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In The Omnivore's Dilemma, Michael Pollan writes that industrial beef farming, in the form of concentrated animal feeding operations (CAFOs), is dependent on low corn prices for its cost-effectiveness. He also implies that corn prices low enough to justify CAFOs were only possible because the US agriculture policy artificially depressed the price of corn.

Pollan attests that the first CAFOs began in the 1950s. But he also spends a good deal of time in the previous chapter discussing how Earl Butz, under President Nixon (that is, in the 1970s), was instrumental in ending the New Deal corn price stabilization policies (a buffer-stock scheme) and replacing them with corn supply subsidies (direct payments to farmers).

If that's the case, then how did the first CAFOs manage to be profitable, or even seem like a good idea, if corn was not to become artificially cheap for at least another decade? Or were CAFOs always profitable, but received a tremendous boon when corn prices were later driven down by policy?

This is as much a question about the timeline as it is about the underlying economics, so I'd prefer to see an answer based in some kind of scholarly source.

Also I'd appreciate it if someone with more than 150 rep could create an "agriculture" tag for this question. I had wanted to add "prices" and "subsidies" tags as well.

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  • $\begingroup$ Would this question be better suited for History.SE? It's more about an historical timeline than about economics per se. $\endgroup$ – shadowtalker Jan 26 '15 at 15:33
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Was factory beef farming (in the USA) the result of government-subsidized corn?

Answer A) The answer is negative, according to

MacDonald, J. M., & McBride, W. D. (2009). The transformation of US livestock agriculture scale, efficiency, and risks. Economic Information Bulletin, (43). USDA.

Although not a historical-statistical account, they write (p. 21, bold my emphasis)

"Two recent reports argue that Federal commodity programs reduce prices for a particular input, purchased feeds, and that those reductions drive structural change (Pew Commission on Industrial Farm Animal Production, 2008; Union of Concerned Scientists, 2008). Specifically, they assert, drawing on Starmer and Wise (2007), that policy encourages increased production of feedgrains, that the increased production substantially reduces feedgrain prices, and that the buyers of purchased feed benefit from lower feed prices. While producers of homegrown feed have been the direct recipients of commodity payments, the reports argue that the payments have not been large enough to offset lower commodity prices, so that commodity programs have largely benefited large-scale animal feeding operations at the expense of smaller diversified crop and livestock farms. However, the size-related differences in production costs that are summarized in figures 6-8 cannot be attributed to the effects of commodity programs. In developing cost-of-production estimates, ERS prices homegrown feed at its market value—that is, the price that homegrown feed would have drawn as feed in regional feed markets—and does not attempt to estimate the actual cost of producing the feed. To the extent that larger operations realize lower feed costs in ERS estimates, it is because they use less feed per cwt of production and not because purchased feed costs them less. But even if commodity policies reduce purchased feed prices, there’s no reason why that should alter the size structure of livestock farms. No technological barrier prevents small farms from replacing homegrown feed with purchased feed: if purchased feed prices are lower than the costs of growing feed, then small livestock operations can simply buy feed and realize the same savings as large farms. A difference between the price of purchased feed and the cost of homegrown feed does not explain why feeders build large rather than small operations."

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Answer B) The answer is positive according to

Starmer, E., & Wise, T. A. (2007). Living high on the hog: factory farms, federal policy, and the structural transformation of swine production. Tufts University.

They report the following estimations, among others: The feed costs for Hog represent ~$60\%$ of operating costs of CAFO's. That in the period $1997-2005$ feed subsidies meant that feed was sold at a price $26\%$ below production cost. Hence, the savings in operating costs for CAFO's was around $60 \% \times 26\% \approx 15\%$ (of Costs, not of Revenues). For the top four CAFOs in terms of market share, the authors estimated that this amounted to total cost-savings of $\approx 4.4$ billion USD for the 1997-2005 period.

This paper appears to be an aggregator of previous more detailed studies, so lots of references.

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  • $\begingroup$ I think this is as close to an answer as I'll get, even though it sounds like USDA propaganda more than real science. The statement "A difference between the price of purchased feed and the cost of homegrown feed does not explain why feeders build large rather than small operations" might be pedantically true, but I don't think it holds up based on the evidence they present. $\endgroup$ – shadowtalker Jun 10 '15 at 23:46
  • $\begingroup$ I found it very difficult to obtain (ready-made) on-line data or studies on 1) The historical evolution of corn subsidies and how much do they account for the reduction in purchasing feed costs for livestock or 2) studies showing what percentage of operating costs do the feed represents on overall costs of CAFO's. The second alone could give a good indication of how important is the price of corn for the business. $\endgroup$ – Alecos Papadopoulos Jun 11 '15 at 0:12
  • $\begingroup$ Hey, I'm glad you found anything at all. Those are great starting points -- (2) could be a nice descriptive side project for the summer, provided the data is available somewhere $\endgroup$ – shadowtalker Jun 11 '15 at 0:31
  • $\begingroup$ Perhaps professional/industry studies made by industry professionals rather than academic economists, that are published in industry magazines rather than scientific journals. $\endgroup$ – Alecos Papadopoulos Jun 11 '15 at 0:39
  • $\begingroup$ To be sure. The issue will be finding raw data and not analysis/editorializing. $\endgroup$ – shadowtalker Jun 11 '15 at 1:31

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