# Why do we have corn subsidies? **URL:** \ **Category:** Factual Questions\ **Created:** [January 29, 2011, 5:51pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428 "2011-01-29T17:51:41Z")\ **Posts on this page:** 14\ **Page:** 2
**Author:** ![ralph124c](https://avatars.discourse-cdn.com/v4/letter/r/8797f3/32.png) [@ralph124c](https://boards.straightdope.com/u/ralph124c)\ **Post date:** [January 30, 2011, 8:23pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/21 "2011-01-30T20:23:15Z")
> [@Arcite](#): > > 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. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [January 30, 2011, 11:09pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/22 "2011-01-30T23:09:27Z")
> [@Arcite](#): > > 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. ---
**Author:** ![KidCharlemagne](https://avatars.discourse-cdn.com/v4/letter/k/ed8c4c/32.png) [@KidCharlemagne](https://boards.straightdope.com/u/KidCharlemagne)\ **Post date:** [January 31, 2011, 1:11am UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/23 "2011-01-31T01:11:29Z")
> [@kunilou](#): > > 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. ---
**Author:** ![Kent\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/kent_clark/32/105_2.png) [@Kent\_Clark](https://boards.straightdope.com/u/Kent_Clark)\ **Post date:** [January 31, 2011, 2:29am UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/24 "2011-01-31T02:29:07Z")
> [@KidCharlemagne](#): > > 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. ---
**Author:** ![Rumor\_Watkins](https://avatars.discourse-cdn.com/v4/letter/r/d9b06d/32.png) [@Rumor\_Watkins](https://boards.straightdope.com/u/Rumor_Watkins)\ **Post date:** [January 31, 2011, 2:57am UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/25 "2011-01-31T02:57:29Z")
> [@kunilou](#): > > 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. ---
**Author:** ![BookNerdCT](https://avatars.discourse-cdn.com/v4/letter/b/eb9ed0/32.png) [@BookNerdCT](https://boards.straightdope.com/u/BookNerdCT)\ **Post date:** [April 6, 2011, 4:20pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/26 "2011-04-06T16:20:29Z")
Read “The Omnivore’s Dilemma.” It answers all your questions about corn, subsidies, history, etc. 😃 ---
**Author:** ![fumster](https://avatars.discourse-cdn.com/v4/letter/f/e9c0ed/32.png) [@fumster](https://boards.straightdope.com/u/fumster)\ **Post date:** [April 6, 2011, 4:38pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/27 "2011-04-06T16:38:47Z")
Short answer to OP is because Iowa has the first primary. ---
**Author:** ![Omar\_Little](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/omar_little/32/269_2.png) [@Omar\_Little](https://boards.straightdope.com/u/Omar_Little)\ **Post date:** [April 6, 2011, 5:06pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/28 "2011-04-06T17:06:24Z")
> [@Chronos](#): > > 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? ---
**Author:** ![SmartAlecCat](https://avatars.discourse-cdn.com/v4/letter/s/67e7ee/32.png) [@SmartAlecCat](https://boards.straightdope.com/u/SmartAlecCat)\ **Post date:** [April 6, 2011, 5:19pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/29 "2011-04-06T17:19:16Z")
> [@kunilou](#): > > 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. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 6, 2011, 5:32pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/30 "2011-04-06T17:32:46Z")
> [@kunilou](#): > > 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. ---
**Author:** ![Peremensoe](https://avatars.discourse-cdn.com/v4/letter/p/ce7236/32.png) [@Peremensoe](https://boards.straightdope.com/u/Peremensoe)\ **Post date:** [April 6, 2011, 5:54pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/31 "2011-04-06T17:54:00Z")
> [@Arcite](#): > > 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. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [April 6, 2011, 8:20pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/32 "2011-04-06T20:20:03Z")
> [@Arcite](#): > > 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. ---
**Author:** ![Chefguy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/chefguy/32/138_2.png) [@Chefguy](https://boards.straightdope.com/u/Chefguy)\ **Post date:** [April 6, 2011, 8:34pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/33 "2011-04-06T20:34:59Z")
> [@ralph124c](#): > > 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. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [April 6, 2011, 8:53pm UTC](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428/34 "2011-04-06T20:53:08Z")
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.” [Previous page](https://boards.straightdope.com/t/why-do-we-have-corn-subsidies/569428.md?page=1)