Thursday, January 5, 2012

Subsidize Me

What are government crop subsidies and why all the fuss?

(The following explanation of crop subsidies has been summarized from USDA's 2011 Budget Summary and Annual Perfomance Plan)

The Farm Service Agency (FSA) provides a plethora of financial services to American farmers, including loans, payments, and emergency assistance. Farm credit programs provide loans to those who are unable to receive them from commercial sources. Oftentimes these are minority, women, and beginner farmers. In 2011, $4.7 billion was given by the FSA as direct and guaranteed loans in hopes that the demand for these kind of loans would wane. The FSA funds other programs such as the cotton Boll Weevil Eradication Loan Program to assist farmers whose cotton crops have been decimated by the pest. The funding was reduced from $100 million in 2010 to $60 million in 2011. State Mediation Grants received $4 million to prevent people from losing farms and livelihoods due to controversy. For example, this program aids former tobacco farmers in the transition to non-tobacco crop production. 

The Commodity Credit Corporation (CCC) funds commodity programs (the subsidies you’re familiar with). It also funds the National Resource Conservation Service (NRCS) which promotes and sponsors the conservation of soil, water, and land while partnering with private landowners and operators. The 2008 Farm Bill mandates the provisions of CCC commodity programs, but the funding of loans changes year to year depending on market conditions. More loan funding is applied when markets plummet, less loans apply when markets climb. However, direct payments as directed by the 2008 Farm Bill within the commodity programs are based on historical acreage and yields for each commodity. Counter-Cyclical Payments apply when a commodity’s effective price falls below a target price. Fixed Payments are government payments made to farmers that have traditionally produced a crop (e.g., corn) and are paid by the government as if they were producing that crop, but can actually plant whatever other crop they would like, or can allow their land to fallow (fallow means basically planting nothing, it lets the land “rest” while grass and weeds grow where a crop once grew). 

Chart from USDA 2011 Fiscal Year Budget. “USDA Budget Summary 2011. Farm and Foreign Agriculture Services”, Page 33.

The FSA also funds Disaster Assistance Programs to livestock and crop farms that have experienced massive death losses and crop destruction because of adverse weather, drought, fire, and other natural disasters. In summary, U.S. subsidies exist to buffer the financial consequences of market plunges, controversies (i.e., tobacco), and natural disasters for farmers. Subsidies like those for milk production can be designed with the consumer in mind (with the purpose of keeping milk at a low cost, affordable to the poor), but often keep commodities such as grains at a low cost by default – even though the purpose was to support the farmers only.

Critics of subsidies want to blame them for the American obesity epidemic, but it was found by Alston et al., 2008 that world nations which subsidize their crops as much as we do tend to have the lowest obesity issues. Obesity seems to have more to do with being an American than with being a citizen of a nation with crop subsidies. 

Other critics have blamed world food crises on nations that subsidize commodity crops, claiming that the low prices on imported commodities in developing countries make it impossible to compete domestically. Imports of subsidized goods usually snuff out attempts of domestic production, forging a dependency on foreign crops. For example, crop shortages in the U.S. impacts food supplies worldwide. 

Since NAFTA was created in 1994 and the majority of Mexican corn consumption became U.S.-sourced corn rather than Mexican-sourced corn, Mexican corn growers could no longer compete with the cheaper imports. This spurred an exodus of farm workers to the cities to find new work, and the slums around Mexican cities immediately mushroomed. Invariably, NAFTA’s impact on agriculture also encouraged legal (and certainly illegal) immigration of Mexican farm workers who found a new home on American farms. See “NAFTA and U.S. Corn Subsidies: Explaining the Displacement of Mexico’s Corn Farmers” (Relinger, 2010).
As taxpayers, what do you Think?
As farmers, what do you Think?
As global citizens, what do you Think?