Corn Field, Sauvie Island, Oregon (© Aashish Vaidya)

Back in 1930s, the Great Depression and the Dust Bowl – the dual economic and environmental degradation – caught small family farms into its vicious grip.  To reverse this devastating effects on farmers, the federal government enacted farm subsidies “aimed at helping small family farms”.

Fast forward decades later, the well-meaning policy that sought to help small farms is now producing unintended consequences and counter-productive outcomes.  An USDA publication notes that over those last decades, the total number of the farms has declined from its peak of 6.8million to 2.1million by 2002.  Increasingly, large operations make up to 73% of the production value, even though; they constitute only about ten percent of 2.1million farm operations.  These small number of operators controlling a higher concentration of agriculture production value also produce political clout.

Mike Russo of U.S. PIRG Education Fund in his white paper Apples to Twinkies: Compare Federal Subsidies of Fresh Produce and Junk Food, notes:

Since 1995, taxpayers have spent over $260 billion on agricultural subsidies. Reflecting the political clout of the biggest producers, the lion’s share of the dollars go to a very small number of larger operations – roughly 74% of subsidies go to 4% of U.S. farmers. These large operators, who are recipients of federal subsidies may then turn around and use the money to buy out more small farms.

So, now you have a situation of the original intent of incentive completed subverted and turned upside down. Instead of helping smaller farms, it actually hurts them!

USDA is responsible administering subsidies and making nutritional recommendations for a healthy diet. USDA has replaced the food pyramid with a food plate, which now shows that a balanced diet should be equal parts fruits and vegetables and equal parts grains and proteins. However, USDA doesn’t quite distribute its aid in accordance with its own food plate recommendations. States Mike Russo, USDA “distributes considerable federal financial support for the [grains and proteins], and virtually none for the [fruits and vegetable].” Since 1995 to 2010, the US taxpayers have put up $260 billion in agriculture subsidies.  Notes Mike Russo:

…by far the lion’s share of taxpayer dollars go to subsidizing a few commodity crops. Of the $260 billion spent since 1995, a full $77 billion went to subsidize corn; wheat and cotton growers received just over $30 billion apiece; soybeans were subsidized to the tune of $24 billion. Commodity crops are not unhealthy (not counting tobacco or sorghum – which type of grass-fed to cattle). But, with large subsidies, the commodity crops find a different path to our tables: But most of the corn and soybeans we grow do not go to Americans’ plates as-is. For example, only about 1% of U.S. –produced corn is the sweet corn that is usually directly eaten by humans. Instead, most commodity crops are fed to livestock, turned into biofuels, or processed into additives like high fructose corn syrup and hydrogenated vegetable oils.

So where do Twinkies come into all of this? Mike Russo writes:

Take the Twinkie: of its 37 ingredients, at least 14 of them are made with federal subsidies, including corn syrup, high fructose corn syrup, corn starch, and vegetable shortening. Twinkies are sweet, fatty, and calorie-rich but utterly lacking in nutritional value. And they’re cheap, too, in part because consumers have already made a down payment on many of the ingredients with their tax dollars.

And what about those apples?  Well it turns out that “only one of the top twenty federal subsidy programs directly supports a fresh fruit or vegetable: apples.” Since even that subsidy is very tiny. In fact so tiny that Mike Russo says, it is as if “each of the America’s 144 million taxpayers would be given $7.36 to spend on junk food and 11 cents with which to buy apples each year.”

Though, there are many complex reasons for the obesity epidemic, “one of the simplest is also among the most significant: junk food.  Between 1977 and 1994, Americans increased their daily caloric intake by 206 calories.” That is equivalent to 1.25 Oreo cookies (my own calculations using information from Nabisco website). It is expected that health expenses related to obesity and related co-morbidities will increase from $150 billion a year to $216 billion by 2030, and with projected half of the Americans meeting the definition of obese.

Junk food brand display at grocery store (photo credit: aashish vaidya)

What we can surmised is that a well-meaning incentive is put in place (US farm subsidies to affected small family farmer) which then over time is subverted and actually hurts the very people it was supposed to incentivize (large farm operators get the giant share of the subsidies, which they in turn use it to buy out more small farmers).  Then, the institutionalized incentive gets misdirected  and produces unintended consequence (USDA directs vast majority of the subsidies to few commodity corp and those cash crops make junk food cheaper and ends up directly or indirectly contributing to obesity and vastly increases, amongst other things, health related expenses).

Is this is a pattern unique to government entities only, or do we see an equivalent in the corporate world as well?  I will  pick up this line of inquiry in a future post.

In an ironic twist, Hostess Brands Inc., the makers of Twinkies and Wonder bread, amongst other products, filed for bankruptcy earlier this year, citing pensions and a soft economy.  The reasons conspicuously don’t include that perhaps the American consumer may already be turning away from unhealthy products to healthier ones.

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