Can You Have Your Subsidized Peanut Butter Cake and Eat It, Too? New at Reason

The USDA recently announced that U.S. peanut farmers will produce 6.1 billion pounds this fall, on top of 2.9 billion pounds in leftover stockpiles. Total peanut demand isn’t that high, and we will start the next year with a 3.2 billion-pound stockpile. And unless you like your peanut butter and jelly sandwich with a side of government subsidies, you should care.

An excessive supply of peanuts depresses the price of peanuts. Unfortunately for us, Uncle Sam won’t let the market work its magic to eliminate excess supply. Instead, it subsidizes the farmers whose income might have otherwise suffered from the reduction in price by paying them most of the difference between a reference price of $535 per ton and the market price. Obviously, the lower the price the higher the payout. That’s a terrible incentive structure, writes Veronique de Rugy.

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