Agricultural support programs are payments and incentives that subsidize agricultural businesses and growers. These subsidies include price supports, tariffs, and deficiency payments. Included in the system are incentives to conserve land and water resources, help stabilize the income of farmers and ranchers, and enable new or disadvantaged farmers to get into the food production business. Agricultural subsidies, both in the United States and elsewhere, are political and highly controversial.
Agriculture is the world’s most heavily subsidized trade sector. The World Trade Organization (WTO) estimates that current government subsidies to farmers worldwide amount to $350 billion per year. The European Union, United States, and Japan, in that order, are the major users of agricultural support programs. Government support and protection of industries has been increasing and all countries have felt the consequences. These programs impact economic growth, increase trade friction between nations, increase budget expenditures, and depress commodity markets. High price supports encourage surpluses, which distort global market prices. Restrictive import barriers keep some producers from being able to sell their products in certain markets.
The underlying reason for agricultural subsidies is to make sure, there is enough food and fiber on American tables and to ensure that American farmers can produce our food. When the U.S. population was still growing at a fast rate, the focus of the federal government’s agricultural policy was on feeding its citizens. Many of the policy elements now in place were essential to accomplishing those goals.
Agricultural policy is political. U.S. government support for agriculture began in the late 1800s but became more structured and institutionalized after the Great Depression. Since the 1930s, agricultural support programs have been reexamined, and roughly every six years major new legislation has been passed. American farmers generally have resisted changes in subsidies and efforts to integrate the production and export market considerations.
The 1985 Farm Bill established the Conservation Reserve Program (CRP), providing incentives that encourage farmers to contract to set aside environmentally sensitive farmland for a period of time, usually 10 years. The Federal Agriculture Improvement and Reform (FAIR) Act (also known as the 1996 Farm Bill and “Freedom to Farm”) was the first major attempt to get rid of much of the old structure in farm programs. Farmers had been chafing for years at the controls in place on what they could grow and how much they could produce. Many felt that efficient, productive farmers were penalized, and farmers who were poor managers or not as productive as others were rewarded. There had been major abuses in the system, with large agribusiness conglomerates getting much of the money intended for small-family farmers. The “Freedom to Farm” bill was intended to solve many of the problems that had been in the system up to that point. Farmers were optimistic about the bill, because it increased their flexibility in making choices about their farm operations by “decoupling” benefits. This meant they were not restricted to certain crops and they could make better use of their land. Because it rewarded land ownership, the 1996 Farm Bill had the unintended consequence of artificially inflating farmland prices.
One of the most unpopular elements of past farm legislation had been deficiency payments to producers, which, in essence, paid the farmer the difference between the commodity’s market price and the allowance for it. A major thrust of the 1996 Farm Bill was to get rid of deficiency payments. However, large and well-funded lobbies and growers for some commodities managed to override this action by threatening to prevent passage of the entire bill unless their crops were exempted.
The Farm Security and Rural Investment Act of 2002, also known as the 2002 Farm Bill, reversed the 1996 Farm Bill and increased agricultural spending over the next 10 years by 80 percent, from just over $100 billion to more than $180 billion annually. Federal subsidies for the major program crops will rise by more than 70 percent. Throughout the world this was seen as a major reversal of President George W. Bush’s free trade policy and of the U.S. commitment to reform world agriculture markets. Many predict that this will make negotiations at the next round of WTO talks much more difficult, since agriculture is to be the main focus of negotiations in the near future. The 2002 Farm Bill likely will result in the European Union keeping its higher levels of subsidies, and other countries will not lower theirs since the United States has increased theirs. Since American growers now depend on foreign exports as the major portion of their markets, domestic agricultural support policies will increasingly need to be addressed with consideration of international trade agreements.
Further reading
U.S. Department of Agriculture website. Available on-line. URL: http://www.usda.gov; “Food and Agricultural Policy: Taking Stock for the New Century,” U.S. Department of Agriculture. Available on-line. URL: http://www.usda.gov/news/pubs/farmpolicy01/fpindex.htm; 2002 Farm Bill. Available on-line. URL: http://www. usda.gov/farmbill/; “U.S. Proposal for Global Agricultural Trade Reform.” Available on-line. URL: http://www.fas.usda.gov/itp/wto/.