In trade negotiations, it advocated freer trade in agriculture and stated its willingness to eliminate its own import barriers and trade-distorting farm subsidies if other nations would do the same.
European nations, Japan, and Korea resisted. With the passage of new and more distorting farm subsidy programs in , however, the United States has been a less credible bargainer in WTO negotiations, and reductions in subsidies and trade barriers have been delayed. After the Farm Bill in the United States and initiation of the Doha round of WTO negotiations, farm subsidies became a high-profile issue for many less-developed-country participants in trade negotiations. Some of the poorest countries in West Africa have traditionally been cotton exporters.
In and , they faced a world price of cotton ranging from thirty-five cents to forty-five cents per pound. Economists have estimated that U. Reducing farm subsidies in the United States and other rich countries would help poor cotton growers and other farmers in poor countries, and, moreover, would begin a process of relying more on trade rather than aid for economic growth. Taxpayers in rich countries would gain in two ways: by paying lower subsidies to their farmers and by paying lower subsidies to people in poor countries.
The WTO is the key forum for nations to pursue reforms of global agricultural policies, but this forum may not be sufficient. In wealthy nations such as the United States, farm subsidies, though large in total, are relatively minor political issues for most voters. The reason is that the cost per voter, in higher taxes and higher food prices, is small.
For farmers, though, the gain per person is large. Hence, the domestic political stage is set for continued transfers from a broad constituency of voters, who pay little attention to the issue, to a much smaller group, for whom farm subsidies are vital to their short-run economic well-being.
This dilemma is not unique to farm subsidies, and in fact is a central concern of political economy see political behavior. Nonetheless, with widespread attention currently being drawn to the issue, more people are open to understanding the damaging effects of farm subsidies. Daniel A. Sumner is the Frank H. Buck Jr. He was previously the assistant secretary for economics at the U.
Department of Agriculture. Comparative Advantage. Concise Encyclopedia of Economics. David Ricardo. Daniel Sumner on the Political Economy of Agriculture. The government protects farmers against fluctuations in prices, revenues, and yields.
It subsidizes their conservation efforts, insurance coverage, marketing, export sales, research, and other activities. Federal aid for crop farmers is deep and comprehensive.
However, agriculture is no riskier than many other industries, and it does not need an array of federal subsidies. Farm subsidies are costly to taxpayers, but they also harm the economy and the environment. Subsidies discourage farmers from innovating, cutting costs, diversifying their land use, and taking other actions needed to prosper in the competitive economy.
President Donald Trump has proposed modest reforms to farm programs, but the longer-term goal should be to repeal all farm subsidies. Agriculture has long attracted federal support. The Morrill Act of established the land-grant colleges to teach agriculture and other subjects. The Hatch Act of funded agricultural research, and the Smith-Lever Act of funded agricultural education. The Federal Farm Loan Act of created cooperative banks to provide loans to farmers.
The Agricultural Marketing Act of created the Federal Farm Board, which tried to raise crop prices by buying up and stockpiling production. Congress enacted many farm programs during the s, including commodity price supports, supply regulations, import barriers, and crop insurance.
These programs have been expanded, modified, and added to over the decades, but the central planning philosophy behind farm programs has not changed.
Between the s and the s, Congress considered farm policy reforms occasionally, usually when commodity prices were high, but then reverted to subsidy expansions when prices were lower. Farm subsidies have never made economic sense, but farm interests have held sway in Congress. While farmers are a small share of the U. One reason is that farm-state legislators have co-opted the support of urban legislators by including food-stamp subsidies in farm bills.
Other legislators support farm bills because of the inclusion of conservation subsidies. In Congress enacted reforms under the "Freedom to Farm" law, which allowed farmers greater flexibility in planting and increased reliance on market supply and demand.
But Congress reversed course in the late s, and it passed a series of supplemental farm subsidy bills. As a result, subsidies over the seven years of the farm bill ended up costing more than double what had been promised. In Congress enacted a farm bill that further reversed the reforms. The law increased projected subsidy payments, added new crops to the subsidy rolls, and created a new price guarantee scheme called the countercyclical program.
The law increased projected farm subsidy payments by 74 percent over 10 years. In Congress overrode a presidential veto to enact farm legislation that added further subsidies. The law created a permanent disaster aid program and added a revenue protection program for farmers to lock in profits from high commodity prices. It added a sugar-to-ethanol program to keep sugar prices artificially high, and it added new subsidies for "specialty crops" such as fruits and vegetables. In Congress passed another huge farm bill.
The bill changed the structure of subsidies, but it did not cut the overall level of benefits. The law ended the direct payment program, the countercyclical program, and a couple of other smaller programs. When the farm bill was passed, supporters claimed that it would save money, but the opposite has happened. All of these subsidies ensure that farm incomes are much higher than the incomes of most Americans. Farm programs are welfare for the well-to-do, and they induce overproduction, inflate land prices, and harm the environment.
They should be repealed, and farmers should support themselves in the marketplace. The U. This section summarizes the major ones. Most of the direct aid goes to producers of a handful of field crops, not to livestock producers or fruit and vegetable growers. In the three largest farm subsidy programs — insurance, ARC, and PLC — more than 70 percent of the handouts go to farmers of just three crops — corn, soybeans, and wheat.
The program subsidizes both the insurance premiums of farmers and the administrative costs of the 16 private insurance companies that offer the policies. Subsidized insurance is available for more than crops, but corn, cotton, soybeans, and wheat are the main ones. About 80 percent of current policies in force protect against revenue shortfalls, while the other 20 percent protect against yield shortfalls. The insurance companies receive direct subsidies for administration, but they also earn inflated profits from the high premiums they charge.
The Government Accountability Office has found that crop insurance firms earn high rates of return. As for farmers, the USDA pays 62 percent of their premiums, on average. Congress has expanded crop insurance to become the largest farm program for a reason. For other farm programs, the identities of the wealthy subsidy recipients are public information, which can be politically embarrassing for farm program supporters.
But with insurance subsidies, Congress essentially launders the cash through the insurance firms, which hides the identities of the recipients. Also, unlike other farm programs, there are no income limits on insurance, so millionaires and billionaires receive subsidies. This program pays subsidies to farmers if their revenue per acre, or alternately their county's revenue per acre, falls below a benchmark or guaranteed level.
Generally, the lower the prices and revenues, the larger the subsidies. The program covers more than 20 crops, from wheat and corn to chickpeas and mustard seed. This program pays subsidies to farmers on the basis of the national average price of a crop compared to the crop's reference price set by Congress. The larger the fall in a crop's national price below its reference price, the larger the payout to farmers. Since reference prices are set high, payouts are likely.
At the same time, they can enroll in crop insurance, which has the same general function of keeping farm incomes high. So farmers can double dip from at least two subsidy programs should their crop revenues come up short. Conservation Programs. Other subsidies encourage farmers to grow corn for ethanol biofuel.
The number of ethanol production facilities in the High Plains region has doubled. That drains an additional billion gallons a year from the aquifer. Farm subsidies bills include food stamp funding. That ensures urban members of Congress will support the farm subsidy bills. Grains are the most heavily subsidized, making them cheaper than vegetables and fruits.
As a result, grains make up one-fourth of the average American diet. Oil made from corn, soybeans, and canola contributed another quarter. Most developed countries have farm subsidies. They give farmers in those countries an unfair trade advantage.
The World Trade Organization limits the number of subsidized grains that countries can add to global stockpiles to reduce this edge. But this also reduces the amount of food available in a shortage. That increases food price volatility. World Trade Organization. United States Department of Agriculture. Department of Agriculture.
AG Web. Farm Sector Cash Receipts in Downsizing the Federal Government. Food and Agricultural Organization of the United Nations.
The Library of Congress. Farm Credit Administration. United States History for Kids. US Legal. National Archives Catalog. Agricultural Adjustment Administration. The U. House of Representatives. National Park Service. The American Presidency Project. Digital Public Library of America.
In , U. Grist thanks its sponsors. Become one. Check out the visual guide to corn subsidies. So why do we spend so many taxpayer dollars on corn and not, say, organic brussels sprouts? And where do those subsidies come from anyway? During the good years, you can grow A LOT of corn … but since everyone else is doing the same, there is so much of it on the market that the price crashes and you might have to sell your crop at a loss.
The early s brought boom times for U. For one thing, they made whiskey — and lots of it — because it added value to cheap corn, and it was easy to transport and store. Meanwhile, farmers were over-planting the land they had, setting the stage for bad times to come. Sure enough, those times came in the s. Farm production had spiked in the previous decade, as American farms ramped up to feed war-ravaged Europe.
The resulting grain glut drove the price of food so low that it was basically worthless.
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