AGRICULTURE SUBSIDIES
Payments by the federal government to producers of agricultural products for the purpose of stabilizing food prices, ensuring plentiful food production, guaranteeing farmers’ basic incomes, and generally strengthening the agricultural segment of the national economy.
Proponents of agriculture subsidies point to several reasons why they are necessary. They
claim that the country’s food supply is too critical to the nation’s well-being to be governed by uncontrolled market forces. They also contend
that in order to keep a steady food supply, farm-
ers’ incomes must be somewhat stable, or many
farms would go out of business during difficult
economic times. These premises are not
accepted by all lawmakers and are the subject of
continual debate. Critics argue that the subsidies
are exceedingly expensive and do not achieve the
desired market stability.
The U.S. government first initiated efforts to
control the agriculture economy during the
Great Depression of the late 1920s and early
1930s.During this period, farm prices collapsed,
and farmers became increasingly desperate in
attempts to salvage their livelihood, sometimes
staging violent protests. President HERBERT
HOOVER made several failed attempts to shore
up prices and stabilize the market, including the
disastrous Hawley-Smoot Tariff Act of 1930, 6
U.S.C.A. § 1, 19 U.S.C.A. § 6 et seq., which cre-
ated a limited tariff to protect farmers from
competition from foreign products. The tariff
set in motion a worldwide wave of protective
tariffs, greatly exacerbating the global economic
panic and resulting in drastically decreased
export markets for U.S. commodities.
After the Hawley-Smoot Tariff Act of 1930,
tariffs were not a widely supported method of
subsidizing most agricultural products. The
model for post–Hawley-Smoot farm subsidies is
the Agricultural Adjustment Act of 1933 (AAA),
7 U.S.C.A. § 601 et seq., passed by President
FRANKLIN D. ROOSEVELT and the NEW DEAL
Congress. The AAA implemented some ideas
that became staples of agriculture subsidy pro-
grams to the present day, including provisions
allowing the government to control production
by paying farmers to reduce the number of acres
in cultivation; purchase surplus products; regu-
late the marketing of certain crops; guarantee
minimum payments to farmers for some prod-
ucts; and make loans to farmers using only their
unharvested crops as collateral.
The government also has attempted to stabi-
lize agricultural markets by subsidizing the
export of U.S. agricultural products and by sign-
ing international agreements designed to pro-
mote agricultural exports. In the 1950s and
1960s, the government took major steps to
increase exports, including the adoption of the
Agricultural Trade Development and Assistance Act of 1954, 7 U.S.C.A. § 1427 et seq., and theGENERAL AGREEMENT ON TARIFFS AND TRADE(GATT). Such measures resulted in widenedmarkets for U.S. agricultural products.The GATT, a multination agreementintended to reduce international trade impedimentsand decrease the potential for tariff-basedtrade wars, has undergone several revisions duringits history. Agriculture subsidies and tariffshave often been a source of great debate in theserevisions. During the Uruguay round of modifications,GATT members could not agree on thisissue. The stalemate nearly resulted in a renewedtariff war and the ABANDONMENT of the agreementduring the 1980s and 1990s. At one point,farmers in France staged violent demonstrationswhen that country agreed to lower its subsidiesand open its markets to imports.Some export-based policies have had drawbacks.In 1972, the Nixon administrationannounced a monumental agreement with theSoviet Union whereby the Soviet Union wouldpurchase virtually all surplus grain produced inthe United States. U.S. grain and food pricesescalated rapidly owing to this new demand,causing great public skepticism about the deal,except in the rural United States, where farmvalues and incomes escalated. Another method used by the government tosubsidize agricultural products is the combinationof target prices, deficiency payments, andmandatory acreage reduction. This approach isused primarily for corn and wheat, the mainU.S. grain crops.Under this method, the governmentsets an ideal price, or target price, for acommodity. If the market price falls below thattarget price, the government pays the farmer thedifference—that is, makes a deficiency paymentto the farmer. This prevents the farmer frombeing forced to sell the product at a pricedeemed unfairly low by the government, andsupports the farmer’s income during difficulteconomic periods. Programs using this methodare not mandatory, so the farmer must enlist inone to be involved. In return for a guaranteedminimum income and price stability, the farmernormally is required to take a specified portionof land out of production—that is, make amandatory acreage reduction—at least for programcommodities.In any given year, it is impossible to predicthow expensive the deficiency payment programswill be, because weather conditions and uncontrolledmarket forces often greatly affect prices.These types of agriculture subsidies often havebeen quite expensive, especially during yearswhen market prices are low owing to high productionand low exports. To reduce the government’scash payments to farmers during oneparticularly disastrous market swing, the Reaganadministration implemented the Payment inKind (PIK) Program in 1983. Under the PIKProgram, instead of paying farmers with cash,the government paid them with certificates goodfor federal surplus grain. Farmers could thenexchange the certificates for actual grain or tradethem like stock certificates. PIK, combined witha drought in 1983, succeeded in reducing thecash cost of the deficiency payment programsand the excessive grain surplus.In the dairy industry, the government subsidizesmilk production by agreeing to purchasemilk from processors at a predetermined price.Dairy farmers receive no direct deficiency payments;rather, they receive from their processora milk check that includes the federal money.The international community often attacksthe U.S. dairy subsidy programs as predatory,although similar and even greater subsidies aregiven to many dairy farmers in European communities.U.S. dairy producers claim that untilthe other producing nations drop their subsidies,it would be economic suicide for theUnited States to lower subsidies.The government also subsidizes agriculturethrough nonrecourse loans. With this type ofsubsidy, the government loans money to farmersusing the farmers’ future harvest as collateral.The government sets a per-bushel loan rate atwhich farmers can borrow money prior to harvest,so that they can hold their crops for latersale when the market price rises. The governmentdetermines how much a farmer can borrowby multiplying the loan rate (which isusually equal to the government target price forthe crop) by the farmer’s base acreage (which isdetermined by calculating the number of acresthe farmer planted of a target crop over severalyears, and multiplying that total by the farmer’saverage yield). The crop is the collateral for theloan, and the farmer can either repay the loan incash and sell the crop, or default and forfeit thecrop to the government. If the market price islower than the loan rate or target price, or if thefarmer’s actual production rate is below thefarmer’s base acreage rate, the government’s onlyrecourse for recouping part of its loan is to takethe collateral crop. This subsidy is used primarilyfor corn and wheat, with a modified form of theprogram applying to soybeans, rice, and cotton.The government still enforces restrictive tariffsto subsidize certain domestic crops, especiallysugar, for which the U.S. tariff virtuallyeliminates all foreign imports. The tariff protectsU.S. sugar producers and costs the governmentlittle, but opponents argue that the cost ofthis domestic MONOPOLY is passed on to consumers,who are forced to pay sugar pricesalmost four times higher than the world marketrates, to the benefit of a few large sugar manufacturers.For peanuts and tobacco, the governmentallows legal monopolies for a few governmentlicensedgrowers, and imposes large tariffs onimports of these products. Also, cigarette companiesare allowed to help determine the price oftobacco and the volume of foreign imports, creatinga dual-monopoly relationship betweentobacco growers and the cigarette industry.Supporters of subsidies attribute the relativelylow cost of food and the stability of foodproduction to the assistance of the federal government.They say that if agriculture subsidiesdid not exist, food prices would vary wildly fromyear to year, and that many farmers would beunable to support themselves through market lows and weather catastrophes. Supporters oftenstate that government support for family farmskeeps farm monopolies from dominating productionand raising prices. They also cite thegreat advances in per capita production sincethe New Deal revisions in farm policy as evidenceof the success of agriculture subsidies.In addition, supporters point out that thegovernment has encouraged soil conservationthrough subsidies. They point to laws such asthe Soil Conservation and Domestic AllotmentAct of 1936, 7 U.S.C.A. § 608-1 et seq., 16U.S.C.A. § 590 et seq., which required that farmerswho received income subsidies plant soilconservingcrops like legumes rather thansoil-depleting crops such as corn, and that farmersuse contour crop-stripping methods to hindersoil erosion resulting from water runoff.Opponents of agriculture subsidies say thefarm economy is overly dependent on government,and that market forces would be a moreefficient and inexpensive method of regulatingproduction and market price. They contend thatin the 1970s and 1980s, up to 30 percent offarmers’ incomes were made up of governmentpayments, primarily during years when guaranteeddeficiency payments ballooned, and thatfarm programs have become the third largestfederal program expense, behind SOCIAL SECURITYand MEDICARE.Another primary criticism of farm commodityprograms, especially corn and wheatprograms, is that they encourage farmers toexpand their operation in order to acquire morebase acres and higher guaranteed governmentpayments. Opponents believe that this leads to aconcentration of production in the hands offewer and fewer farm corporations, and actuallyundermines the concept of family farms. Opponentsalso state that although a primary goal ofagriculture subsidies always has been to controlproduction, most programs have had little successin doing so because farmers who are paid tokeep part of their land out of production tend toremove the least productive acres.The Republican Congress of 1994–95 proposedlarge cuts in farm subsidies as a means toreduce the federal deficit. In March 1996, Congresspassed the Federal Agriculture Improvementand Reform Act, which came to be knownas the Freedom to Farm Act (Pub.L. 104–127,Apr. 4, 1996, 110 Stat. 888). This act threatenedto spell the end of agriculture subsidies, as it setout a plan to phase out subsidies by 2003. Thesix-year period, however, contradicted theavowed purpose of the 1996 act. The law soughtto soften the blow to farmers by increasing subsidiesthrough the use of market transition payments.These payments differed from traditionalsubsidies because they were not tied to commodityprices, so even if the market price rosethe farmers would receive payments. In addition,the payment schedules were almost threetimes higher than the amounts paid out in previousfarm bills.Advocates of a free market without subsidieswere angered as Congress started to back awayfrom the basic concept of the Freedom to FarmAct. As farm incomes started to fall in 1998,members of both political parties agreed toauthorize additional funds for farm subsidies.This process continued through 2001 as farmerscited bad weather, natural disasters, and otherforces for a decline in farm income.In addition, the 1996 law authorized a dairy“compact” for six New England states. This provisionsets a minimum farm price for milk consumedin the six New England states. Whenfederally regulated milk prices drop below thecompact price, processors are required to payfarmers the difference. Midwest dairy farmershave argued this is unfair because the compacterects a trade barrier and encourages New England farmers to overproduce milk.The Farm Security and Rural Investment Actof 2002 (Farm Bill 2002), Pub.L. 107–171, May13, 2002, 116 Stat. 134, which sets agriculture policy for six years, made clear that subsidies would not wither away. In fact, subsidies are projected to grow during the six years and couldreach $200 billion for the period. Some in Congresslamented the retreat from the Freedom toFarm Act, but others faced the political reality that agribusiness and family farmers are a potent LOBBYING force that few congressional representatives want to frustrate.Many environmentalists opposed farm subsidies for different reasons. Corn and wheat programs came under attack by environmental groups. These groups claimed that the baseacreage and deficiency payment system encouragedfarmers to produce soil-depleting and erosion-prone crops such as corn year after year,even if the market offered a better price for a differentcrop. Soil depletion and the need toincrease average yields led to heavy use of chemical fertilizers, which in turn added to soil and WATER POLLUTION.
FURTHER READINGS
Agriculture Department. Available online at <www.usda.gov> (accessed May 29, 2003). Cochrane, Willard, and Mary Ryan. 1976. American Farm Policy, 1948–1973. Minneapolis: Univ. of Minnesota Press. Helmberger, Peter G. 1991. Economic Analysis of Farm Programs. New York: McGraw-Hill. Rapp, David. 1988. How the United States Got into Agriculture: And Why It Can’t Get Out. Washington, D.C.: Congressional Quarterly Press. Rehka, Mehra. 1989. “Winners and Losers in the U.S. Sugar Program.” Resources 94 (winter). Wuerthner, George, and Mollie Matteson, eds. 2002. Welfare Ranching: The Subsidized Destruction of the American West. Washington, D.C.: Island Press.
CROSS-REFERENCES
Agricultural Law; Agriculture Department; General Agreementon Tariffs and Trade.
