MacroScan - The Forced Commercialisation of US Agriculture

It is no secret that the United States, like most other developed economies, provides large subsidies to its farming sector. It is also no secret that these subsidies have not really been reduced after WTO was formed, and that despite the GATT Agreement on Agriculture, farm subsidies in most of the OECD countries are now back to pre-GATT levels.

What has been a relatively well-kept secret, however, is that these subsidies have not really benefited farmers so much as they have contributed to greater profits of the giant corporations that now control the distribution and marketing of food products. This is marked in the US, which is particularly striking because the US economy is widely cited as one with relatively low marketing margins among developed countries.

At first glance, this appears hard to accept. After all, expenditure on food in the US has been rising at a significant rate over the past decade. And this has been combined with subsidies of various types which have circumvented the GATT restrictions by using "Green Box", restructuring and other provisions to provide subsidies which are now as high as a proportion of the final value of output as they were in the late 1980s.

The paradox can be explained in terms of the widening margins going to marketing and distribution. The share of this in total value added in the total food expenditure in the US has gone up dramatically sine 1980. This can be gleaned from Chart 1, which shows index numbers of total food spending and farm receipts in the US, in terms of current US dollars. As evident from the Chart, while total food spending has ballooned, farm receipts have barely risen even in current price terms, and the gap between them has increased most strikingly over the 1990s.
Chart 1 >>

Obviously, this is even more marked in terms of real values. In constant price terms (that, calculated at 1982-1984 real US dollars) between 1970 and 1999, consumer food spending increased by 30 per cent, the marketing bill rose by 54 per cent, and farm value actually declined by 21 per cent. Much of this process was due to specific trends of the 1990s. US consumers spent $618.4 billion on food in 1999 (excluding imports and seafood), up 37 percent from the amount spent in 1990.

Between 1990 and 1999, marketing costs rose 45 percent and accounted for most of the 37-percent rise in domestic consumer food spending. In comparison, the farm value of food purchases climbed only 13 percent between 1990 and 1999.

The higher marketing costs not only raised consumer food expenditures, but also increased the share of expenditures attributable to marketing. In 1999, marketing costs accounted for 80 percent of total consumer food spending, with farm value accounting for the remaining 20 percent. In comparison, the marketing bill accounted for 76 percent of 1990 consumer expenditures and farm value 24 percent.