Agricultural Subsidies: Their Original Purpose and Impact Today
Introduction: What are Farm Subsidies? 3
Government Intervention in Agribusiness 7
The Reality 9
Works Cited 12
Introduction: What are Farm Subsidies?
The Agriculture sector has changed monumentally over the past century in response to vast economic change and technological advancements. Farm subsidies are various forms of payments from the federal government put in place in an effort to stabilize prices, keep farmers in business, and ensure quality of crops. The federal government currently pays $20 billion in cash each year to US farmers and spent an estimated $250 billion between 1995-2005. Presently, a new farm bill is passed every five years with the most recent being in 2013 .
Although there are small changes with each preceding Farm Bill the permanent pieces of legislation requiring US Department of Agriculture to control pricing and regulate supplies date back to the 19th century.
The Commodity Credit Corporation (CCC) finances subsidies and buys surplus food to regulate and steady farm income. There are presently eights various subsidies: Direct Payments, Countercyclical Payments, Export Subsidies, Conservation Subsidies, Marketing Loans, Agricultural Research and Assistance, Disaster Aid, and Insurance.
1) Direct Payments: 5 billion annually
The federal government pays cash subsidies to landowners who produce: wheat, corn, sorghum, barley, oats, cotton, rice, soybean, minor oil seeds and peanuts. This combination of crops are considered to be the top ten crucial commodities. A direct payment is equal to the product of the payment rate for the specific crop, the historical payment acres, and the historical payment yield for the farm. Because this payout is not updated to real time and uses historical pricing and production many times farmers are given full flexibility of what to grow on their land. Many farmers receive direct payments for crops they no longer grow.
2) Countercyclical Payments: 2 billion annually
Countercyclical payments are similar to direct payments in that they both cover the same ten commodities. The program varies its subsidies based on market price and gives more when prices are lower. It is aimed to increase production during times of economic downturn
3) Export Subsidies: $140 million annually
The USDA controls a variety of business development aid programs in an effort to boost sales and presence in foreign markets. These are pay-outs are used to enhance business operations by improving marketing strategies or launching new global campaigns. This is viewed as the government’s effort to add a slight competitive advantage to exports in the light of the high domestic prices.
4) Conservation Subsidies: 3 billion annually
The Conservation Reserve Program and Conservation Security Program are controlled by the USDA and aim to steady production. The reserve program pays farmers to replace crops with ground cover...