#OccupySugar and the Political Economy of Farm Subsidies

Right here in America, under our collective nose, there is an industry that survives on political patronage and government subsidies, that regularly receives mysterious and untraceable bailouts funded by taxpayers, that is disproportionately influential in Washington as a result of its massive lobbying efforts, and that is making huge profits at the expense of ordinary consumers.

I’m not talking about Wall Street. I’m talking about the American sugar industry, which for years has been a perfect case study for the corrupting influence of money in politics. …

Today’s Wall Street Journal has a story about the Department of Agriculture’s decision to consider bailing out the U.S. sugar industry by buying 400,000 tons of sugar from major U.S. producers, at a taxpayer-funded cost of roughly $80 million. …

Why does the U.S. sugar industry need an $80 million bailout, you ask? Because sugar-makers are in danger of defaulting on loans the government gave them as part of a previous bailout program.

That’s from a very interesting article published a few weeks ago in New York magazine which discusses the political economy of agricultural subsidies in the United States.

The article was very à propos given that we’d just finished discussing farm subsidies in my food policy seminar.

Why does the sugar sector benefit from such subsidies, which end up costing consumers through both the prices they pay and their tax bill? As we have discussed several times in my seminar, the reason is essentially that it is easier for producers to organize and lobby the government than it is for consumers to do the same.

In The Logic of Collective Action, Olson noted that smaller groups have an easier time organizing than large ones do, and studies have shown that smaller commodity groups such as sugar producers get better subsidies than larger commodity groups such as corn producers.

Therefore, as the agricultural sector declines and the number of farms decreases, lobbying becomes a much better proposition for farmers, and the subsidies get increasingly better. For more on the political economy of farm subsidies (and on the politics of food in general in the US), everyone should read Rob Paarlberg’s Food Politics: What Everyone Should Know.

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2 comments

  1. Economic Stability

    Subsidies primarily benefit the American consumer by keeping the cost of food and fiber from skyrocketing. The cost of production has risen many fold over, yields have increased in some areas of agriculture. The US cannot afford to lose their lead in agriculture. We will need more and more food for the US and the rest of the world. Therefore we have a bit of a problem. Are Americans prepared to pay a much larger portion of their income for food in order to balance trade?

  2. Marc F. Bellemare

    Subsidies primarily benefit American producers. To claim that they benefit American consumers is misleading, because American consumers (i) pay higher prices because of the protection producers enjoy and (ii) pay higher income taxes to finance those subsidies. The cost of production has actually fallen because of technological improvements. Whether the US can afford to lose its lead in agriculture or not is a matter of values and opinion. And the world produces more than enough food to feed the world. We have a distribution — not a production — problem. And to “balance trade,” as you call it, would actually mean cheaper albeit imported food.