The political economy of farm policy

Below is a map of farm subsidy payments. These are the addresses where farm “welfare” checks were sent and the bigger circles show addresses that got sent up to ¼ million dollars in 2007 alone. This map comes from an Environmental Working Group project that used to have a now-defunct website with an interactive map showing the exact location where the government sent every single farm “welfare” check across the entire United States.  You could even see where my mom’s relatively small check was sent.  Yes, having grown up on a farm, I am a welfare child.

Unfortunately, they must have gotten sued by farmers because they now only show a map of the total welfare checks send in each state. Before they took down their map, I made a screenshot of their map of Manhattan Island in New York City:

No, this isn’t a map of rooftop gardens getting subsidies. This is a map of absentee landowners who live in skyscrapers and get government checks because they have invested in farmland. The government farm checks generally go to the owners of the land rather than to the farmers who actually work the land.

Last year OpenTheBooks.com produced a similar map, but they limited their data to farmland owners who got checks worth more than $100,000 from the government in 2018.  Here is their heat map of the nation’s big checks:

I hope they can keep it online without getting pressured by farm owners who want to censor this kind of information. Below is a zoom-in on the Los Angeles area. Some of these addresses got more than a half million dollars from the government in 2018. As you would expect from the fact that all these addresses are receiving government checks worth over $100,000 per year, most of these addresses are in elite, expensive places to live with median home prices well over a half million dollars.

And rich absentee landlords in New York City and Los Angeles didn’t get the biggest farm “welfare” checks. The top three biggest recipients between 1995 and 2017 were rice farmers and they spent millions of dollars in documented lobbying from 1994-2018. But what is documented is only part of it.  In addition, they undoubtedly give additional dark money contributions that cannot be tracked, and the individuals who own these farm organizations also give individual contributions directly to politicians which are hard to track so the lobbying amounts below could be just a drop in the bucket of total lobbying expenditure by the farmers involved with these organizations.

*Data only available for years 2002-2018

Adam Andrzejewski also compiled the numbers and points out that the big money is not going to small traditional family farmers:

Since 2008… the top 10 farm subsidy recipients each received an average of $18.2 million – that’s $1.8 million annually, $150,000 per month, or $35,000 a week… 12 members of Congress collected up to $637,059 in subsidy payments last year alone.

The reason America has farm subsidies is that many Americans do not know about them and the subsidies are popular among Americans who are aware of them. Americans supported subsidizing farmers by 61%-yes versus 39%-no in one recent poll and in a 2018 Politico poll only 30% of Americans wanted to reduce farm subsidies. One reason many Americans support farm subsidies is that they mistakenly think most of the money is going to salt-of-the earth, hardworking, poor farm workers. For most of human history, the average farm worker was poorer than the average non-farmers, but for the first time in history that is no longer the case in America.

Before 1997, the average farm household was always lower income than the average non-farm household, but according to the USDA, that reversed in 1997 and in the most recent years, farm households have received well over ¼ more income than non-farm households:

Plus, the median farm household is much richer in wealth than the median American too. In 2017, the median wealth of farm households was $912,000, so almost half of all farm households were millionaires. In fact, 96 percent of all farm households owned more wealth than the U.S. median household.

Mancur Olson’s theory of political economy explains farm subsidies

American farmers not only benefit from direct government welfare checks (“subsidies”). They also benefit from government policies that restrict imports that could bring prices down. For example, according to an estimate from Iowa State University sugar quotas that limit imports of cheaper sugar from abroad may cost American consumers about $3.5B annually because the price Americans pay is often double or triple the price of sugar abroad as this graph from a Brazillian sugar lobbying organization shows

Sugar just doesn’t grow well in the US.  It grows best in tropical nations like Brazil and US sugar producers are limited to producing sugar in two ecological regions that are simply much less productive than the topics. America has sugar cane growers near the Gulf of Mexico in Florida and southern Louisiana, but this is a marginal region for sugar cane at the very northern limit of where it can survive and not as productive as it is in the tropics. Americans also grow sugar beets in the northern prairies but again, they just aren’t nearly as productive as tropical sugar cane.

The irony is that America is a democracy and American farmers are a small minority—about 1% of the US electorate. A democracy is often demonized as a “dictatorship of the majority” in which a majority can trample on the rights of minority groups like farmers. And yet American farmers have succeeded in using the democratic system to take money out of the pockets of all Americans who eat by raising prices through quotas and tariffs and they take money out of the pockets of all American taxpayers in the form of the farm subsidies that they get. How is this possible?

Mancur Olson’s theory turns the logic of democracy on its head. He argues that minority groups are better at getting subsidies than a majority in a democracy and the reason is due to the math. In the case of the sugar quota, there are about 329 million Americans who lose $3.5B because of higher prices. That is only $10.65 per person in America. When I ask my students if they are going to put up with this injustice, most of them usually say they don’t care about losing ten bucks per year. For rational American voters, many other political issues are much more important such as education policy, health policy, abortion, gun rights, unemployment, etc. Sugar import quotas is simply not a top political priority for anyone except the approximately 5,000* sugar farmers in America. Consumers can be rationally ignorant/apathetic about our sugar policy because the money is so small and we have bigger problems in our life that we need to put more focus on.

Although sugar producers do not get the full amount that consumers lose because of the deadweight losses of the quotas and the costs associated with selling import permits, but even if they only get a third of the amount consumers lose, the sugar policy is still worth $117,000 per sugar farmer on average. That kind of money is enough to make them passionate about sugar policy – more passionate than they are about other political issues like health, abortion, or gun rights. Although 10,000 sugar farmer votes isn’t enough for politicians to take much notice, it is better than the zero votes in opposition and more importantly, politicians REALLY notice the money the sugar lobby pays them.

The majority of the quota profits go to the biggest sugar farmers who can afford to spend big bucks on lobbying politicians. In particular, according to The Stigler Center, the billionaire Fanjul family gets 63 percent of the quota for imports and has 187,000 acres of sugar cane:

According to a review of state election records by the Miami Herald and the Tampa Bay Times, the sugar industry—led by United States Sugar and Florida Crystals—gave $57.8 million in direct and in-kind contributions to state and local political campaigns between 1994 and 2016.8) Florida Crystals and its affiliates contributed $12.4 million in the same period. In the current election cycle, the Fanjuls raised approximately $100,000 for the congressional campaign of retired Army Sergeant Brian Mast in Florida’s 18th District…

The Fanjul brothers also work with the rest of the sugar industry, and together they donate to politicians in big numbers: according to the Center for Responsive Politics, between 1990 and 2016, the sugar industry spent over $40 million on contributions to politicians.) … The Fanjul brothers and their extended family also make direct contributions. Since 1990, they made contributions of $5 million to a variety of causes together, including a $100,000 donation by Alfy Fanjul to the Clinton Foundation.)

The sugar barons pay very close attention to US sugar policies because the sugar quota is the most important factor in determining their profits and they are willing to invest a couple percent of those ill-gotten gains in buying political influence. The Center for Responsive Politics maintains a database of lobbying expenditures from the Senate Office of Public Records. The big sugar companies documented spending over $12 million on lobbying in 2018.

In addition to this industry money that is recorded by the Senate, there is likely to be more “dark money” contributions and political money contributed directly by some of the 10,000 individual sugar farmers to their local politicians that isn’t tracked here. For example, the Fanjul family corporation gave $2.6 million in 2016 which is included in the above graph, but individual Fanjul family members directly gave additional money that isn’t included as part of the sugar lobby. For example, Jose Fanjul gave over $100,000 of political donations in the ’09-’10 election cycles and there are many more members of the Fanjul family like Alfonso, Alexander, Andres, and Raysa. Plus there are many more sugar farmers who also give political donations as individuals that aren’t tracked as part of the sugar lobby in the graph above.

In Mancur’s theory, “concentrated” ≈ wealthy and “diffuse” ≈ nonwealthy.

Research shows that lobbying works and the vast majority of Americans realizes that our political system favors concentrated financial interest groups (wealthy people) who can afford to give political donations over diffuse financial interests (non-wealthy people) who cannot. Nonwealthy people are a diffuse group by nature because there are lots of us and wealthy people are a concentrated interest group because there aren’t many of them.

There are lots and lots of small minority groups that have no ability to influence politics because most tiny minorities don’t have the money to invest.  There are numerous groups like the homeless, or Native Americans on remote reservations, or Asian single moms that cannot buy political influence because they don’t have the money to pay for lobbying organizations.

Transactions costs prevent diffuse interest groups from organizing politically.  It is hard to get Americans to care about the $12 they lose to the sugar industry, but even if you could get Americans to care about the issue, the transactions costs of organizing them into a lobbying organization would probably cost over $12 per American which is all that it would be worth to eliminate the bad sugar policies in the first place, so we are stuck. Transactions costs prevent diffuse interest groups from achieving the financial economies of scale required to get noticed by politicians.

One reason the sugar industry has been able to create a potent lobby is not simply because there are so few people in the sugar industry but because there are a few sugar-baron families that are wealthy enough to invest millions of dollars into lobbying in order to reap many times more for themselves.

PR is a crucial component of how Mancur’s theory works

The Economist Magazine wrote, “the fewer farm voters there are, the more important the “farm vote” has become.”  This is a bit misleading.  What they should have written is that the farm political donations have become more important for shaping the industry.  This is because back when farmers were 90% of the population, if they had tried to get subsidies from the other 10% they amount of the welfare check per farmer would have been worthless, and farmers were mostly too poor to be able to afford political contributions.  But now that farmers are closer to 1% of the population, every dollar they take from everyone else is worth 99 dollars to each farmer and a few farmers (and agribusiness corporations) have gotten so wealthy that they have millions of dollars at stake each year in government protectionism and subsidies.

So if this math gives a concentrated financial interest group more power than a diffuse interest group, what limits the power of the wealthy group in a democracy? If sugar farmers can take $3.5 billion from Americans who eat sugar, why not $300 billion? The key for special interest group success in fleecing the majority is that the minority must either:

1. Be unnoticed by the majority of voters.

   OR

2. Convince the majority of voters that they deserve the subsidies.

Researchers have found that special interest groups are more likely to win when there is less public debate and media attention.  Most Americans do not know anything about sugar policy, but if the sugar lobby got too greedy and tried to get $300 billion from consumers, we would start to notice, so they have to be careful to avoid unwanted publicity.

Because the public’s attention is fickle and could notice the corruption of the sugar industry, lobbying organizations such as The Sugar Alliance also do PR work to try to convince the public that sugar protection makes America strong and that American sugar farmers are hard-working people who deserve the help.

The Stigler Center reports that they also do PR work to try to convince Americans that sugar is not unhealthy in order to boost sugar consumption:

the sugar industry paid Harvard scientists in the 1960s to produce research that downplayed the connection between sugar and heart disease, and instead laid the blame on saturated fat. According to The New York Times, the documents, released by a researcher at the University of California, San Francisco, suggested that five decades of scientific research into the interconnection between nutrition and heart disease “may have been largely shaped by the sugar industry.”

The recent revelations were in line with the industry’s repeated attempts to play down the health risks involved with increased sugar consumption. In the 1970s, as scientists and media began to connect sugar with illnesses such as obesity and diabetes, the Sugar Association— an industry trade group—ran a successful PR campaign that even led the American Heart Association and the American Diabetes Association to approve sugar as part of a healthy diet.

Over the years, the industry has also invested heavily in lobbying and political contributions, using its influence with legislators to deter regulatory oversight. In 2003, for instance, when the World Health Organization recommended that people reduce the amount of sugar they consume, American sugar companies threatened to appeal to Congress to cut the WHO’s funding.

American farm subsidies also hurt poor countries

As James Meek at the Guardian points out, US farm subsidies subsidize US farm exports to the detriment of poor foreign producers. For example, many poor African nations like Benin rely upon cotton farming for most of their export earnings which they need to pay off their national debt and buy manufactured products. The US subsidies for US cotton have caused international cotton prices to drop which impoverishes Benin and then the US government gives Benin foreign aid to help them develop, but the US government could help Benin more by simply stopping subsidizing US cotton.

In 2001-02, according to calculations by Oxfam and the Washington-based Environmental Working Group, US cotton farmers received subsidies of $3.9bn – almost twice the entire GDP of Benin. In a feat that would have made a Soviet economist blush, American cotton farmers got more in subsidies that year than the total market value of their crop.

Farm protectionism is even crazier in some other rich democracies

Imagine putting nearly 1/2** of the US population into an area smaller than California and filling up most of the flat parts with the Appalachian Mountains until only about 15% of the land area is level enough for agriculture or habitation. That is what Japan is like. It is hard to be self-sufficient with so many people on so little land and the Japanese have long been somewhat reliant on food imports. During World War II, the Allied naval blockade limited imports which contributed to widespread famine in Japan which has helped motivate the Japanese people to tolerate extreme protectionism for their farmers in the name of national security. Their goal is to be somewhat self-sufficient so as to never again suffer that kind of food scarcity. As a result, Japanese consumers are stuck with some of the highest food prices in the world.

Here are some examples of food prices in Tokyo, that E. Kwan Choi collected in March 2003,

Apples, ¥298 (or $2.49) each

Cantaloupe, ¥5800 (or $48.33) each

Watermelon, ¥2980(or $24.83) each

They also sell cubic watermelons priced at from $80 up to $700:

They fit well in small Japanese refrigerators and don’t roll off of the counter!

*When I first wrote about this a decade ago, I found data estimating that there were 10,000 sugar farmers, but when I searched this time, I found an estimate from the Census that there were only 4,516 sugar farmers in America in 2014. I rounded up to 5,000 for simplicity above.

**The population of Japan was about half the US population when I was a kid.  Now it is closer to a third of the US population because Japan’s population is shrinking while the US continues to grow due to higher birthrate and immigration.