Another Perspective

A Corny Tale

We have China to thank for a decline in U.S. farm subsidies.

By 9.21.11

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Farm subsidies, mostly in the form of price supports, have been with us since the 1930s, but they may be going the way of the dodo bird. Thanks to growing worldwide demand and especially China's expanding middle class, the price of U.S. corn and soybeans is too high to trigger subsidies any longer.

The result is that U.S. Department of Agriculture offices in farm states such as Illinois are as quiet as tombs these days. Some workers fear they may be laid off (perhaps Obama's Son of Stimulus plan will "save" their jobs even though there is no work to do).

China's spreading wealth is changing diets in that country. For example, more people are eating pork regularly. To increase pork production, Chinese growers are using the Western technique of feeding hogs corn. In addition, the need for sweeteners for soft drinks, for starch, and for alcohol adds to China's demand for corn. Ironically, Some U.S. producers of chickens, livestock, and ethanol are now mixing wheat with corn as feed because it costs less. Corn prices have nearly doubled over the last year. 

For years, China was self-sufficient in corn production, but no longer, and its appetite for U.S. corn shows no signs of dropping off. In July it ordered 21 million bushels and another 2.2.million in August. This is more than the U.S. Department of Agriculture had expected China to buy in an entire year. 

The U.S. exports approximately 1.8 billion bushels of corn a year. Japan, at 610 million bushels, has been our biggest customer; however, some experts expect China to surpass it within a few years. 

Given China's concerns about food price inflation (which could lead to political instability), Beijing's government is very likely to keep up its corn-buying pace in order to keep domestic prices in check.

As for soybeans, China already buys about 25 percent of our annual production.

While subsidies for these crops may become more-or-less permanently a thing of the past, the USDA still shovels out large sums for other subsidies, such as crop insurance and payments to farmers for keeping erosion-vulnerable land planted in grass. The good news is that federal farm subsidies for 2011 are predicted to decline to $10.6 billion, less than half the 2005 figure of $24.4 billion.

Thus, we have a two-fer. China's growing corn purchases help balance the cost of Americans' appetite for Chinese-made gadgets, and our federal bill for farm subsidies is finally on a sharp downward curve. Next, let's see if the climate might be right to get rid of subsidies for that useless, wasteful fuel: ethanol.

 

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About the Author
Peter Hannaford was closely associated with the late President Reagan for a number of years. He is a member of the board of the Committee on the Present Danger. His latest book is “Presidential Retreats.”