Since the passage of the 1996 Farm Bill, the U.S. market prices of soybeans and corn have dropped 21% and 32%, respectively. These commodities are now sold on the market at a price below what they cost to produce. If U.S. agricultural policies contribute to the prevalence of below-cost soybeans and corn, then the beneficiaries of such policies include the consumers of these products, particularly the industrial operations for which they are important raw materials. Most significant of these operations are corporate-owned livestock production facilities. This paper focuses on the broiler chicken industry, which, in the United States, is fully industrialized and vertically integrated. We compare average costs of production with market prices for corn and soybeans, then use these cost-price margins to estimate the implicit subsidies to broiler producers due to feed prices that are below production costs. We find that the broiler industry gained monetary benefits averaging $1.25 billion per year in the period following the passage of the 1996 Farm Bill (1997-2005). In contrast, broiler industry gains averaged a much smaller $377 million per year between 1986 and 1996. We conclude that the corporate broiler industry is a major winner from recent changes to U.S. agriculture policy, while family farmers and taxpayers lose out. This finding is not significantly altered when we adjust our calculations to account for the overvaluation of agricultural land, nor does it appear to reverse under future cost/price scenarios. As policymakers turn their attention to the 2007 Farm Bill, they would do well to examine the ways in which agribusiness firms in general, and industrial livestock operations in particular, benefit from policies ostensibly designed to support family farmers.
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Paper provided by GDAE, Tufts University in its series GDAE Working Papers with number
06-03.
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