Agricultural Subsidies: Time To Start Phasing Out Historically Harmful Policies

Alex Tiller - Wednesday, August 17, 2011

The situation of the agricultural sector in the United States has not been relieved by the government. In fact, government policies have made the problem worse. Subsidies have led farmers to overproduce, without a system to manage the excess crops that are grown. Prices fall, and farmers are left with no choice but to demand more funding - they can’t afford to run their operations based on crop sales alone. The subsidies themselves put a strain on taxpayers; a ripple effect on the overall economy results. In addition, subsidies produce pernicious effects in farmer behavior; there exists a long historical cycle of Congressional support of subsidies to farmers in this country, and plans for future reform are unnerving to the farmers who rely on them. Only a plan to phase out government payments in a staged approach will assure the well being of our existing farmers, while protecting U.S. farm markets from those countries that subsidize their agricultural sectors.

 

Problems with government agricultural policies have been endemic since the early 1930s. Farmers were encouraged to stimulate production and, at the same time, advised to restrict it due to low market demand. US subsidies to agriculture go even farther back, however. The Morrill Act of 1862 was one of the first such programs, and was followed by a barrage of programs such as the Hatch Act of 1887, the Federal Farm Loan Act in 1916, the Agricultural Adjustment Act of 1933, the 1996 Freedom to Farm law, and more recently, the much-contested subsidy laws in 2002 and 2008.

 

Perhaps the most controversial type of subsidy is direct payment to farmers. The amount of money received is calculated by historical figures and not current production. Even if the land isn’t even used for farming anymore, the Department of Agriculture still makes the payment. A report by The Washington Post in 2006 said the department spent over $1 billion in direct payments for non-farmers. Clearly there needs to be reform to some degree here; you don’t even have to agree that the government shouldn’t subsidize farms, to agree that the government shouldn’t spend farm subsidy money on non-farmers.

 

The days of subsidy may be numbered. President Barack Obama has introduced a deficit-reduction plan that includes a proposal to slash $2.5 billion in direct payments to agricultural businesses over the next 10 years. The cap on payments was reduced 25% and the income eligibility of farmers reduced. Still, just two percent of farmers would be affected by the tighter guidelines. In a report by the Center for American Progress, experts in the field say that phasing out the automatic direct payments, adding up to nearly $5 billion every year, can be applied to reducing the deficit. The savings could then be reinvested in programs that encourage the use of renewable energy and energy efficient technologies.

 

The CAP report further suggests that agricultural exports should be boosted using money that is saved, while promoting small business at the same time. A burden on farmers that has existed for so long could be lifted with a carefully orchestrated plan to phase out subsidies. The government could also benefit. An estimated $35 billion could be saved by 2020, most of which could contribute to reducing the deficit. Billions of dollars are also spent on other forms of subsidies, and phasing out direct payments is just one step on the ladder, but at least a step in the right direction. With so many farmers in economic crisis in 2011, it is important that the changes occur in stages in order for them to adjust.

 

Sources:

In Motion Magazine (http://www.inmotionmagazine.com/ra03/rethinking.html)

 CATO Institute (http://www.downsizinggovernment.org/agriculture/subsidies)

 Center for American Progress (http://www.americanprogress.org/issues/2011/04/pdf/ag_subsidies.pdf)