How Farm Subsidies Work

Cow at Farm How Farm Subsidies WorkIt’s not easy to be in the farming industry. Let’s imagine a guy named Ben. He invests a lot of money in some land and proceeds to sow it with corn. He does all the necessary things to make sure they grow well like cultivate the soil with fertilizer, ensure that the plants get enough water, erect a few scarecrows to discourage the black birds from harvesting his crops. So the plants are doing beautifully and he is excited to harvest them in the next weeks. But then his pharaoh dares to defy God and the next thing he knows, the ten plagues have descended upon the land and his crops. Poor Ben just looks on miserably as first the hail and then the locusts destroy the fruit of his blood and sweat and tears. If that doesn’t traumatize him enough from doing the same thing again, the lack of capital due to no return on investment will.

Okay, so our example is a bit overly dramatic and a tad far fetched (you think?), but ten plagues aside, crop supply and prices can fluctuate considerably depending on factors like weather, politics, and war. These fluctuations in production levels and prices could lead to large variations in farm revenues and food available for purchase on the global market. Now food is the most important commodity for mankind, so the government decided that we couldn’t risk it’s being unavailable if it became victim to the normal market forces of demand, supply and prices that all other items are subjected to. So they decided to help the farmers to ensure that they would always be able to supply food, and thus, the farm subsidies were born.

US Agricultural Subsidies How Farm Subsidies WorkFarm subsidies, also known as agricultural subsidies, are fixed amounts of money paid to domestic farmers by the government that guarantees them a fixed income on their crop or livestock regardless of how they actually perform. The subsidy programs give farmers extra money for their crops and guarantee a price floor. For instance, in the 2002 Farm Bill, for every bushel of wheat sold farmers were paid an extra 52 cents and guaranteed a price of 3.86 from 2002–03 and 3.92 from 2004–2007. That is, if the price of wheat in 2002 was 3.80 farmers would get an extra 58 cents per bushel (52 cents plus the $0.06 price difference).

While this seems like a good idea, it also has some repercussions. First of all, the artificial prices it causes drive prices down and hurt smaller farmers in developing countries who have to compete on the global market and do not have the same assistance from their governments, so it’s considered anti free market. It also promotes rewarding of bad economic behavior because farmers are guaranteed an income no matter how good or bad their effort is. It’s like continuing to give a big allowance to a child even though he has C’s and F’s in his report card. He will get complacent and never feel the urge to do better.

One more issue is that these subsidies are disproportionately given to the farmers of different kinds of food. The government who provides billions of dollars for the production of meat and dairy products then gives less than 1 percent of government subsidies to fruit and vegetable farmers, which is why a salad costs more than a Big Mac. As a result, meat and dairy seem falsely cheap, so we opt to eat them instead of the healthy alternatives. Hello, obese America!

The farm bill gets changed every few years, though, so it’s entirely up to our lawmakers (with our help) to get the proportions right and get us out of this mess. We could still help to salvage what initially started out as something that’s supposed to help, not hurt.

1x1.trans How Farm Subsidies Work


1x1.trans How Farm Subsidies Work

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