Tufts study: Corn subsidies are a sop to HFCS industry, but don’t alone make bad food cheap 4

I have a complex and much criticized view of farm subsidies. 

On the one hand, I acknowledge that the "commodity program" embedded in the Farm Bill is a back-door sop to agribusiness giants like meat titan Tyson and grain-processor Archer Daniels Midland. By encouraging farmers to produce as much corn and soy as possible even when prices are low, subsidies push down the price of commodity crops—and fatten the profits of the firms that buy them.

On the other hand, I disagree with sustainable-food activists who claim that subsidies are the root of our food-system problems. Take them away, I’ve argued more than once, and you’d still have a food system that mainly produces junk churned out by a few big companies. Plus, rather than campaigning to end subsidies, I think we should be pushing to redirect them to more useful purposes: like rebuilding local and regional food infrastructure.

A study just released by the Global Development and Environment Institute at Tufts illustrates my point. The authors—veteran Tufts researcher Tim Wise, plus Alicia Harvie—look at the effect corn subsidies have had on consumption of high-fructose corn syrup, the U.S. food industry’s favorite sweetener.

They essentially pose two questions: 1) Do HFCS producers benefit from the subsidy program?; and 2) Can the rise in obesity/overweight and diabetes rates be tied to corn subsidies through HFCS?  Their conclusions might surprise you.

The authors note the rise in sweetener consumption that has been ushered in by the HFCS boom:

The annual per-capita consumption of caloric sweeteners has increased by 40 pounds in the last 40 years, and high fructose corn syrup (HFCS) accounts for 81% of the 83 additional calories the average American consumes each day from sweeteners alone.

 

Yikes. The HFCS boom has been accompanied —coincidentally or not—by a dramatic intensification of the American sweet tooth.

The authors also note corn subsidies have saved HFCS makers significant cash over the years. Indeed, they reckon that because of the downward pressure on corn prices from subsidies, HFCS producers—including the dominant one, Archer Daniels Midland—accessed "corn priced 27% below its cost from 1997-2005.” As a result, producers booked a cool $2.2 billion in savings between 1997 and 2005 (a period of dramatically heightened subsidy payments).

That’s a lot of money, but as the authors note, meat packers and dairy processors fared even better over this period. Buying livestock fattened on cheap subsidized grain saved chicken processors $11.3 billion, pork processors $8.5 billion, and beef packers $4.5 billion in the 1997-2005 time frame.

Thus it’s indisputable that Big food, including high-fructose corn makers, profits handsomely from subsidies.

The question remains: can we lay rising overweight and diabetes rates on subsidies?

Here things get trickier. The argument goes like this: Buoyed by cheap corn, the corn-processing industry can profitably churn out loads of HFCS and sell it to the food/beverage manufacturers at low prices. These companies the douse everything from soda to sweet rolls with cheap and abundant HFCS, and profitably supersize their goods to people ravenous for cheap calories, who then consume too much.

The problem is with this scenario is, the food industry is so tightly consolidated and streamlined that marginal changes in the price of corn  has little impact on final food prices. Get this:

Today, HFCS represents just 3.5% of the total cost of soft drink manufacturing as measured by the value of shipments. Meanwhile, the corn content of HFCS represents only 1.6% of this value. Thus, the impact of corn prices on the final retail price of a food product is not as high as one might think.

 

That means even if you take away the 27 percent discount HFCS producers got for their corn, you’d only be adding a penny or two to the final price of a Big Gulp.

However, that does leave the question open about profit margins. How much did HFCS producers rely on that 27 percent discount to maintain profitability? Presumably, if profit margins dwindle, they’ll ramp down down HFCS production, just as ethanol makers are now doing with corn.

When corn prices spiked in 2007-‘08, driven up by the ethanol boom, I remember that ADM was able to at least partially pass on those increases to its HFCS customers. In the final quarter of 2008, for example, ADM reported (PDF) $205 million in operating profit from corn sweetener—down from the previous year’s quarter ($317 million in profit), but still robust.

If subsidies didn’t cause HFCS to become ubiquitous, what did? The authors point to the sugar quota put into place by the federal government in the early 1980s, which strictly limits the amount of foreign-grown sugar that can enter the United States. They mention one recent study (PDF) claiming that the quota elevates the U.S. price of sugar to two-to-three times the global level, giving HFCS manufacturers the opportunity to undercut sugar producers.

But if you think about it, without the quota, we’d be awash in cheap sugar—and might still have a food system awash in overly sweet and caloric foods. Like most agricultural commodities, sugar has see its price drop steadily over the past few decades, pushed down by overproduction.

Indeed, Australia, which is awash in cheap sugar but consumes little high-fructose corn syrup, has obesity patterns similar to those in the United States. The authors note that:

Australia and the United States both have high and rising obesity rates, but opposite sugar policies.  Sugar is the major sweetener consumed in Australia, not HFCS, and there are essentially no distortions in its program.

The answer to our food system woes may not lie in ending subsidies. Rather, it may lie in figuring out ways to disincentivize overproduction of environmentally damaging and nutritionally dubious crops like corn and sugar, and increase incentives for fruit and vegetables.

Right now, that’s a tough task. As Jill Richardson recently wrote on La Vida Locavore, we currently have almost as much land devoted to corn for high-fructose corn syrup as we do to vegetables in the United States:

The USDA site also says that 4.1% of U.S. corn goes for high fructose corn syrup. That means that since 29.9% of all U.S. cropland harvested was planted in corn in 2007, 1.2% of all U.S. cropland harvested in 2007 went for high fructose corn syrup. That’s only slightly less than the 1.5% of U.S. cropland devoted to vegetables or the 1.6% of U.S. cropland devoted to [fruit] orchards.

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