The author is the EV Baker Professor of Agricultural Economics Emeritus at Cornell University. His primary career focus has been on the economics of dairy markets and policy.

Multiple choice question: USDA has various programs to subsidize the consumption of dairy products (and other foods) for the purpose of: a) helping families in need to get enough food, b) helping farmers sell their product, or c) all of the above.

You likely guessed that the correct answer is all of the above. However, why we have federal programs to subsidize food consumption is not always clear, especially when we contrast the perspectives of people whose primary interest is agriculture versus people whose primary interest is hunger.

Andrew Novakovic

Recently it was announced that the Biden administration would discontinue the Farmers to Families Food Box program initiated by the Trump administration during the early phase of the pandemic. Instead, the new administration will focus on long-standing food assistance programs.

Dates to the Depression

The granddaddy of domestic food assistance was initiated during the Great Depression. A family “on relief” could buy blue or orange “stamps,” not unlike a small book of postage stamps. An orange stamp could be used to buy any food item. Blue stamps could be used to purchase foods that were identified as being in surplus. Blue stamps were subsidized at a rate of 2:1.

Of course, the old food stamp program, a name many of us still use, is the predecessor to the largest domestic food assistance program today, now called the Supplemental Nutrition Assistance Program or SNAP. The basic mechanism of SNAP was and continues to be providing assistance in the form of money that can only be used to buy food.

Based on need and surplus

The Great Depression was fundamentally about a lack of demand that resulted from economic collapse. Food was in surplus primarily because so many people couldn’t afford to pay for it. Food assistance was a natural win-win for struggling farmers and hungry families.

In the 1980s, when 10% or more of U.S. milk production couldn’t find a home outside of a government storage facility for three years in a row, the government created The Emergency Food Assistance Program (TEFAP). In this case, the USDA acquires food that it in turn distributes primarily to food banks that act as a kind of distribution center to local food kitchens.

The Farmers to Families Food Box program had similar motivations: help hungry families and, at the same time, help farmers who are also having a rough go of it. This signature Trump administration program had two design elements tailored to the times.

First, it identified certain products that had been notably disrupted by the pandemic. Dairy was an area that got special attention. Second, it focused on a more “retail” type distribution strategy that sought to identify new vendors and distributors that would literally provide a box of food that could be handed to a client or placed in the trunk of a car. This was quite different from the use of food banks that work on more of a wholesale model.

In 2020, about $85 billion was spent on SNAP. Another $40 billion or so was spent on school lunch and other domestic feeding programs. This includes about $600 million spent under TEFAP. Farmers to Families Food Box cost about $4 billion to $5 billion. All told, that’s a lot of money, but we also can ask, “How much food, in general, or dairy products, in particular, are moved for $1 spent on this program versus that?” Does it make a difference if the federal government decides what to buy and gives it away versus giving a low income household or a school system a bunch of money and a long list of eligible items you can buy with that money?

It has been estimated that about 20% of the food purchased under the food box program was allocated to dairy. Typical household purchases of dairy products relative to all food runs about 10%. Families getting SNAP benefits spend about 13% on dairy products, with the lowest income families tending to spend the largest share. These shares include what it costs to pay for a food item as well as how much was purchased, so it isn’t entirely straightforward to calculate the milk equivalent consumption of dairy products across these programs.

Nevertheless, it seems fairly clear that food donations tend to tilt differently than food subsidy programs that allow consumers more choice in the grocery store. Dairy is one of those foods that has probably benefited from the donations approach. Certainly, in the 1980s, dairy was the dominant focus of TEFAP. It was also a targeted food item in the food box program.

Money allows choice

On the other hand, there are two arguments for monetary food assistance. One, it is a lot less costly to the government to give people money and let them make purchase decisions. The amount of food that can be purchased with monetary assistance is greater than when the government buys and distributes food. Two, hunger advocates argue that giving people more choice allows them the flexibility to get what they need and want.

The last, and an important consideration, is how government purchases of food impacts the marketplace. Government programs are routinely criticized for being cumbersome and slow. TEFAP and other such programs require vendors to certify their credentials. This takes time. Bidding on government contracts is not a speedy process compared to commercial sales.

More recently, the food box program was criticized for bringing in a lot of new vendors quickly, which sounds like it might be a good thing, only to find that many were inexperienced and inept in buying foods and made a mess of it. The several spikes in the price of fresh cheese is commonly attributed to the panic buying of vendors trying to fill food boxes from a narrow list of options and in a hurried time frame.

It’s fair to say that the Biden administration wanted some separation from Trump administration programs for its own sake. However, the market disruptions and a sense that “retail” distribution of foods is not the biggest bang for the buck were important considerations in shifting the focus back to traditional programs.

An eye on the horizon

Between the amount of money spent, how it is spent, and the efficiency of this program, it is not a simple calculation to determine which program is “better” for dairy farmers. Personally, I think it is safe to say that all of these programs are helpful to the farmers who make the food and the families who need it. For the programs in play in 2020 and those coming up in 2021, I think the impacts are in the same ballpark regardless of the particular program mechanism.

It’s also fair to say that shifting the focus back to traditional food donations (TEFAP) and food assistance (SNAP) will result in smoother market impacts. Farm prices will benefit, but it won’t be because of dramatic spikes in prices and rather more from a stronger market tone that is real but harder to see.