S., it has a very good market for export.

Corn farmers want to grow lots of corn. Unfortunately, the cost of production is pretty close to what the market will bear in terms of price. If the cost of corn gets too high, then the cost of meat gets too high, livestock producers cut back on their herds and the export customers look to buy corn from other countries.

In other words, if the price of corn gets too low, farmers can't make a profit and go out of business. If the price of corn gets too high, the market for corn disappears and farmers go out of business.

You can't just start and stop a farm, or a livestock operation. So the federal government has decided it's in everyone's best interest to keep the price of corn fairly stable, so the farmers will want to plant a crop, and the livestock operations will stay open, regardless of whether this year's crop was good or bad.

And that's why we have agricultural subsidies in the first place. The idea is to have the taxpayer put in a (relatively) small amount of money up front in return for a stable and relatively cheap food bill on the back end.

As long as there's corn, there's a market for it. Roughly 40% of the corn grown in the U.S. goes directly to feeding U.S. livestock. Ethanol production uses another 30%, exports use up 15-16%. High fructose corn syrup only accounts for about 3% of use. But trying to discuss the relationship between farmers, export policy, ethanol subsidies and the pure food movement gets really complicated.

Mariemarie
01-29-2011, 09:43 PM
I recall a TV newsmagazine (60 minutes?) pointing out the connection between corn subsidies and presidential electoral politics. A candidate is less likely to do well in the Iowa caucuses if he or she is not a friend of the corn industry. Since 1972, the Iowa caucuses (http://en.wikipedia.org/wiki/Iowa_caucuses)have been the first major electoral event of the nominating process for President of the United States. Although only about one percent of the nation's delegates is chosen by the Iowa State Convention, the Iowa caucuses have served as an early indication of which candidates for president might win the nomination of their political party at that party's national convention.
From the wikipedia article on Iowa (http://en.wikipedia.org/wiki/Iowa)Iowa is the nation's largest producer of ethanol and corn...
Here's another discussion about that....http://e360.yale.edu/feature/the_corn_ethanol_juggernaut/2063/

Arcite
01-30-2011, 11:22 AM
Let's backtack a little. The reason we have corn (I'm talking about the 98% feed corn that Rumor noted, not the sweet corn people eat off the cob) is that it's very good for feeding livestock -- beef, chicken and pork. Livestock producers want lots of it, and they want it cheap. And because corn only grows well in a few parts of the world, especially the U.S., it has a very good market for export.

Corn farmers want to grow lots of corn. Unfortunately, the cost of production is pretty close to what the market will bear in terms of price. If the cost of corn gets too high, then the cost of meat gets too high, livestock producers cut back on their herds and the export customers look to buy corn from other countries.

In other words, if the price of corn gets too low, farmers can't make a profit and go out of business. If the price of corn gets too high, the market for corn disappears and farmers go out of business.

You can't just start and stop a farm, or a livestock operation. So the federal government has decided it's in everyone's best interest to keep the price of corn fairly stable, so the farmers will want to plant a crop, and the livestock operations will stay open, regardless of whether this year's crop was good or bad.

And that's why we have agricultural subsidies in the first place. The idea is to have the taxpayer put in a (relatively) small amount of money up front in return for a stable and relatively cheap food bill on the back end.

As long as there's corn, there's a market for it. Roughly 40% of the corn grown in the U.S. goes directly to feeding U.S. livestock. Ethanol production uses another 30%, exports use up 15-16%. High fructose corn syrup only accounts for about 3% of use. But trying to discuss the relationship between farmers, export policy, ethanol subsidies and the pure food movement gets really complicated.

Let me see if I understand. I'm going to concoct an oversimplified example so my meager intelligence can handle it.

Farmer Joe has a farm set up to grow corn. Let's say it costs him $1 to grow 1 bushel of corn. The marked for corn is such that people are only willing to pay $1 per bushel. So he spends $100 producing 100 bushels and get only get $100 in return for it, just breaking even, making it not worth his while to grow corn.

So, the federal government pays him 25 cents per bushel, which he receives in addition to the income from selling the corn he grows. Now, if he spends $100 growing 100 bushels, he can recoup the $100 by selling the corn, PLUS he gets a check from the feds for $25, giving him a $25 profit and making it worth his while.

But what if the feds end the subsidy? Can he just raise the price he charges for corn to $1.25 per bushel, so he can still make his $25 profit? No, because corn-buyers won't pay $1.25 per bushel, because that would make the cost of feeding their livestock more expensive, so they'd have to charge supermarkets/restaurants more for their meat, and that wouldn't work because people just won't pay that much for steak. Or, they can import Chinese corn for $1 per bushel so they'd just do that instead.

Is that it?

Little Nemo
01-30-2011, 12:59 PM
Let's backtack a little. The reason we have corn (I'm talking about the 98% feed corn that Rumor noted, not the sweet corn people eat off the cob) is that it's very good for feeding livestock -- beef, chicken and pork. Livestock producers want lots of it, and they want it cheap. And because corn only grows well in a few parts of the world, especially the U.S., it has a very good market for export.Actually corn is not a particularly good feed grain for cattle. They evolved to eat grass not corn. Cattle ranchers developed ways of feeding cattle corn because it's cheap but it creates various problems that have to be addressed.

ralph124c
01-30-2011, 02:23 PM
Let me see if I understand. I'm going to concoct an oversimplified example so my meager intelligence can handle it.

Farmer Joe has a farm set up to grow corn. Let's say it costs him $1 to grow 1 bushel of corn. The marked for corn is such that people are only willing to pay $1 per bushel. So he spends $100 producing 100 bushels and get only get $100 in return for it, just breaking even, making it not worth his while to grow corn.

So, the federal government pays him 25 cents per bushel, which he receives in addition to the income from selling the corn he grows. Now, if he spends $100 growing 100 bushels, he can recoup the $100 by selling the corn, PLUS he gets a check from the feds for $25, giving him a $25 profit and making it worth his while.

But what if the feds end the subsidy? Can he just raise the price he charges for corn to $1.25 per bushel, so he can still make his $25 profit? No, because corn-buyers won't pay $1.25 per bushel, because that would make the cost of feeding their livestock more expensive, so they'd have to charge supermarkets/restaurants more for their meat, and that wouldn't work because people just won't pay that much for steak. Or, they can import Chinese corn for $1 per bushel so they'd just do that instead.

Is that it?

Why doesn't the farmer listen to what the market is telling him? This is why price supports are counterproductive.
If the market price of corn is too low to make a profit, he should grow something else.
But no, under the price subsidy, he gets paid to grow stuff that no one wants-which leads to a little problem-the subsidy is wasted. Now we have excess corn-if it is not sold, it is dumped onto the market-depressing the price again.
And, let us not forget- the production of this unwanted product causes the wastage of fuel-which we now import-at great cost.
Do price subsidies preserve the sacred "family farm"-I doubt it-farms today are huge, factory-like operations, owned by big corporations.
In the 1930's most farms were family-owned and run-not today. We are still using "New Deal" policies set up 80 years ago.

Little Nemo
01-30-2011, 05:09 PM
Let me see if I understand. I'm going to concoct an oversimplified example so my meager intelligence can handle it. (snip)
Is that it?Partly, but a big factor here is supply and demand. It's not the action of one farmer you have to consider, it's what all the farmers are doing.

Let's again say that Farmer Joe can produce 100 bushels of corn. And Farmer Bill produces 100 bushels of wheat and Farmer Fred produces 100 bushels of potatoes. And everyone sells their product for two dollars a bushel.

Now the government steps in and gives anyone growing corn twenty-five cents a bushel. Joe obviously benefits from the extra twenty-five bucks. But what happens is that Bill and Fred also want the extra money for growing corn so they switch over.

The result is that instead of having a hundred bushels each of corn, wheat, and potatoes, you now have three hundred bushels of corn. And with that much corn on the market, the price drops down to a dollar fifty a bushel.

Even with the 25 cent subsidy, the farmers are only getting $1.75 a bushel. So to keep their income steady with what it was, the government will either have to increase the subsidy or build a larger market for corn.

It wasn't all negative. The price of a bushel of corn dropped from $2.00 to $1.75. Your morning bowl of corn flakes will be cheaper. But the cost of lowering the price of corn was to raise the price of potatoes and wheat (due to the decrease in production). And the money the government paid for the subsidies and other programs came out of your taxes.

KidCharlemagne
01-30-2011, 07:11 PM
Let's backtack a little. The reason we have corn (I'm talking about the 98% feed corn that Rumor noted, not the sweet corn people eat off the cob) is that it's very good for feeding livestock -- beef, chicken and pork. Livestock producers want lots of it, and they want it cheap. And because corn only grows well in a few parts of the world, especially the U.S., it has a very good market for export.

.

The only reason corn is used as livestock feed is because it's cheap. It's a terrible feed otherwise, for the livestock and the humans eating that livestock. The use of antibiotics in cattle is due to an overly acidic environment in the rumen which leads to ulcers. That acidic environment is caused by digesting corn with what was meant to digest grasses. As for the humans, the omega 3 content of corn fed beef is practically non-existent.

As for why corn is cheap, that's simple. In Economics 101 we learn that price floors create gluts and that gluts make for cheap prices. Farm subsidies perpetuate the glut which create cheap prices which means more farm subsidies...etc.. Sorta like that cocaine commercial but with more ill effects on the user in the case of corn.

kunilou
01-30-2011, 08:29 PM
The only reason corn is used as livestock feed is because it's cheap.

I completely agree. Corn is cheap, it fattens up livestock far more quickly than grass, and it causes cows to develop more fat. However, more fat = more marbling = better taste. From the POV of the livestock industry, those are good things.

Grass is even cheaper to grow than corn, but you have to feed a lot more of it to get a cow/pig/chicken up to market weight, and you have to feed the animal longer.

And for everyone who says "the market should decide," consider this. Agriculture is one of the few economic models where the producer can't control either the exact level of production (because weather makes the difference between a good crop and a bad crop) or demand (because feed is an intermediate step.)

So you have farmers deciding in January what to plant in April and trying to negotiate a price for delivery in October -- and not able to control whether a flood in May will wipe out the crop, or whether extra rain in July will cause a surplus that gluts the market.

Again, that's why you have agricultural subsidies, to assure the farmer that whether his crop doesn't come up at all, or whether he ends up with more stuff that he can sell, he'll still end up at a point where he can stay in business.

You can agree or disagree with the system and its unintended consequences, just be sure you understand why it exists in the first place.

Rumor_Watkins
01-30-2011, 08:57 PM
And for everyone who says "the market should decide," consider this. Agriculture is one of the few economic models where the producer can't control either the exact level of production (because weather makes the difference between a good crop and a bad crop) or demand (because feed is an intermediate step.)

So you have farmers deciding in January what to plant in April and trying to negotiate a price for delivery in October -- and not able to control whether a flood in May will wipe out the crop, or whether extra rain in July will cause a surplus that gluts the market.

Again, that's why you have agricultural subsidies, to assure the farmer that whether his crop doesn't come up at all, or whether he ends up with more stuff that he can sell, he'll still end up at a point where he can stay in business.


Futures markets for commodities also accomplish this, and in an even more efficient manner. It's a well functioning market mechanism for the problems in agriculture you're pointing out.

BookNerdCT
04-06-2011, 11:20 AM
Read "The Omnivore's Dilemma."

It answers all your questions about corn, subsidies, history, etc.
:D

fumster
04-06-2011, 11:38 AM
Short answer to OP is because Iowa has the first primary.

Omar Little
04-06-2011, 12:06 PM
Ostensibly, it's to ensure that American farmers stay in business, because if they went out of business, the food supply would be in jeopardy, and we could starve.

Really? You believe that if small farmers went out of business and the corn supplies fell that we would all starve?

You don't think that if corn supplies decreased that the price of corn wouldn't increase, thus incentivizing someone to grow it?

SmartAlecCat
04-06-2011, 12:19 PM
Agriculture is one of the few economic models where the producer can't control either the exact level of production (because weather makes the difference between a good crop and a bad crop) or demand (because feed is an intermediate step.)

Isn't a better response to that insurance or hedging?

Subsidies just seem to exacerbate the problem.

bump
04-06-2011, 12:32 PM
Unfortunately, the cost of production is pretty close to what the market will bear in terms of price. If the cost of corn gets too high, then the cost of meat gets too high, livestock producers cut back on their herds and the export customers look to buy corn from other countries.

In other words, if the price of corn gets too low, farmers can't make a profit and go out of business. If the price of corn gets too high, the market for corn disappears and farmers go out of business.


This is really where the meat of the subsidy explanation is. When he says "the cost of production is pretty close to what the market will bear", what that means is that the market price for corn is pretty much too low for farmers to make a profit.

The unspoken part is that corn's a commodity- there's nothing to differentiate Farmer Ted's corn from Kansas from Farmer Bob's grown in N. Dakota. Hence, buyers will buy whoever's corn is cheapest. What eventually happens is that Bob and Ted end up charging more or less the same price- neither's going to let the other undercut them. This creates a "race to the bottom", where eventually, Bob and Ted are just a tiny fraction above their break-even price. Scale this up many thousand fold, and you have the "market".

The issue is that if Bob and Ted aren't making money on corn, they're going to switch to barley, or wheat or sorghum, or something else.

Corn's vital enough to the economy, that while over time, market mechanisms would eventually make a more comfortable corn price, in the shorter term, the disruptions from letting the corn price fall as low as it would go are much more dire than just subsidizing the corn price in the first place.

At least that's the way I understand it. Also, subsidies to keep land unplanted work along the same lines by reducing supply slightly relative to demand (in a controllable fashion), and increasing the price.

Peremensoe
04-06-2011, 12:54 PM
But what if the feds end the subsidy? Can he just raise the price he charges for corn to $1.25 per bushel, so he can still make his $25 profit? No, because corn-buyers won't pay $1.25 per bushel, because that would make the cost of feeding their livestock more expensive, so they'd have to charge supermarkets/restaurants more for their meat, and that wouldn't work because people just won't pay that much for steak.

People will pay more for meat if the alternative is not buying meat. That is to say, some people won't buy meat, or will buy less, but overall demand will adjust to meet the new price. Meat, like sweetener, has been or is now proportionally more expensive in lots of societies. There are reasons to recommend this. Ending subsidies will not destroy either the corn or meat industries, only shrink their production volume relative to other agricultural sectors. For some farmers it will become a better choice to grow other crops.

I think this is all to the good.

bump
04-06-2011, 03:20 PM
But what if the feds end the subsidy? Can he just raise the price he charges for corn to $1.25 per bushel, so he can still make his $25 profit? No, because corn-buyers won't pay $1.25 per bushel, because that would make the cost of feeding their livestock more expensive, so they'd have to charge supermarkets/restaurants more for their meat, and that wouldn't work because people just won't pay that much for steak. Or, they can import Chinese corn for $1 per bushel so they'd just do that instead.

Is that it?

The problem with him raising his price is that there's a complete substitute for his corn available at a lower price- the $1 Chinese corn, or Farmer Bob nearby selling his for $1.20 a bushel. Eventually, the market will stabilize right above the production cost of the lowest cost producer, in this case the Chinese corn.

The subsidy lets Joe sell his corn at $1 per bushel, but make profits like it was $1.25 per bushel, which keeps Joe in the corn growing business, and keeps short term disruptions (across many and varied industries) from the mass flight from corn production that would ensue if nobody made any profits.

Chefguy
04-06-2011, 03:34 PM
Why doesn't the farmer listen to what the market is telling him? This is why price supports are counterproductive.
If the market price of corn is too low to make a profit, he should grow something else.
But no, under the price subsidy, he gets paid to grow stuff that no one wants-which leads to a little problem-the subsidy is wasted. Now we have excess corn-if it is not sold, it is dumped onto the market-depressing the price again.
And, let us not forget- the production of this unwanted product causes the wastage of fuel-which we now import-at great cost.
Do price subsidies preserve the sacred "family farm"-I doubt it-farms today are huge, factory-like operations, owned by big corporations.
In the 1930's most farms were family-owned and run-not today. We are still using "New Deal" policies set up 80 years ago.

Silly boy. "Free Market" only applies to those who benefit most from it. The same politicians who blather on about the free market are the same ones who vote for subsidies and corporate welfare year after year.

septimus
04-06-2011, 03:53 PM
The discussion so far overlooks one real tragedy of U.S. agricultural policies. Africa needs prospering farmers to deal with hunger, but their farms are undercut by subsidized American farm goods. Indeed, some Federal programs to combat African hunger require that American food be used rather than African food. :smack:

I'm too lazy to Google much. Here's the first hit (http://www.pbs.org/now/shows/310/index.html) from my silly search ("U.S. subsidies hunger Africa"). It speaks of cotton, not corn.
Ray Offenheiser, president of the anti-poverty organization Oxfam America told NOW, "There is a direct association between these subsidies and the hunger in Africa and the plight of African farmers."