Meatonomics

by David Robinson Simon

  Buying the Farm in Rural America

  The problem isn't just that small farmers don't get their fair share of the subsidy pool. It's also that in light of the unintended effects these handouts have on the market, small farmers are among the biggest losers under subsidy programs. Subsidies distort the normal market forces of supply and demand, making small farmers overproduce even when inefficient to do so. For an example of math that doesn't really add up, consider: when subsidies reduce the market price of corn to levels below what it costs to produce, US farmers nevertheless continue to grow it in record amounts.

  From 1986 to 2005, the cost to grow corn was higher than its market price in every year but one.25 Yet because of market incentives to increase production levels, even as subsidy payments tripled during the second half of this period, farmers' net income fell by 15 percent.26 It's not hard to see why. Say the cost to produce a bushel of corn is $6, but the bushel can only be sold for $5.90. No one's going to grow corn at these numbers. But throw in a $1 per bushel subsidy, and now there's profit of $0.90 per bushel. But as production increases, and the excess supply causes prices fall to $5.50 per bushel, farmers grow more corn to make up the income shortfall. This in turn drives prices even lower. It's a vicious cycle, a perpetual pattern of false cues and financial suffering for many of its participants. As physician Martin Fischer said, “Morphine and state relief are the same. You go dopey, feel better and are worse off.”

  Supply management—holding goods in reserve—once kept these harmful forces in check. Remember government cheese? In the 1980s, the Reagan administration famously tapped tons of dairy reserves to give processed cheese to the poor. Criticized as the patronizing and unhealthy product of unrealistic and out-of-touch leadership, the orange, five-pound blocks became synonymous with Reaganomics and government double-speak. Still, despite evidence that supply management works, at least from a market perspective, policy makers abandoned that system in the 1990s for a market-oriented approach that deregulates supply. The theory was that with less regulation, farmers would make better choices—like producing less when prices dropped. Unfortunately, it turns out the theory was wrong.

  In the world of small farms, subsidies are a poisoned chalice. Depressed commodity prices and smaller margins hurt small farmers' incomes. Not surprisingly, USDA research indicates that even with subsidies, most farm families don't earn enough farm income to support themselves.27 Most of these families moonlight in off-farm activities, getting second (or third) jobs or engaging in other business activities to make ends meet.28 This decline in income and lifestyle leads most small farmers and rural Americans to oppose subsidies; nearly two-thirds of Iowans, for example, favor eliminating subsidies.29

  The economic damage wrought by farm subsidies plays out regularly in rural communities across the country. In a 2007 article titled “Why Our Farm Policy Is Failing,” Time Magazine described the effect of subsidies on the small town of Randolph, Nebraska:

  Randolph's school district has dwindled from nearly 1,000 students to fewer than 400. It's adopted a four-day week to save money and might switch to eight-man football. The town has lost its Ford, Chevy and Chrysler lots, all its implement dealers and lumber yards, its creamery, jewelry store and movie theater. “The big farmers took over, and it's killed small business,” says Paul Loberg, who runs a welding shop off Main Street. “All they need downtown is coffee and beer. They can't buy that by the truckload yet.”30

  Subsidies and the Rise of Factory Farms

  Subsidies also cripple small farming towns by promoting the growth of factory farms, or concentrated animal feeding operations (CAFOs). CAFOs are usually bad news for those who live nearby, saddling local regions with pollution-related costs and other burdens. Some locals might accept these consequences if CAFOs gave back to the community by providing jobs or buying goods. But CAFOs hire fewer workers per animal than smaller farms do, and they purchase most supplies from out of the area. Thus, as CAFOs enter a region, they cause declines in local business purchases, infrastructure, and population, turning once-vibrant communities like Randolph into ghost towns.31 Mike Korth, a farmer in Randolph, received $500,000 in subsidies over ten years but still publicly opposes farm welfare because of the damage it causes by spawning factory farms.32

  Artificially low feed prices also give CAFOs a huge advantage over the dwindling number of smaller, traditional farms that still grow their own feed. As a result, over the last several decades, CAFOs have consolidated and gotten bigger. At the same time, traditional farms have gone out of business or sold off to their larger competitors, disappearing from the landscape by the millions. The number of US hog farms, for example, shrank by 76 percent from 1982 to 2002 although pork production increased by 10 percent during the period.33 As this trend continues, fewer small farms survive, and market power concentrates in the hands of fewer and fewer industrial producers. One analysis bolstered this point, finding that four beef packing firms control 84 percent of their market, and four pork packing firms control 64 percent of theirs.34 Animals, it seems, are not the only ones who are highly concentrated in factory farming.

  Worse yet, the larger revenues generated by CAFOs routinely don't generate higher tax revenues for the states or localities where they do business. One study looking at state and local tax revenue from swine farms found that among all farm types, CAFOs generate the least tax revenue per pig.35 Local tax revenues also suffer because lower purchases from local businesses mean decreased sales tax receipts, lower property values in the vicinity of CAFOs cause lower property tax receipts, and property tax exemptions for CAFOs lead to lower tax revenue.36 The one-two punch of subsidies and CAFOs, it seems, has rural America on the ropes.

  Beggaring the Neighbors

  In addition to plowing over our own small farmers, US farm subsidies routinely hurt the little guys throughout the rest of the world. Because meatonomics heavily subsidizes feed crops like corn and soybeans, for decades US farmers have sold these crops on world markets at prices well below their cost of production. This is classic dumping—the selling of goods in a foreign market at less than fair value. In the British card game Beggar My Neighbor, one of the goals is to make neighboring players pay stiff penalties. In the real world, when nations dump, they burden their neighbors with genuine penalties in the form of severe economic and social disruption.

  In developing countries, where 60 percent of the people still earn their living in farming and sometimes get by on income of $1 per day, the results of dumping can be catastrophic. Small farmers would ordinarily be challenged to compete against a large agribusiness merely because of the economies of scale enjoyed by the larger competitor. But these small farmers have an even harder time competing when subsidies permit the large business to consistently sell at prices below its own cost of production. This slanted playing field drives small farmers out of business and off their land, and it contributes to widespread socioeconomic problems in developing countries.

  Dumping by US corporations has had devastating effects on a number of developing nations, including, by way of example, our neighbors to the south. The influx of cheap US corn flattened Mexican corn prices by 70 percent from 1994 to 2003, contributing to a 20 percent drop in Mexico's minimum wage and helping boost the nation's unemployment rate to 50 percent.37 In an ironic twist, when Mexicans seek employment in the same US industry that helped put them out of work, those lacking documents are rounded up, in some cases prosecuted, and deported. It's not just a metaphor—we have literally beggared those around us, and for some, validated the words of journalist Mignon McLaughlin: “Few of us could bear to have ourselves as neighbors.”

  But it's not just our close neighbors we hurt by dumping. It's almost any farmer in the third world. In virtually every developing country where local farmers eke out a living growing commodities that are subsidized in the United States, our policy contributes to reduced incomes, increased unemployment, loss of land, and a decline in quality of life.38 In short, our subsidy
programs damage third world economies. As one study found, “Subsidized agriculture in the developed world is one of the greatest obstacles to economic growth in the developing world.”39

  American officials recognize the problems inherent in dumping, even though restraining the subsidy leviathan may be beyond their power. As former US Deputy Secretary of Agriculture Charles Conner said of the 2008 farm bill:

  This farm bill just heads in the wrong direction in terms of our international obligations. It's no secret our current farm programs under current law have come under enormous fire for their adverse impact on developing regions of the world and their ability to increase their agricultural production because they can't compete against the farm subsidies of the developed world. How does this bill respond? This bill responds by increasing trade-distorting supports on seventeen out of twenty-five of the commodities that we provide. This is moving, clearly, in the wrong direction in terms of helping the world sustain themselves through food production.40

  What does the dumping of corn and soybeans have to do with meatonomics? Follow the money. Recall that in the United States, most of these crops are fed to livestock and fish—making American animal food producers the main beneficiaries of feed crop subsidies. These producers use their economic and political clout with remarkable success to convince state and federal lawmakers to create and maintain subsidies for feed crops. As noted, one study found that every $1 in campaign contributions that agricultural donors gave lawmakers yielded an investment return of about $2,000 in subsidy payments.41 It's these subsidies, in turn, that cause the dumping of commodities used as livestock feed (like corn and soybeans) in the third world. As the United States is the planet's largest corn supplier, providing half the corn consumed by people and animals on Earth, our subsidy practices have huge consequences for the rest of the world.

  Monsanto Appreciates Your Donation

  We've seen that the massive handouts Americans give to big agriculture hurt taxpayers, consumers, and small farmers in both the United States and developing countries. The animal food industry is one of the rare beneficiaries of these subsidies, but it's not the only one. Those who provide key supplies to agriculture—known as inputs—also benefit from government subsidies that keep feed prices low. These input suppliers include equipment manufacturers like John Deere, chemical companies like Dow, and seed companies like Monsanto.42 Crop subsidies encourage farmers to grow more crops, and of course the more they grow, the more seeds and tractors they need.43 The fact that subsidies seem to be paid to the small farmers who consume these resources is merely an illusion; a political sleight of hand (remember the vastly undersized percentages that actually go to those farmers). Like a cruel practical joker, the government waves an envelope of cash in front of a small farmer—and maybe even lets him hold it briefly—but ultimately slips it into the pocket of an executive or shareholder in a large multinational corporation like Monsanto or Tyson Foods.

  For their part, executives and shareholders in the handful of corporations that actually benefit from subsidies are living high off the hog. In the meat industry, shareholders in public companies enjoy nearly $4 billion in extra shareholder equity and roughly $228 million in annual dividends thanks to subsidies.44 Tyson Foods, Inc., is the largest processor of chicken, beef, and pork in the United States and the second largest in the world, with more than a hundred thousand employees in more than 3,200 facilities. In 2010, Tyson paid shareholders $59 million in dividends; it also paid its CEO $4.8 million in compensation and its chief operating officer $4.9 million. Yet these and many other rich benefits were, in effect, paid completely by taxpayers. Research suggests that government crop subsidies in 2010 let Tyson pocket at least $3.5 billion in savings.45

  The Bill We Love to Hate

  Farm policy is like the weather: everyone complains about it, but no one does anything to change it. Every five years or so, Congress passes a massive farm bill with enough pork in it to satisfy just about everyone. In 1973, farm-state lawmakers shrewdly ensured the continuing support of urban lawmakers by adding food stamps to the farm bill. With more than 46 million Americans, or one in seven, now receiving food stamps, the farm bill is as firmly entrenched in American political life as apple pie and Social Security.

  That is to say, entrenched but hated. As the New York Times noted following the 2008 farm bill's passage:

  Few pieces of legislation generate the level of public scorn consistently heaped upon the farm bill. Presidents and agriculture secretaries denounce it. Editorial boards rail against it. Good-government groups mock it. Global trading partners formally protest it. Even farmers gripe about it. But as Congress proved again last week, few pieces of major legislation also get such overwhelming bipartisan support.46

  Republican Senator John McCain opposed the 2008 farm bill, saying: “It would be hard to find any single bill that better sums up why so many Americans in both parties are so disappointed in the conduct of their government, and at times so disgusted by it.”47 McCain reiterated his frustration four years later over the 2012 farm bill (which failed to pass Congress and was retooled as the 2013 farm bill), saying he was “hard-pressed to think of any other industry that operates with less risk at the expense of the American taxpayer.”48 Yet despite the occasional eleventh-hour drama, every farm bill eventually passes—mainly because there's a little something in it for everyone. It's a bizarre feature of US lawmaking that a bill's overall effect can be awful, but it will still pass if its individual components gratify enough special interests or regional constituencies. As Steve Forbes said, “Once a pork barrel scheme is started, nothing in heaven or on Earth is likely to stop it. Like barnacles on a ship, too many vested interests will glom onto it and fight to protect it.”49

  The market distortion and social disruption that farm handouts cause might be understandable if subsidies at least helped the taxpayers who write the checks. However, taxpayers are also major losers in the American farm subsidy system. According to one group of researchers, our subsidy program merely “shifts the burden of supporting farmers from . . . purchasers to taxpayers.”50 How much are these subsidies really worth to taxpayers, in their alter-ego roles as consumers, at the cash register? Not much, it turns out. An estimate in Appendix C shows that eliminating three-quarters of US animal food subsidies would raise prices by only about 1.8 cents per dollar of retail sales.51 By contrast, for each dollar of animal foods sold at retail, producers shift $1.70 in external costs to taxpayers. In other words, taxpayers get almost none of the benefits of subsidies but all their costs—including, particularly, the damaging market consequences that subsidies foster.

  Most commentators agree the agricultural subsidy system needs fixing, and many believe the best fix is to return to an unsubsidized market. But even if lawmakers suddenly found the political will to start dismantling the subsidy program, which is unlikely without massive public pressure, there would be no quick fixes. What does all this mean for American consumers? Many are challenged just to support their loves ones, or as George W. Bush clumsily said, “to put food on your family.” Few want to see subsidies cut if the result is to raise meat and dairy prices. Yet there is a solution that, evidence shows, can benefit society across the board by lowering external costs, reducing disease, saving lives, and protecting the environment. That proposed solution is discussed in chapter 10. In the meantime, let's explore the other costs that the animal food industry imposes on society.

  Food for Thought

  Over the past century, animal food producers have implemented improvements in efficiency that have boosted the productivity of animal farming and helped lower the retail prices of animal foods. However, these apparent gains are offset by a massive, growing pool of deferred, unpaid costs. Each year, producers of meat, fish, eggs, and dairy impose $414 billion in externalized costs on American consumers and taxpayers.

  As a category, farm subsidies represent one of the most significant costs that the animal food industry drops on Americans' sho
ulders. At $38.4 billion yearly, subsidies to animal agriculture allow a large animal food producer like Tyson Foods to save $3.5 billion or more each year in operating costs. Subsidies also generate more than $4 billion in extra shareholder equity for the small group of public companies that benefit from them.

  While farm subsidies provide a huge financial boost to animal agribusinesses and their suppliers, these corporate welfare programs disrupt markets and hurt almost everyone else they touch. Thus, subsidies foster overproduction, the rise of factory farms, and increases in externalized costs. As a result, subsidies hurt consumers, taxpayers, small farmers, rural Americans, and people in developing countries.

  § Although subsidies are typically not considered an externalized cost, they are included in this category for calculation purposes because, just like external costs, subsidies artificially depress prices and increase consumption, and they impose a large social burden without providing any real benefit to most consumers or taxpayers.

  6

  Diseases and Doctor Bills

  The Land of the Free, by some measures, is becoming the Land of the Sick. One in three American adults has heart disease (including hypertension, or high blood pressure).1 One in nine has diabetes, and one in twenty-five has cancer.2 Over the past several decades, even as advances in medicine helped eradicate most infectious diseases in the United States, we've developed a new set of afflictions: diseases of indulgence. Americans spend more per person on health care than any other people on the planet, but we're far from the healthiest. And as we'll see below, a significant part of the nearly $1 trillion in annual health care and lost productivity costs related to just three diseases—cancer, diabetes, and heart disease—is directly linked to high consumption of animal foods.