Crop subsidy program

For government-created assets such as production or marketing quotas or allotments, the market value is due entirely to government program benefits. When quotas limit production, commodity prices rise and raise the value of production rights assigned to quota owners. Such quota programs have often continued for decades six decades in the case of the U.

Interestingly, though, the asset price of the marketable quota is typically only four times the annual gain from owning the quota Johnson This means that quota owners evidently are not confident that the program benefits will continue.

Farm subsidies stimulate additional production of government-favored commodities by raising incentives to use scarce land and farmer talent on some products rather than on others. The specifics of the government program determine the degree of production stimulus; real farm programs are usually much more complex than the per unit production subsidies or price supports described in textbooks.

Eliminating a subsidy for just one crop would cause production of that crop to fall much more than if all crop subsidies were eliminated simultaneously. Because most farmland would remain in use, economists would expect relatively small adjustments in total U. Partly to limit the increased production caused by subsidies, the United States once required farmers to idle a part of their farmland in return for the subsidy. That practice is still used in the European Union and Japan.

Recently, the United States has used three complex payment schemes simultaneously for grains, oilseeds, and cotton. There are a number of restrictions on the use of the land that receives these payments, but farmers receive the payments even if they plant crops other than the payment crop or leave the land idle.

These two forms of payment do not require a farmer to plant a specific crop currently. However, because the continuation or increase of payments may depend on current production of that crop, they do provide an incentive to overproduce Sumner It is difficult to measure the degree of production inducement tied to this complex array of payments; nonetheless, economists agree that without them the production of subsidized crops would decline.

Among the most controversial aspects of farm subsidy programs in recent decades have been their impacts on international trade. Gale Johnson raised the issue more than fifty years ago.

As globalization has increased, farm trade barriers and subsidies that block pursuit of agricultural comparative advantage have become more disruptive to normal trade relations and trade negotiations. Farm subsidy programs, which are used by most wealthy countries, have made multilateral trade negotiations more complex and have threatened broad-based market opening.

In the s, the U. 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. 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. Scientific American. Water Source.

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Farm Industry. How Farm Subsidies Affect the Economy. How Farm Subsidies Affect You. By Kimberly Amadeo. Learn about our editorial policies. Reviewed by Michael J Boyle. Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics. Learn about our Financial Review Board. Farms are susceptible to pathogens, diseases, and weather.

Farm subsidies, also known as agricultural subsidies, are payments and other kinds of support extended by the U. While some people consider this aide vital to the U.

The original intent of U. However, by , the number of people living on farms had dwindled to about 3. These data suggest it's more difficult than ever to make a living farming—hence the need for subsidies, according to proponents.

But just because farming is difficult does not necessarily mean that it isn't profitable. Back in April , when the number of farms was also decreasing, a Washington Post article stated:.

And this data has continued to be encouraging to farmers. Even more recently, though, this income is on an upward trend again. The U. Congress typically legislates the number of farm subsidies through five-year farm bills.

Like its predecessors, the farm bill was derided as bloated pork-barrel politics by a plethora of Congress members, both liberals, and conservatives, who hail from non-farming communities and states. However, the powerful farm industry lobby and members of Congress from agriculture-heavy states won out. Farm subsidies don't benefit all farms equally. These are also usually the largest farms. While the general public may believe that the majority of subsidies go to helping small family operations, the primary beneficiaries are instead the largest producers of certain commodities:.

Those states and their respective shares of total U. Representatives on both sides of the aisle—in particular, those concerned with growing federal budget deficits —decry these subsidies as nothing more than corporate giveaways.