The REAL reason that your groceries are so expensive: You're paying for them twice!

by Bruce Watson, Posted Aug 20th 2008 @ 9:00AM

In spite of all the articles, all the op-ed pieces, and all the tables of comparison, I've found it remarkably easy to forget that the cost of groceries has steadily risen over the last couple of years. Part of this is the fact that I moved to New York about a year ago. Prior to the move, most of my family's food came from regional groceries and the friendly, neighborhood Wal-Mart. Moving into the Bronx, I was so stunned by food prices price of food that a few pennies here and there were pretty much irrelevant. Recently, however, I was buying a box of cereal when it struck me that the price had risen by a dollar over the last year. Given that the new price was just over $5, this translated to a 25% cost increase in one year. I was stunned.

When asked about skyrocketing food prices, most pundits pin the blame on our new favorite villain: rising gas prices. While gas is partially responsible, it's worth noting that increased shipping costs haven't caused the prices of every other consumer item to soar. In truth, the biggest force driving up the cost of food has been exports; basically, European markets are filling up with cheap American foodstuffs. Over the course of 2008, Europe will have imported $110 billion worth of our produce, a 22% increase over 2007.

There are two main reasons that American produce is (comparatively) cheap. First, the dollar is very weak, which makes American exports much less expensive in Europe. Second, the U.S. subsidizes its agricultural sector, artificially lowering the price of its harvests. In the last two years, for example, the federal government gave $36 billion to American corn farmers.

So there you have it: American taxes underwrite agricultural subsidies. These, in turn, keep America's produce cheap, making it a bargain for European consumers. American consumers, meanwhile, pay taxes that fund the subsidies, then pay inflated prices because the subsidies have encouraged the price of produce to rise. In other words, you pay once to grow the corn, then pay again to buy it at European market rates.

Is anybody else starting to question the value of this system?

Filed Under: Farming, Trends, Food News
Tags: agricultural subsidies, AgriculturalSubsidies, exports, imports, inflation

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Reader comments (Page 1 of 1)

8-20-2008 @11:22AM Astin said... I'm a bit confused by your logic. If subsidies keep the food cheap, then how does that increase prices? Granted it lowers the US supply as more gets exported, and domestic demand competes with foreign, but the prices would be higher still without the subsidies.

The subsidies are fairly anti-capitalistic though. Without them, many smaller farms would be forced to raise prices substantially, which would decrease demand, and force them to shut down or merge with the major corporate farms. Chances are most corn, for example, in the US would be coming from South America without the subsidies, and it would be significantly cheaper.

So you need to question if the trade-off is worth it - do you want cheap food or a barren agricultural centre of the country due to an inability to compete with cheap labour and better growing conditions in other countries. Along with that would come an increased agricultural dependance.
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8-20-2008 @11:36AM Bruce Watson said... Astin-
Fair point--I wasn't clear. The fact is that the market finds equilibrium, and Europe will continue to drive up the prices of our produce until the prices are commensurate with their own. My argument is that the initially lower prices, funded by subsidies, are basically resulting in a larger profit margin for agricultural producers, not in lowered prices for American families. Let me put it this way: if you weren't funding agricultural subsidies, you would have more money for buying food, which would offset higher prices. As it is, you ARE subsidizing agriculture AND paying higher prices, due to market demand.

Large agricultural corporations often use the family farmer as a justification for agricultural subsidies. However, the vast majority of these subsidies aren't going to small farmers, organic co-ops or similar icons of American agriculture. Rather, they are going to large corporations, which are using their guaranteed profits and harvest bonuses as a means of buying out the very farmers that those subsidies are supposed to protect.

I don't really have a problem with big business, but it seems like agribusiness has gotten out of hand. It has undermined the American farmer, lowballed Mexican farmers (through NAFTA), gotten huge subsidies through aggressive lobbying, has had corn ethanol pushed to the fore (again, through aggressive lobbying), and is now leaving American consumers to fend for their own as it sells its subsidized crops to Europe. At what point do we pull the switch on this?

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8-20-2008 @4:05PM Bkhuna said... I'm wondering when some politician is going to start yammering some drivel about ending "tax breaks to the evil farmers".

Won't happen. While billionaire farmers like Ted Turner rack in tax breaks, his cozy relationship to leftists in power will keep his pocket lined, while those same anti-capitalists will demonise whatever industy it chooses to put in it's cross hairs; all for the political gain it gets by pandering to those brought up with the "class envy" mentality.
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9-02-2008 @12:36AM Carolee said... I'm a country girl myself and knew a lot of families who had small dairy farms while we were all growing up. They all made their money via local co-ops that sold to the grocery stores around (this was back in the 80s and 90s in rural Vermont). The way most people think the farm subsidies work and the way they really do are two very different things. A large percentage of subsidies are paid out to huge mega-farms that have been broken down into smaller farms in name for the sake of getting the subsidies. Those small farms that aren't part of one of these conglomerations still barely make ends meet because of the way the subsidy system works. Reading The Omnivore's Dilemma really helps you learn a lot more about how farming subsidies actually affect real farmers. It's sad really. Honestly, government subsidies won't save the family farm... that's like expecting Welfare to cure poverty. The best way to help local family farms is by supporting them with your dollars via CSAs or farmer's markets.
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