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Peanut Butter Is Subsidized by the Government, and Here's What That Means for You

Spoon University logo Spoon University 7/19/2018 Olivia Stultz

a banana and oranges on a table: peanut butter apple slice apple © Jocelyn Hsu peanut butter apple slice apple There are many foods subsidized by the US government, including corn, soybeans, dairy, and even beer. They provide these funds in hopes to protect farmers against extreme changes in yields, prices, and revenues. Overall, it subsidizes farmers' conservation efforts, insurance coverage, marketing, export sales, research, and other activities. It also just so happens America's favorite nut spread- peanut butter- falls on the list too. It's actually the most subsidized, taking up 46% of the total share of goods.

Each year, the US government spends more than $20 billion to fund these subsidies. Even though farmers have been harvesting the benefits, there has been some backlash about the actual overall benefit of these programs. Many argue that it does more harm to taxpayers, the environment, human health, and the economy than overall good.

Based on farm subsidies' positive and negative outlooks, what does this mean for the commodity of peanut butter? And what does it mean for fans of the nut spread?  

When (and why) was peanut butter subsidized?

Like most subsidies, the original mindset was most likely to help broad, public policy goals. So, lawmakers thought in order to help peanut farmers with poverty alleviation in rural communities and raising low farm incomes, they could create programs that gave funds directly to farmers. 

Peanut growers where first financially helped by the government with the 1933 Agricultural Adjustment Act. Through federal policies, it increased overall income for peanut growers. However, consumers felt the hit as they were paying more for their everyday bag of peanuts. The Act later went through a bunch of changes; modifications were made in years 1937, 1941, 1948, and 1949 to justify poverty alleviation incentives. 

In 2002, a quota system was introduced into the mix. This allowed peanut growers to obtain funds from US taxpayers versus from consumers. This also meant an increase in the price of consumer-oriented products, such as peanut butter. Around this time, lobbyists justified keeping the subsidies flowing based on the fact that the government had been providing them for so long, it would be unfair to suddenly take them away

A couple of years later, peanuts were threatened to be kicked off of the 2014 Farm Bill. But, lobbyists fought back for favorable treatment made in a new Price Loss Coverage Program (PLC), which allows them protection from adverse market changes. 

With these subsidies in place and the government having a strong control on market price with quotas, the unlikely consequence is huge stockpiles. This year, it is projected that American farmers will harvest 6.1 billion pounds of peanuts with 2.9 billion pounds in leftover. While stockpiles last, consumers will find themselves paying a bit less for their favorite peanut butter brands. However, taxpayers are expected to cover the $2 billion in subsidy payments by the government to farmers. 

What does this mean for consumers? 

a close up of a slice of cake on a plate: peanut butter peanut butter chocolate © Jocelyn Hsu peanut butter peanut butter chocolate

As mentioned, peanuts are now a lower price based on the stockpiles and the government's quotas for harvest. However, consumers pay for these "lowered prices" through taxes. 

When peanut butter is made and marketed, it's sold at a lower price versus other nut spreads. The ingredients of a conventional jar of peanut butter do contain peanuts, but they may also contain other subsidized ingredients such as corn, soy, or sugar (this also ties into the reason of why a fast food salad is going to be more expensive than a cheeseburger). The more subsidized ingredients a product contains, the less it's going to cost. This is also why all-natural peanut butter will be more expensive than one with added sugars and preservatives. 

Recently, there has been a big push to reduce the number of subsidies given to farmers. The current presidential administration has even proposed a $4.8 billion annual cut to the $23 billion currently given to farmers in hopes of fixing the issue. What will the future look like for the prices of peanut butter? It will certainly be one to keep an eye out for in the news- and the grocery shelves. 

Related video: Is Peanut Butter Good For You? [via Time]

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