USA Today reports that while campaigning in Iowa on Tuesday President Obama announced that the government will purchase “…up to $100 million of pork, $50 million of chicken, and $10 million of both lamb and catfish products for federal food nutrition assistance programs, including food banks.”
This is a relatively normal occurrence; the USDA has for some time bought these commodities to supply numerous federal assistance programs. The highlight of this purchase could simply be a political strategy for Obama to ‘buy’ votes from the farmers/ranchers affected by the drought and the recipients of the assistance programs. However, given the price and amount of meat that the government is purchasing it is becoming clear that the manipulation of the market is the overall goal.
The price of these commodities is going down due to ranchers putting more products on the market in order to defray increasing feeding costs. If these products went to the market then consumers would pay the lower prices. To keep the price of the commodities elevated, the government is depleting the supply of the product and paying a higher price (closer to the cost before the drought occurred). This will cause the price of the commodities to remain static or rise due to the decreased supply. This is a clear attempt to artificially inflate the market.
This may benefit farmers and ranchers today but the long-term impact will be negative. As Chris Edwards describes: “the extensive federal welfare system for farm businesses is costly to taxpayers and it creates distortions in the economy. Subsidies induce farmers to overproduce, which pushes down prices and creates political demands for further subsidies. Subsidies inflate land prices in rural America. And the flow of subsidies from Washington hinders farmers from innovating, cutting costs, diversifying their land use, and taking the actions needed to prosper in a competitive global economy.” Government should not ‘bail out’ every industry that falls on hard times, forcing their dependence on subsidies to survive. Farmers and ranchers like all business should face the exigencies of the market.