* Subsidizing Weeds

One of the most popular non-fiction books of the past decade is FREAKONOMICS by Levitt and Dubner.

One of the quirkiest economical situations that exist, not mentioned by Levitt and Dubner, is that the USA government tries to dissuade their population from smoking while they actively encourage their farmers to produce more tobacco!

Click to enlarge

This is QUIRKY ECONOMICS at its best: The US Government spends a fortune to make people smoke less, and then another fortune to encourage production.

As far as the REST OF THE WORLD is concerned the US government is not really subsidising tobacco production to poison its own population – it is spending this money to poison the rest of the world: See the tables on Cigarette exporters.

Some activists argue that the tobacco crop is in fact using good soil that can be used to grow food for the poor. Yet, the US government is rewarding farmers by subsidising this application of soil – and the resultant crop is sent to other countries.

You might have the impression that this money is going to a lot of poor farmers struggling to make a living – each receiving a bit of money. This is not so.

A subsidy is paid out to a farm under one of two circumstances:

  1. The price of a crop has dropped to make it non-economic in a particular year to produce that crop, or,
  2. The Government wants to encourage production of that particular crop.

Let’s have a look at the subsidies that Barnes Farming Corp has received for what it produces:

Click to enlarge

This data spans a period of 15 years. It so happens that anti-smoking activities world-wide has increased especially over this period.

The above table shows that Barnes Farming Corp is involved in producing quite a number of crops. The one crop that it is bad at producing is tobacco – it needs a lot of support from the government. Surprisingly, if Barnes knew that tobacco consumption is going to decline, and that they are only able to produce tobacco below market prices, one would have expected they would shift their production away from tobacco. This is what a reasonable farmer would do.

Let’s look at the subsidies that they have received over time:

They have actually become increasingly inefficient over time. Out of the $2.5 billion they have received from the government $1.5billion was in the last three years (and mostly for tobacco production)!

In case you are interested in this company that has received more than $1.5 of the US taxpayers money to produce tobacco:

It is difficult to find mention of their tobacco farming on any of the easily accessible websites referring to either FarmPak or Barnes. All that I could learn after a bit of research is that they produce sweet potatoes. One wonders why, if sweet potatoes is their main activity, they need to get so much subsidization for their inefficient tobacco operation? In fact, they have not needed a cent subsidization for their sweet potato activities!




Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s