A glut in the peanut market, government stockpiles of the crop and a looming bailout illustrate, once again, why farm subsidies do not make economic sense (other than to the large, well-connected farming interests that benefit).
As with many other agricultural commodities, the federal government offers price and revenue subsidies to peanut farmers, as well as loan guarantees. The government’s “reference price” – used to determine subsidies when they exceed market price – $535 per ton far exceeds market prices, now less than $400 a ton.
When prices fall far enough, farmers default on their government-backed loans and dump their crops on the U.S. Department of Agriculture, which, to add insult to injury, must pay to store this stockpile to keep the peanuts off the market and prevent prices from falling further.
Prices are at seven-year lows, which would discourage more production in a free market. But in a world of subsidies, these policies prompted peanut producers to increase acreage by about 20 percent this year, leading to the second-largest crop ever.
In addition to forcing a taxpayer peanut bailout, estimated at up to $2 billion over the next three years by a Congressional Research Service report, these agricultural supports encourage farmers to ignore market price signals, and prop up the least-efficient, least-innovative producers.
Farm subsidies cost taxpayers about $20 billion a year, and are expected to rise to $30 billion a year by 2018, according to the Food and Agriculture Policy Research Institute at the University of Missouri. In all, the government doled out $256 billion in farm subsidies from 1995-2012, the Environmental Working Group reports.
“There is a better way,” writes Terry Jones for Investor’s Business Daily. “End all subsidies for all farm goods for all time. Subsidies distort markets, waste money and have few social benefits. They only line the pockets of a handful of farmers – who turn around and use some of their subsidies on political contributions. It’s a politically and economically corrupt system that should be ended now.”
We couldn’t have said it better ourselves.