Lots of businesses have been forced to close their doors thanks to the COVID-19 pandemic. With much of the country sliding back into mask mandates and requirements to follow strict health and safety rules, the cost of staying in business has far outweighed the potential for profit in many cases. And in some industries, there’s simply no longer any demand for certain services.
But one thing Americans have continued to do throughout the pandemic, maybe even more so, was eat.
While farmers across the country had to contend with COVID-19 rules, they never faced a decline in demand for their product.
So why isn’t the agriculture industry thriving? It’s a bit more complicated than supply and demand. But it doesn’t have to be and it probably shouldn’t be.
The answers lie in the policies that have controlled farming for the last century– government subsidies and over-regulation. And while technically US farms operate within the free-market system, they hardly follow the basic rules of capitalism.
Capitalism requires supply and demand to set prices within the market. Meanwhile, America’s dairy industry is regulated by the federal government, with milk prices determined by a complicated pricing scheme that carves the nation into geographic “Federal Milk Marketing Order” blocs and derives the supposed value of a gallon of milk from commodity, component and class considerations instead of consumer demand and cost of production.
And it’s not just complicated price controls. Beyond standard operating costs like equipment and electricity, farmers have to deal with roughly 63,600 regulations as of 2019, 9,700 of which come from the Environmental Protection Agency (EPA) alone. By comparison, there were only 6,200 regulations from the EPA on the agricultural industry twenty years earlier.
Yet while farmers have seen significant increases in their costs due to regulation, the prices they receive haven’t changed much in the last few years.
In that same year of 1999, for instance, a gallon of milk was only $2.88. Now a gallon of whole milk averages $3.45. Adjusting for inflation, that’s about $2.18 in 1999—cheaper than the actual 1999 price.
This means there is very little room for profit as a dairy farmer in today’s United States. The slow price growth coupled with the 3,000 new regulations that farmers have to contend with creates limited opportunities for profit. And while US fluid milk production has increased from 162.7 billion pounds to 223.2 billion pounds from 1999 to 2020, fluid milk sales have declined from around 33 percent of this production to only 20 percent in 2020.
Dairy, of course, is not the only agricultural sector. Taking into consideration all agricultural industries, 36 percent of farm income comes from government subsidies. Farmers aren’t determining how many animals to breed, how many crops to grow or how many cows to milk based on what the free market demands. More often than not, farmers decide what to plant based on how much government money they can get.
This type of government regulation disincentives entrepreneurialism and innovation. Even the successful commercial farms rely heavily on the government, receiving 73 percent of all subsidies, making many of them essentially government owned.
This is costing taxpayers more and more money every year. In 2020, farmers received $46 billion in direct aid from the federal government, the highest ever even adjusting for inflation. If farms were allowed to operate within a truly free market, prices would stabilize and supply would meet demand.
In a free-market system, it’s true that only the efficient survive. But is that such a bad thing? We should be encouraging farmers to be efficient and innovative—not propping them up to be quasi-government entities. Ultimately, it would make farmers stronger.
As the country continues to grapple with the fiscal problems from COVID-19, it’s more important than ever to make sure our money is being spent responsibly. Encouraging farms to be government-owned is far from responsible and puts our economy on a dangerous path towards socialism.
By over-regulating the agriculture industry, the government stifles growth and innovation, not allowing the forces of supply and demand to inform farmers’ business decisions. With artificial market forces (i.e. regulations) guiding farmers’ hands, the outcomes don’t allow for much profit or success for the food suppliers of our nation.
America will always need food. Let’s make sure the market keeps providing it.
The post The Dark Truth about America’s Agricultural System was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.