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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Executive Summary

The following research paper explains the many aspects of the food business. Many of these different areas require governmental regulation for support and function. Lawmakers work closely with the United States Department of Agriculture and the Food and Drug Administration to provide a positive influence on the business. The research demonstrates that federal mandates concerning supply and demand, food price, food safety, and networking between different industry sectors are widely viewed as necessary intervention by consumers, as these areas are essential to fulfilling the large scope of the industry and maintaining the process. However, mandates concerning production subsidies, assistance, and the Farm Bill are quite a bit more controversial and all offer different benefits and disadvantages from different viewpoints. These arguments are discussed in the paper. Our group believes that production subsidies for struggling commodity industries are crucially important to the survival of that industry's producers. We also feel that revisions to the current Farm Bill and assistance programs would free up more funds to be used towards sustainable production to meet the nutritional needs of a growing global population.  

The food industry is an institution that every single American does business with, 365 days of the year. Without the basic necessity of energy that food provides us with, it would be impossible to complete further activity, communication and accomplishment.  In order to feed a growing nation of over 320 million citizens, strong food policies and regulations must constantly be in place to ensure that production levels satisfy consumer demands. Programs that regulate the food business respond accordingly to change by attempting to answer three basic questions: 1.) What does the producer want to grow? 2.) What does the marketer want to sell? 3.) What does the consumer want to buy? By addressing concerns of supply and demand, production, subsidies, and prices, policies that govern the food industry play a large role in determining what is available to the average consumer. Food policy has recently provoked two large areas of discussion among consumers: the subsidization of grain crops and the future scope of the Farm Bill.

The United States Department of Agriculture defines the food system as a “complex network of farmers and the industries that link to them, including makers of farm equipment and chemicals as well as firms that provide services to agribusinesses, such as providers of transportation and financial services. The system also includes the food marketing industries that link farms to consumers, and which include food and fiber processors, wholesalers, retailers, and foodservice establishments” (USDA, 2016). With the large influence that the industry has on human survival, strong regulation measures are in place to maximize food supply levels while keeping food safety in mind. There are two organizations that regulate the industry. The United States Department of Agriculture is responsible for regulating policies that “will help farming, agriculture, forestry, and food communities thrive” (USDA, 2016).  The agency prioritizes producer needs, promotes agricultural production, and improves nutrition and health through consumer assistance and education. On the other hand, the Food and Drug Administration focuses on supervising and regulating policies that affect food safety for the consumer. By working in tandem, these two organizations attempt to provide positive influence on the food that the consumer eats on a daily basis – “from the farm gate to the dinner plate” (Parker, 2013).

One of the food industry's largest responsibilities is to analyze the needs and wants of both producers and consumers. The economic concept of supply and demand then tells producers what the consumer will buy at the highest price, and it tells consumers what the producer will sell at the lowest price.  Factors that affect supply (production) include producer expectations, available technology, input costs, and market concentration. Factors that affect demand (consumption) include product price, consumer income, price of substitute goods, consumer preferences, consumer expectations, and market saturation.  In recent history, agriculture has been faced with the issue of overproduction (increased supply) due to an advance in available technologies (McLaughlin, 1998). While this may seem cumbersome in the short run, it allows for more production sustainability long term. With a global population expected to reach almost ten billion people by 2050, concern has risen about our nation's ability to produce enough food for our own population, let alone satisfy our export markets (Hofstrand, 2014).  Our production technologies have allowed for more security for future demand increase. USDA and FDA regulators work diligently to provide solutions for increased food production while keeping consumer health and safety a first priority.

The FDA makes it an utmost priority to ensure that food products are safe to consume long before they become available to the consumer. Many safety trials are conducted on new products prior to their release to the market.  Fresh foods such as meat, dairy and produce are constantly regulated to ensure that sanitation methods are met when handling them. The FDA requires food retailers and restaurants to follow strict food safety plans from the time they receive product until the time of consumer purchase. These plans include Current Good Manufacturing Practices (CGMPs) and Hazard Analysis and Critical Control Points (HAACP) (FDA, 2016). These plans set out guidelines that all food processors, retailers and restaurants are expected to follow as they handle the food. These businesses are also subject to random inspection by department regulators to ensure that safety measures are properly executed. The FDA website features alert pages that keep consumers up to date on food recalls, outbreaks, and emergencies, and also provides information on how to limit foodborne illness and contamination (FDA, 2016).

Food price also plays a role in the producer-consumer relationship. First, environmental factors of weather, temperature, and diseases will determine the availability of raw materials for food production. This is the basis for establishing a food price. Transportation, processing, marketing and labor costs then add value to the food as it makes the transition from “the farm gate to the dinner plate” (Parker, 2013). Retailers then add value to the products to make a profit. This provides a brief explanation of how seemingly low to average commodity prices do not necessarily reflect higher prices at the grocery store. If there is a shortage of a particular good or service in the food market, the government can impose a price ceiling so that prices for limited quantities cannot excessively exceed market price. Consider a summer drought that results in significantly reduced corn yields. Demand will far exceed supply after harvest. The government could impose a price ceiling so that the corn producer is limited as to how high he can sell his highly demanded product. Likewise, if there is a surplus of a particular good or service in the food market, the government can impose a price floor so that prices for excess quantities cannot excessively falter under market price. Consider a single batch of lettuce found to be contaminated with E. Coli. Fear sets in across the country and the demand for lettuce plummets. The government could impose a price floor so that lettuce producers can still receive respectable value for their products in times of decreased demand.

The food industry provides regulation on production methods as well. Consider the recent concern with the health of Americans. There has been a large push to make healthier food options more available and attainable in an attempt to combat obesity and other health issues caused by excessive weight gain. Many consumers have approved of this concept by demanding the availability of more nutritious foods. Then, couple this with government-mandated taxes on unhealthy, sugary, high fat foods, which are similar to sin taxes that have been placed on tobacco products in recent years. Due to these factors, producers have had no other choice but to focus production on healthier crops and food inputs. This is an example of how policy can affect production.

To further expand on this, one can consider the controversial topic of subsidizing commodity productions, particularly corn and soybeans which provide the basis for many processed foods. Ever since agriculture struggled during the Great Depression, the government has provided financial assistance for producers if commodity prices fall lower than what is necessary to reach break-even production costs. From a producer standpoint, there are many benefits to this subsidization. Over the last several decades, the “agricultural problem of overproduction” mentioned earlier in this paper has created a great surplus in corn and soybeans. Utilizing the basic principles of supply and demand, it is no surprise that this surplus has substantially lowered commodity prices (McLaughlin, 1998). However, new technologies have forced regulators and researchers to create new ways for farmers to market their grain. Examples of these new opportunities include an increase in the amount of corn grain fed to ruminant livestock such as beef and dairy cattle, the birth of the ethanol (corn) and biodiesel (soy) businesses as required alternative fuel sources, and the addition of grain products to many processed food products including anything from soybean oil to high fructose corn syrup. All the while, though, production input costs for the farmer are rising at a rate which exceeds the market price of the commodity. Although the farmer has new avenues to market his products to, he is still facing a profitability deficit due to high costs and low prices. The government then provides a subsidy, or payment to the farmer which gives him the financial backing and support needed to continue production without the fear of not making a profit. This information proves that many farmers are not overly wealthy, nor do they simply take the subsidy check as an extra bonus. They do, however, depend on that added income to ensure their stability as producers which is necessary with a growing population.  

The previous paragraph was written from the viewpoint of the producer. This paragraph will discuss farm subsidies from the vantage point of the consumer. To no surprise, the list of benefits quickly becomes a list of disadvantages. Dependency on the subsidies is a concern. An article published by Bloomberg earlier this year reported that government subsidies account for 25% of total farmer income – $13.9 billion of the total $54.8 billion expected income in 2016 (Bjerga, 2016). Consumers argue that the majority of farm subsidies are paid to a small top fraction of large farmers, and as a result it simply creates more “free income” for the wealthy. One statistic reported that, “in the last 15 years, 74% of all government farm subsidies covering corn, soybean, wheat, rice, and cotton production went to just the top 10% of producers,” (Cook, 2010). More liberally minded consumers believe this adds to the uneven distribution of income. Many consumers are also concerned that just grain crops are being heavily subsidized. They feel that produce farmers should be subsidized just as well for their products. They argue that subsidizing grain and not produce is simply adding to the country's obesity problem, as the starches and oils from these grains are a key component for producing processed foods that many deem unhealthy. Some believe that taking current grain production land to grow fruits and vegetables would not only curb the perceived issue of grain surpluses and price drops, but would also allow fruits and vegetables to become more available at affordable prices for a wider range of Americans. However, these industries do not have the size or capacity to provide nutrition for as near as many people as the grain industry does. It certainly provides for an interesting topic of discussion that changes drastically from the viewpoint of the producer to the viewpoint of the consumer.

Connected to this concept is the U.S. Farm Bill and the controversy that comes with this particular piece of legislation. The most recent Farm Bill was written in 2014. This government initiative (which covers farm subsidy payments as well) provides directive spending worth $500 billion for the agricultural industry. About $400 billion of this is directed towards supplemental nutrition for low income Americans. (U.S. Farm Bill, 2016). The food industry recognizes that some American citizens require subsidization and financial assistance in order to obtain the nutrition that they need to survive. Food assistance programs such as the Supplemental Nutrition Assistance Program (SNAP) have been developed to subsidize food costs for low income, unemployed, elderly, disabled and homeless Americans. These benefits are more commonly known as food stamps. Money vouchers are provided to these citizens that can only be spent on nutrition. There are currently about 46.5 million Americans receiving SNAP benefits (USDA, 2016). One article states that over 50% of citizens receiving food stamps are either elderly or children (Food and Nutrition, 2016). The School Lunch Program also accounts for a part of the Farm Bill allocated spending. This program provides financial relief for low income elementary and high school students when they eat meals at school. Certainly, many people believe that the majority of Farm Bill dollars should be spent like they are currently, with the majority going for food assistance and food welfare.

However, some producers and agriculturalists disagree with this belief. They feel that this large amount of the Farm Bill money should be allocated among different facets of the food industry. One study explained that the 2014 Farm Bill devoted 67% of resources to nutritional assistance, whereas crop subsidies and crop insurance combined totaled only 22% of the bill (U.S. Farm Bill, 2016). Some producers and others believe that the large portion of this bill should be redirected so that the money can more effectively curb the problem of food availability and the underlying issues that come with it. More money for crop subsidies and crop insurance would allow for greater production and food security as the global population grows. Many opponents of the current Farm Bill believe that all food stamp and assistance recipients should be required to pass a drug test and show proof of active job searching before they can receive the food vouchers. Opponents also believe that use of the vouchers should be more closely monitored so that users can only purchase nutritious foods such as meat, dairy, fruits, vegetables, and grains with the vouchers. This would keep the money from being spent on high calorie, high fat or sugary foods and drinks that lack nutritional value and lead to obesity and health problems. The Farm Bill will be up for revision in 2019-2020, and many would like to see some reform and reallocation of spending.

Policies set forth and passed by lawmakers for the American food industry certainly have a large impact on every day consumption, and it is perhaps the best example of how Washington politics can affect a blue collar family in the Midwest or Great Plains. Most Americans agree that governmental regulations on supply and demand, food safety, food prices, and maintaining strong producer-marketer-consumer relationships are all very necessary. However, policies on production, subsidization and spending can offer quite a bit more controversy. Our group believes that federal lawmakers should take every initiative that they can to ensure that American farmers have all the resources they need to maximize production and maintain profitability. Even though we currently have a surplus of raw crop commodities, the world's population spike in the next 40 years will demand that American farmers feed more people than they ever have before. For this reason, we also believe that the Farm Bill should be modified to set stricter requirements on food stamp usage, and we feel that it should allocate more aid for commodity production that can most effectively feed a growing population. We believe that any “raw commodity” agricultural industry that faces unusually low market prices (current example – the pork industry) should be subsidized accordingly to ensure that those producers can continue to create output that is sustainable to feed both a national and international population.

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