Subsidy

by Joel Huesby of Touchet, WA

What is a Subsidy?

Here are a couple of definitions I found on the internet. Read slowly, think hard.

1. To provide an incentive to perform a specific action, such as the manufacture of a good.
2. A form of financial assistance paid to a business or economic sector.

A subsidy can be used to support businesses that might otherwise fail or to encourage activities that might not otherwise take place. Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.

The $300 billion, 5 year Farm Bill recently passed contains about $43 billion in subsidies for commodity crops—mostly corn, but also wheat. If commodities are traditionally priced at or below the cost of production, then these economic sectors would not exist without subsidies.

The Farm Bill also allocates $200 billion in the form of social subsidies for Food Stamp and nutrition programs. These are embedded in the Farm Bill so that urban congressmen will vote for rural interests; thus many Americans benefit directly from subsidized food.

But there is also an ecologic subsidy system that we have a hard time weaning ourselves from. Let me explain.

Pastureland is often subsidized with various mechanical passes, artificial fertilizers and chemical pesticides. That is, these provide an incentive to perform or are used to support activities that might otherwise fail.

The livestock industry benefits from this cheap feed policy. Although demand for Grass-Fed Beef enjoys a robust 20+% growth rate, it remains less than 3% of total beef sold in America. Most who read the Grass Farmer are graziers, but a much smaller percentage are Grass Finishers; thus the majority of cattle finishers benefit directly from subsidized feed.

Livestock are often subsidized with hay in the winter or grain at finish. In a way these activities can be seen as “trade barriers” that make these goods artificially competitive against “imports.” This is a mote that makes grain-fed artificially competitive against grass-fed cattle. The Cost of Gain at the most efficient feedlots in the world, located near corn, is currently in the low $.90’s, later this winter it may be around a $1.10. This is at or slightly above the price of fat cattle. Someone will lose even though many producers benefit directly from subsidized feed.

Grass-fed cattle can be finished for a third of this cost—if nonsubsidized systems of fertile land, genetically adapted livestock, and some form of “holistic management” is employed.

Today the United States and many other governments around the world are subsidizing their financial systems—to keep cheap money flowing through their economies.

Many policy makers, CEO’s and others in positions of power advocate that the alternative to subsidized systems is not acceptable. I would like to hear more from those who sing loud and clear, “Hey folks, there’s an elephant in the living room!” The problem is that there will likely be some broken things getting him out! So be it.

In the not-too-distant-future we will be forced to decide both individually and collectively just how much subsidization we can live (or die) with. Sooner or later the chickens always come home to roost.

My philosophical, economic, and political world views are very much in alignment with a non-subsidized system of production, marketing, and finance. This is why I enjoy the messages in the Small Farmer’s Journal so much.