Farming Bailouts and Subsidies

I have seen many an argument online about bailouts and various forms of government money to farmers of all kinds, in multiple countries. It has come up a lot recently, of course, but it's been argued about for years. A recent UK based news organization wrote about farmers who raise sheep making $0 in profit from their actual work, the money they get from government subsidies being the only reason they make money. A vegan complained today that without government subsidies, a big mac would cost $13. I've seen people argue against bailouts for farmers struggling due to the government imposed lockdown restrictions from the coronavirus, saying they should fail like any other capitalist business that "didn't control for risk".

There is a lot going on here, and I of course do not know everything about the inner workings of bailouts and subsidies for farmers, as I suspect basically no one does since it's bogged down to the depths of hell itself with regulations and red tape. Luckily, I don't need to know awfully too much to understand what the problems are, here.

Let's take things one step at a time. We'll start by establishing something important: most farmers do not sell most of their products directly to grocery stores. I qualify this only because there are certainly farmers who have taken it upon themselves to remove the insidious middleman from their work, usually in the form of farmer's markets (which are actually also not efficient in operation, but that's not relevant for this particular post). Nearly all products from farms are purchased from the farmers by packing and processing companies that operate entirely separately from the farm as their own business. They have contracts with the farmers or they buy livestock in a bidding system against other packers, etc., but they are a separate company from the farmer and they seek to buy low and sell high to their advantage, not the farmers'. Cow ranchers do not slaughter, butcher, package, and ship their cows to the store. They sell raw milk in a giant vat, unbagged truckloads of potatoes, and live chickens to the processors who then process these things into their various forms for shipment to grocery stores and restaurants.

This middleman system is, of course, rife with government interference. Packers want to buy the farmer's unprocessed resources for as low as possible and sell them for as much as possible. The processors are the ones who benefit from the supply and demand paradigm, while the farmers make dismal profits regardless of the issues plaguing the market. This was made offensively obvious by the government imposed coronavirus lockdowns that shut down restaurants, making packers unable to move products processed for restaurants and thus artificially reducing the "demand" for farmers' raw product.

What this meant is that while grocery store prices were skyrocketing and the news was flooded with meat shortage and food waste fearmongering, packers were buying low and selling high to a degree that was so intense that they're currently under investigation for price fixing. There was never a shortage of meat or food, there was a shortage of processing for that food, and regulations and red tape stopped farmers from selling their products road side. It's literally illegal to sell raw milk pretty much everywhere and farmers can't sell their any of their other products without them being inspected, which also requires labor and processing, which is where the shortage was.

The supply of raw product was high while the supply of labor to process that product was low resulting in an artificial lower demand for raw product. Government fees imposed on farmers made it cheaper for them to cull - that is, kill and discard - entire cows, pigs, and barns full of chickens than sell them to processors for multiple reasons, but one of the most disgusting reasons is that they pay fees when they sell those things. Packers creating less processed food meant the supply of that ready to buy food was lower, while the demand was skyrocketing. The packers made more money than they have made before, maybe ever, while farmers and consumers lost by and large. A proposal has been in congress far before the coronavirus related economic lockdown and never passed that seeks to reduce regulations to allow animal ranchers to sell their products without being legally required to submit to multiple inspections. Yet, even after this government bungle that caused farmers to suffer so much that many of them needed to sell their entire operations and change professions entirely to allow their families to survive, it has not even been voted on. We can see that our government, by and large, is uninterested in fixing this broken system.

Why is all of this important to mention? First of all, it shows that the imminent failure of farms that did not receive government aid would have been due to the government's interference in the first place. The fees and regulations imposed on farmers to sell the products they make don't exist because the farmers asked for them - it is because our food supply chain is tampered with by the government. The farmers pay fees to packers because the packers pay fees, like how Verizon is allowed to pass on their communications taxes to their customers. We do not actually live in a free market, the government actually controls our economy in many areas, but nowhere is this more painfully clear than in the agriculture business.

Secondly, it's important because it shows that the system from both ends is set up to the detriment of the farmer. The fact that they rarely process their own products and instead sell what they raise and grow to packers results in them making pennies to the dollar for what you buy your food for from the grocery store. There are many instances of farmers actually getting paid to reduce the product they create, or being reimbursed for wasted product - but not if they donate the product. The farmer, sometimes, cannot even try to make more money by producing more crops or producing more milk or animals as packers may not always be interested in buying it. The farmer is at the mercy of the packer's willingness to buy their products and is financially burdened by the government's red tape.

The entire system would have to be overhauled for farmers to start processing their own products for direct sale, including immense initial cost to the already struggling farmer to even get to that point. This is not the farmers' faults - this system arose originally because it seemed like a good idea. It allowed farmers to specialize in just growing the food while packers could specialize in just processing the food. This decent system became drenched in government regulations and now we are all trapped in the muck of this disaster. An overhaul of the system would severely disrupt the food chain, not to mention require intense cooperation from the government to loosen its vicegrip over our food.

There is another important thing to bring up that it seems many people are not aware of. Yet another government interference, the cost of food is artificially reduced by government subsidies. Kicking back to the vegan mad about big mac subsidies, without the government giving money to farmers, healthy food (which includes meat, regardless of what you've heard, but that's yet another post) would be nearly impossible for people to buy, especially with all the costs farmers pay to just grow their food. This is the food supply chain equivalent to getting a rebate for buying a phone, needing to pay upfront far more, but getting money back later. The farmers make next to nothing creating food, paying the government to sell their products, but then the government subsidizes them so that they can stay in business. People who lack the ability to process nuance see the farmers getting subsidies and think it means their business is not valuable since they could not operate without this government money, but they pass by the absurd number of roadblocks faced by farmers in the first place with their eyes closed.

Indeed, if nothing else changed about the cost of farming - the price of the land, the hundreds of thousands of dollars per machine required to plant, harvest, and milk, the labor and time investment - all food would be prohibitively expensive. The risk of the farming business is also unlike any other, since the farmer doesn't risk just regular business-related things like, say, a clothing shop does, but they are also at the mercy of environmental risk - an inland hurricane just destroyed one third of Iowa's crops. This is a risk unlike any other - it should not be surprising that the government has decided to step in to attempt to help food remain abundant and available for its citizens.

This is, clearly, a terrible system. It's held up by frayed strings and chewed bubble gum, but it's not the farmers' faults. It is absurd to tell all the lamb farms in the UK to close shop because their business is "not lucrative" - the government is regulating the cost of their products to the public so that they are "affordable" to people. If the farmers sold their products for an actual profit, everything would double, triple, or even quadruple in price. The reason they "only" make money because of government subsidies is because the government is limiting the profit they can make in the first place. Indeed, if sheep farmers could sell their products for the prices that their labor and effort demand, lamb would be a luxury food item like lobster or goose. Have you ever seen the price of a goose from the grocery store? They're 70+ dollars. For an amount of food the weight equivalent of two large chickens. How can they sell a goose for such a high amount of money, while a whole chicken is $5? The goose represents the market at work. Supply and demand - but most importantly, a lack of government subsidies for a food source not considered essential. This $70 goose represents the actual price of food in the current system.

I actually raise chickens for eggs and meat for personal use (you can read about that and related issues here). Considering the value they give as egg layers and the effort and cost that goes into keeping them safe and fed, $5 per chicken seems rather low. And yet, farmers make absurdly less than this per chicken due to the way the system is set up. The price of chickens is set in a bizarre way - farmers literally compete with one another, setting the initial price per chicken at something offensively low. This article cites 5 cents per pound. An uncooked grocery store chicken is usually $1.50 per pound, or $.99 per pound if you catch a good sale or go to a wholesaler warehouse. The starting price, for the farmer, is about 25 - 35 cents per entire chicken. The farmers compete to raise the fattest chickens, the "winners" with the fattest chickens getting 50% more per pound - so 7.5 cents instead of 5 cents, or 37 to close to 50 cents per chicken. Now, of course they are selling tens of thousands of chickens, so they make thousands of dollars at a time, and there is of course far more to it than this simplified explanation.

The point to be made here, though, is that the $5+ you pay for a chicken goes almost exclusively into the pockets of the store and the packers and does not represent anywhere close to the profit the farmer made growing that chicken. A farmer, thus, would actually make more than double they make with this system if people could go to their farms and pay $1 for a live chicken. My chickens are worth so much more than $1 each, so I can tell you personally that the price being paid to farmers per chicken is criminal. Unfortunately, with this system, there is little recourse - the packers and grocers want to make money, too, and they do so to the detriment of the farmer who did the most important work. People are squeamish at the idea of processing their own chicken. But imagine if a farmer could simply invest in a small processing center and sell a couple dozen chickens from the farm itself for the same price you buy one at the grocery store? Their profits skyrocket compared to what they make now - the profits per chicken would be thirty times their current profits and the price you pay doesn't even increase. Why wouldn't we support such a change to the system?

People want to cry that we need affordable - or even free! - food for everyone, but then they get angry when they find out "the government is bailing out farmers!" Farming is a business, but it's of unimaginable importance. If the government is going to do anything useful at all, enabling farmers to stay in business so that we do not all literally starve to death sounds like an okay deal. They caused this problem in the first place, of course, but fixing this broken system is untying a Gordian knot. You can either work piece by piece to dismantle a system so convoluted and needlessly complicated for years, ensuring that people are fed in the process, or you can cut through the knot with a blade - likely causing disruptions so severe that food shortages we've seen from the pandemic related government mandated economic shutdowns wouldn't even compare.

Of course, it is much more likely that our government will do neither, and simply allow the Gordian knot of overregulated nonsense to persist, simply band-aiding the system by paying off whoever they can to keep things afloat. Unfortunately, it's more likely than ever that the precarious house of cards will simply collapse on its own one day, which is not good news for anyone. Arguments about government bailouts are well and good, except people seem to forget they rely on farmers to survive. We cannot look at farming as "just any other business," unless your actual stance is that you are a-okay with millions of people in civilized, industrial society dying of starvation. We are at the mercy of this sprawling government-created hellscape until people start wising up - which could very well be never, and with the government content to leave the barricades in place, even the collective awakening of society may not be quite enough.