U.S. farm policies have had a negligible effect on the consumer price of food and food consumption. While many arguments can be made for changing farm subsidies, entirely eliminating the current programs would not have any significant influence on obesity trends.

Obesity has increased rapidly in the United States and in many other countries. The proximal cause of obesity is simple and not disputed: people consume more food energy than they use. Farm subsidies could have contributed to lower relative prices and increased consumption of fattening foods by making certain farm commodities more abundant and therefore cheaper. However, each of several component elements must be true for farm subsidies to have had a significant effect on obesity rates.

• First, farm subsidies must have made farm commodities significantly more abundant and cheaper.
• Second, the lower commodity prices caused by farm subsidies must have resulted in significantly lower costs to the food industry
• Third, the cost savings to the food marketing firms must have been passed on to consumers in the form of lower prices of food.
• Fourth, food consumption patterns must have changed significantly in response to these policy-induced changes in prices.

In fact, the magnitude of the impact in each of these steps is zero or small, so the overall effect is negligible. Let us consider each step briefly.

First, farm subsidies have had very modest (and mixed) effects on the total availability and prices of farm commodities that are the most important ingredients in more-fattening foods. U.S. farm subsidy policies include both Farm Bill programs and trade barriers that raise U.S. farm prices and incomes for favored commodities. These policies support farm incomes either through transfers from taxpayers, or at the expense of consumers, or both. Thus, they might make agricultural commodities cheaper or more expensive and might therefore increase or reduce the cost of certain types of food. Indeed, for several important food products (dairy, sugar, and orange juice) that have been associated with obesity, barriers to imports are used to raise the prices paid by consumers in order to support the prices received by producers. In fact, balancing the effects of these types of policies with policies that make other food commodities cheaper (such as corn, wheat, and soybeans), the effect of farm price support policies has been to make food commodities overall a little more expensive for buyers.

Second, such small commodity price impacts would imply very small effects on costs of food at retail, which, even if fully passed on to consumers, would mean even smaller percentage changes in prices faced by consumers. The cost of farm commodities as ingredients represents only a small share of the cost of retail food products; on average about 20 percent, and much less for products such as soda and for meals away from home, which are often implicated in the rise in obesity. Hence, a very large percentage change in commodity prices would be required to have an appreciable percentage effect on food prices.

Third, given that food consumption is relatively unresponsive to changes in market prices, the very small food price changes induced by U.S. farm subsidies could not have had large effects on food consumption patterns. Simple causation from farm subsidies to obesity is also inconsistent with international patterns across countries. For example, obesity trends for adult males and children in Australia are similar to those in the United States, but Australia phased out its farm commodity programs, over the 1980s and 1990s.

Corn is often the target of criticism as a contributor to obesity, especially because of its use to make high fructose corn syrup (HFCS) which is used as a caloric sweetener in many foods and beverages. The use of HFCS as a sweetener has been encouraged by U.S. sugar policy that made sugar much more expensive and gave food manufacturers economic incentive to substitute HFCS for sugar. Corn itself does receive subsidies that encourage production and have made it cheaper and more abundant for consumers in the past. But even for corn the subsidies have not had a very large effect—increases in availability and reductions in buyer prices for the farm commodity of well less than 10 percent in the years of greatest subsidy, and much less than that in recent years given the high world market prices and the demand for corn as feedstock for ethanol plants. Most corn is actually consumed in the form of meat or dairy products. Corn and other feedstuff represent less 8 percent of the retail cost of meat such that a 10 percent cut in the farm price of corn would imply at most a 0.8 percent reduction in the retail price of meat facing consumers. Similar calculations apply for other retail foods. Consequently, eliminating corn subsidies could not be expected to have large and favorable effects on consumer incentives to eat more-healthy diets such that obesity rates would be meaningfully reduced.

The sweetener market merits some explicit discussion. 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 the replacement of sugar with alternative caloric sweeteners. 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 within the category between sugar and HFCS. In this context, eliminating the subsidy policies would result in cheaper caloric sweeteners and, if anything, more rather than less total consumption of sweeteners, with a switch in the mix back towards sugar.

Farm commodities have indeed become much more abundant and cheaper over the past 50 years in the world as a whole as well as in the United States, but not because of subsidies. This abundance mainly reflects the effects of technological innovations and increases in farm productivity that have rescued billions of the world’s poor from the shackles of poverty and starvation, while at the same time reducing pressure on the world’s natural resources. If cheaper and more abundant food has contributed to obesity, then we should look to agricultural innovation rather than farm subsidies as the fundamental cause. Even so, it would be a dreadful mistake to seek to oppose and slow agricultural innovation with a view to reducing obesity rates. Conversely, though it might be beneficial in other ways, eliminating U.S. farm subsidies would have negligible consequences for obesity rates. The challenge for policy makers is to find other—more effective and more economically rational—ways to reduce the social consequences of excess food consumption while at the same time enhancing consumption opportunities for the poor and protecting the world’s resources for future generations.

_{Further Reading}

_{Alston, J.M., D.A. Sumner, and S.A. Vosti. “Are Agricultural Policies Making Us Fat? Likely Links between Agricultural Policies and Human Nutrition and Obesity, and Their Policy Implications.” Review of Agricultural Economics 28(3)(Fall 2006): 313-322.}

_{Alston, J.M., D.A. Sumner, and S.A. Vosti, “Farm Subsidies and Obesity in the United States: National Evidence and International Comparisons.” Food Policy 33(6) (December 2008): 470-479.}

The two most common arguments used in favor of farm subsidies are either that farmers would go out of business if they were eliminated and that farm subsidies are responsible for the fact that Americans spend less of their disposable income on food than any other country.  These two arguments are effective because there is some historical truth to the first argument and the second argument seems to follow the first law of economics that we get more of what government subsidizes.  But a close examination of how farm subsidies work and how farmers make production decisions reveals that their elimination would have little impact on food prices and that while farm subsidies can provide short-run help to farm finances, over time, the most efficient farmers will be making a living from agriculture with or without farm subsidies.

Market prices for farm commodities are determined by how much of a particular commodity is produced and the demand for the commodity.   Production depends on how much land is planted to the crop and the weather during the growing season.  The amount of land devoted to corn, soybeans, wheat, and other crops depends on the relative returns among them. If farmers expect to be able to make more money from corn than soybeans or wheat, then more corn will be planted.  If wheat returns are expected to be high, then more wheat will be planted. 

The importance of relative returns means that if farm subsidies were focused on a particular crop, and farmers needed to plant that crop to obtain payments, then more of the crop would be planted.  Traditional subsidies are delivered directly to producers of the principle field crops (corn, soybeans, wheat, barley, cotton, rice, grain sorghum, oats and peanuts) through farm programs.  All the major field crops that compete with each other for land are subsidized.  Unsubsidized crops mainly consist of tree crops, other fruit, and vegetables which are not strong competitors for land with the subsidized commodities.  Because subsidies increase the relative returns of all land-competing crops, not just a chosen few, the impact of farm subsidies on relative returns is generally minor.  This means that the mix of the major crops grown is not significantly affected by farm subsidies.

But subsidies can increase the overall profitability of farming because they increase farm revenue.  The most direct impact of higher profitability is that it increases the ability of farmers to buy or rent land, which, in turn, increases the price of land.  Subsidy-induced increases in the price of land do not enhance farmers’ ability to make a living.  For farmers that do not own land, land price increases are just an increase in the cost of production. For farmers who own land, land price increases help their balance sheet, but they do not help cover production costs.  Put more simply, higher land prices increase the returns to owning land but not the returns to farming. 

A secondary impact of subsidies is that they can induce farmers to plant more crops by shifting land out of pasture or other grassland into crop production.  Cropland expansion will result if farm subsidies are tied directly to production levels. That is, if farmers must produce a crop to receive a subsidy then they are likely to produce more crops. 

But in 1996, traditional farm programs largely broke the link between production levels and farm payments by basing payments on what farmers produced in the past.  The link is not completely broken because if prices get low enough, farmers enjoy the benefits of a floor price that protects all of their production. But these floor prices are so low that when market prices fall below these floor prices, high-cost farmers cut acreage rather than produce for the floor price. 

Thus, both the total amount of land devoted to crop production and the mix of crops is largely unaffected by the existence of farm programs.  This means that crop prices-hence food prices-would change little if all farm programs were eliminated.  There simply is no truth to the argument that farm subsidies benefit consumers by lowering the price of food. Inexpensive food has resulted from improved seed varieties, better farm management practices and herbicides, more efficient food processing technologies and improved logistical networks, not farm subsidies.

A portion of farm payments run counter to market prices.  When market prices fall below the floor price (the commodity loan rate), then farmers receive compensatory payments that make up the difference.  Farm prices can fall dramatically, usually because of bumper crops or because of a sharp drop in export demand.  Farmers who have made production and investment decisions based on the expectation of high prices can face financial trouble when market prices unexpectedly fall, particular when prices stay low for a number of years.  For example, farm prices fell dramatically in the mid-1980s and from 1998 to 2001.  The infusion of farm payments during these periods kept some farmers from having to declare bankruptcy and helped the balance sheet of all subsidized farmers. Thus there is some truth to the argument that some farmers have needed farm programs to stay in business.

A general characterization of farm programs is that when crop prices are high they deliver payments to farmers when the payments are not needed and when prices are low, they automatically provide a government bailout to a portion of producers who grow subsidized crops who otherwise would have to go out of business.  But government bailouts are not permanent solutions. If GM does not produce high quality cars that consumers want to buy, it has no future despite its government bailout.  Similarly, the discipline of the marketplace means that the most efficient farmers will be the farmers who make money from farming, with or without government help during tough times. 

Thus, there is some truth to the statement that some farmers need farm payments to stay in business when prices are low and stay low, but over time, farm payments do not determine which farmers make a living from agriculture.  The fact that farm programs have allowed some farmers to survive tough times does not mean that a significant amount of land would have remained idle had the programs not been in place. Land rents would have fallen and surviving farmers would have immediately expanded their own farm operations.  Thus food prices and aggregate production are largely unaffected by the existence of farm programs.