Farm subsidies in the USA

July 31, 2012

Free Market Foundation

When the U.S. Congress passed the 1996 Freedom to Farm Act, price supports, land set-asides and other aid to farmers were costing taxpayers $7.3 billion a year. The overhaul of the depression-era price support programmes was supposed to wean farmers from government subsidies by allowing them to switch among any of seven so-called programme crops, while continuing to receive some government payments. However, this year, the U.S. government is expected to pay farmers $22.7 billion, more than triple that amount.

Observers suggest the reforms have failed because:

The programme was passed when crop prices were at 10-year highs; since then prices have been lower four years in a row.

Instead of eliminating the subsidies, the law wound up simply encouraging farmers to produce even more, sending prices into a deep slump.

As a result, subsidies now account for 40 percent of farmers’ net cash income.

And those farmers who were unable to contribute to the glut due to drought are receiving disaster assistance, which at $8.9 billion accounts for more than a third of the subsidies.

Analysts say the reforms have failed because:

farmers were limited to programme or commodity crops such as wheat, corn, cotton and soybeans rather than being encouraged to shift to other, unsubsidised crops.

the U.S. Congress has increased subsidies whenever prices faltered, eliminating the need for farmers to change their practices; and since inefficient farm operations were protected by a generous “safety net,” they had no incentive to consolidate into more efficient, profitable units.

Source: Robert D. Hershey Jr., On the Farm, Subsidies Continue to Flourish, Economic View, New York Times, September 17, 2000.