Distributional Effects of Selected Farm and Food Policies

The Mercatus center released a report yesterday that I wrote on the farm-to-consumer effects of food policies, focusing crop insurance subsidies, SNAP, and ethanol promotion.  

The federal government subsidizes the premiums farmers pay for crop insurance - often around 65% of the premium.  What effect does that have on farm and food prices?  Here's a summary:

Federal crop insurance is a textbook example of concentrated benefits and diffuse costs. Most food producers and consumers receive some benefit from crop insurance through the direct subsidy and decreased food prices. Those who stand to benefit most from the program are best able to convince legislators to continue it. But taxpayers as a body, less able to advocate for their own interests, suffer a net loss as money is transferred from the pockets of all taxpayers through higher taxes to the pockets of producers and consumers of food, meaning people pay higher taxes rather than choosing to pay higher grocery bills. The $932 million in projected savings if federal crop insurance were ended represents the deadweight loss of subsidies: the economic cost of transferring money from many to some and the cost of the lobbying necessary to maintain the system.

Some farmers win from subsidies while other farmers lose. While farmers in the plains states that produce the bulk of the food insured by the government would lose money if the program were eliminated, farmers in western states such as California, Oregon, and Washington would benefit because products such as fruit, vegetables, and nuts, which are not heavily subsidized, would no longer be disadvantaged.

Consumers pay more in taxes rather than more at the grocery store. Consumers would pay higher prices for food if subsidized crop insurance were removed, but the benefit to taxpayers more than compensates for the higher food prices. Taxpayers have to pay about $1.80 for every $1 in lower food prices owing to federal crop insurance.

I also find that SNAP (or food stamps) is a very inefficient form of farm support: for every dollar spent by taxpayers, farmers benefit by only one cent.  A reduction in demand for corn-based ethanol would reduce food - especially meat - prices, while hurting corn producers.