Policy, Price and Portions: The Unintended Consequences of Agricultural Subsidies on the U.S. Obesity Epidemic
The Blake School
With up to thirty percent of American adults considered seriously overweight,1 obesity is one of our nation’s most pressing issues. While there are many social reasons to explain why Americans are consuming more and moving less, there are also reasons rooted in our economic policy that help explain this dilemma. Government subsidies of certain agricultural crops have resulted in an over abundance in cheap, high calorie, processed foods. Food manufacturers have taken advantage of these available low cost inputs to make portion size, as well as price, the primary means of competition in the marketplace. Both the prevalence of these types of foods and growing portion sizes have contributed to the obesity problem. These trends in turn have had directly contributed to the nation’s growing health care costs.
One of the greatest economic factors contributing to obesity in America is the prevalence of low cost and unhealthy food that is due, in part, to government subsidies of corn. The U.S. Government spent fifty-six billion dollars on corn subsidies between 1995 and 2006.2 These subsidies have encouraged farmers to grow massive quantities of corn, which has significantly pushed out the supply curve of the corn industry,3 and resulted in a lower price of corn than would have occurred in a free market. The cheap price of corn makes high fructose corn syrup and other corn-based sweeteners become less expensive.4 These ingredients are very common in high calorie, low nutrition foods.
Agricultural subsidies also affect the obesity epidemic because of their impact on the livestock industry, another important part of our food supply. Corn, made cheaper by government subsidies, has become the preferred type of feed for livestock. With the cheap price of corn, farmers have turned to it to replace more expensive but natural feeds such as grass.5 The corn diet produces much larger and less healthy animals and creates cheaper meat that lacks many of the healthy benefits of meat from grass fed cattle. Lower nutritional value is the most detrimental aspect of meat from grain fed cattle,6 whereas grass fed beef is lower in fat and calories.7
Food companies use these cheaper products in making good tasting but high calorie, low nutrition foods. With this cheap input, food manufactures can charge less for their products, which is why many unhealthy foods are also the least expensive.8 Therefore, unhealthy foods have a distinct advantage over healthier foods just based on price.9 In addition, food manufacturers and fast food providers have chosen to use portion size as a primary means of competition.10 Low costs for these subsidized and less healthy ingredients means portions can be increased without much marginal increasein the costs of the product. This allows manufacturers to market their products as a better “value” because their portion size is larger.11
The consequences of these economic policies are particularly hard on the poorer segment of the population. With the price of high calorie, low nutrition foods so low, healthy foods have a harder time competing. In households with low disposable incomes, these cheap foods become very attractive and become a higher proportion of the family diet.12 By comparison, more expensive fresh fruits and vegetables become a luxury good. This is one reason why obesity is especially apparent in low-income groups.13
Our agriculture policies have therefore led to a detrimental externality by increasing obesity and directly affecting health care costs. Obesity is highly related to various costly medical conditions, including heart disease and diabetes.14 According to the U.S. Surgeon General, the total costs of obesity to the U.S. health care system were $117 billion in 2000.15 As obesity is more prevalent in the poor parts of the population, much of these health care costs are borne by the U.S. Government through the Medicaid program or represent unreimbursed costs that are absorbed by the health care system, driving reimbursement rates, including Medicare rates, higher. With the current U.S. deficit at $1.4 trillion,16 this is not something the U.S. taxpayer can afford.
If our nation decides that it wants to combat and reverse the obesity epidemic, it will have to mount a battle on multiple fronts. One point of attack will have to be enacting economic policies that create at least fair competition between healthy and unhealthy food sources. One such measure could be to allow the price of corn to rise to a free market price. This could be most easily accomplished by removing the government subsidies from which corn is currently benefiting. By doing this, farmers will no longer be encouraged to grow massive amounts of corn. Instead, the supply curve of corn and corn-based sweeteners would be pushed back inwardly, forcing less quantity and higher prices. With high fructose corn syrup and other corn-based sweeteners no longer cheap, the companies that use them would be forced to raise prices to be at a profit maximizing level of output, making healthy foods more competitive. This same change in policy would have the effect of raising the price of grain to the livestock industry. This would encourage more, healthier grass fed meat to be in the market.
There are a variety of other steps that could be taken to make healthy foods more competitive in the market. One step would be to shift subsidies to fruits and vegetables so these supply curves moveoutward and the price drops when more of these goods are produced. Another step would be to tax unhealthy ingredients like high fructose corn syrup, which would make the unhealthy foods more expensive and provide incentives for the consumer to avoid them. Some of these changes in policy may negatively impact certain family farmers and there will be a need to address the safety net, which the current subsidies create for such farmers. This assistance could come from changes in tax policy or through measures designed to encourage new markets for farmers’ crops, such as the ethanol market, thereby creating more demand and higher prices without subsidies.
There are alternatives to address farm policy issues without creating the unintended consequences which current policies have for the nation’s health and health care costs. Current policies have created unintended negative externalities by encouraging overproduction of corn and unhealthy corn-based food products. Analyzing our agricultural policies for their impact on the nation’s health, and not just for their impact on the farmer’s pocketbook, is a necessary and important step in addressing our country’s problem with obesity.
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