agricultural subsidies

agricultural subsidies financial assistance to farmers through government-sponsored price-support programs. Beginning in the 1930s most industrialized countries developed agricultural price-support policies to reduce the volatility of prices for farm products and to increase, or at least stabilize, farm income. In food-exporting countries, such as the United States and France, agricultural subsidies have been designed primarily to increase farm income, either by raising the long-term level of prices above free-market levels or by providing direct payments to farmers. The sale of agricultural products to developing nations at below market prices has often had a devastating effect on the ability of farmers in those nations to prosper, and the continuation of such subsidies has become a stumbling block to efforts to dismantle international trade barriers.

U.S. Assistance Programs

In the United States, the federal government first assisted agriculture directly in the 1920s. During World War I farmers had been encouraged to increase production, and in the postwar period wartime levels of production were maintained. This resulted in an oversupply that caused a sharp drop in prices. The Agricultural Credits Act (1923) failed to solve the problem. In 1929, President Hoover signed the Agricultural Marketing Act, establishing the Federal Farm Board with a fund of $500 million to further farming cooperatives and to set up stabilization boards, which by their purchases on the open market were to stabilize the prices of grain and cotton. Such purchases, however, only encouraged farmers to raise still larger crops in expectation of greater profits; consequently, the Farm Board failed and had to sell its holdings at a loss of $200 million.

The Agricultural Adjustment Act (AAA) of 1933, one of the first pieces of legislation passed under President Franklin Delano Roosevelt's New Deal program, attempted to control farm prices by reducing and controlling the supply of basic crops. The AAA empowered the Secretary of Agriculture to fix marketing quotas for major farm products, to take surplus production off the market, and to reduce production of staple crops by offering producers payments in return for voluntarily reducing the acreage devoted to raising such crops. The Commodity Credit Corporation (CCC), also created in 1933, began making loans to farmers on agricultural products. Loans were granted only to farmers who agreed to sign production-control agreements. Farm prices steadily improved: between 1932 and 1937 the prices for major farm products increased by approximately 85%. However, the Supreme Court declared certain production control features of the AAA unconstitutional.

Large crops of wheat and cotton led to passage of the Agricultural Act of 1937. In its amended form, this act provided the framework for the major farm programs in effect since that time. The act made price-support loans by the CCC mandatory on the designated basic commodities of corn, wheat, and cotton; optional support was authorized for other commodities. Under this act and related legislation, the CCC has supported more than 100 different commodities, including fruit, vegetables, and various types of seed.

From 1941 to 1948, during and just after World War II, surpluses were rapidly utilized, and price supports were used as an incentive to stimulate production of agricultural commodities. In 1948 price-support levels were lowered for most of those commodities. By 1949 the agriculture of war-devastated Europe and Asia had recovered to a significant extent, and demand for American farm products declined considerably. At the same time, however, crop production in the United States had greatly increased, with the result that farm commodity prices dropped and surpluses began to build up again. Rigid support levels were once again enacted, but the Korean War strengthened farm prices and most CCC stocks were sold. Mounting surpluses and increased costs of government programs led to the enactment of a flexible price support program (1954) and of the Soil Bank program (1956), which provided for direct payments to farmers in return for reducing their acreage of major supported crops and required that they leave fallow the land removed from production. The desired effect of control programs was largely negated, because improved technology made it possible to greatly increase yields per acre.

In the early 1960s price supports on major commodities were dropped to or near market-clearing prices, and producers' incomes were protected by direct payments on fixed quantities of products. Direct payments to farmers greatly increased after the 1960s, the feed grain, cotton, and wheat programs accounting for most of this increase.

Attempts at Ending Subsidies

Once introduced, subsidies to maintain prices have proved extremely difficult to end. In France, farmers have vigorously protested decreases in subsidies that have made them the second largest food exporter after the United States. In 1996, the U.S. Congress, despite its long history of farm price supports, passed the Freedom to Farm Act, which eliminated agricultural subsidies in favor of fixed payments to farmers. The legislation failed to decrease payments to farmers, however, and by 2000 aid to farmers (including so-called emergency payments) had reached more than $22 billion, three times the 1996 level. A new federal farm bill in 2002 abandoned the 1996 goal of reducing farm payments, increasing base program expenditures by 80%. Agricultural subsidies in the United States, the European Community (now the European Union; EU),and Japan were issues of contentious debate in the Uruguay (1986-94) round of international trade negotiations under the General Agreement on Tariffs and Trade (GATT) and remain so in the World Trade Organization (WTO). In 2005 the WTO issued rulings against U.S. cotton and EU sugar exports in which it said that subsidies distorted world trade.

Bibliography

See D. Goodman and M. Redclift, ed., The International Farm Crisis (1967); G. L. Cramer, Agricultural Economics and Agribusiness (1979); C. Peter Timmer, Getting Prices Right: The Scope and Limits of Agricultural Price Policy (1986); W. P. Browne, Private Interests, Public Policy, and American Agriculture (1989).

Subsidies, Agricultural. The earliest government subsidies for farmers, beginning in 1890, benefited cane‐sugar and beet‐sugar growers. The first general subsidy program was established in 1933 under the Agricultural Adjustment Administration, part of the New Deal's economic recovery plan. The government offered cash payments to farmers to reduce their output of such basic commodities as hogs, wheat, corn, cotton, rice, and dairy products. The goal was “parity,” by which farmers' purchasing power would match what it had been in the prosperous 1909–1914 years. Taxes on grain mills and other food processors (ultimately passed along to consumers) financed the subsidies. As southern cotton growers reduced production in return for federal payments, sharecroppers and tenant farmers were driven from the land.

Farmers received two forms of subsidies, cash payments for taking land out of production and direct price supports through government purchase, loans, and management of surpluses. The Commodity Credit Corporation (CCC), created by executive order in 1933, lent farmers money with their crops as collateral. If prices held steady or increased, the farmer paid off his loan. If not, the CCC marketed the crop and absorbed the loss. Similar subsidy programs lasted into the 1990s. Government subsidies tended to concentrate production of basic crops in the hands of more efficient, larger owners. In 1970, for example, nine individuals or corporations each received over a million dollars in crop‐reduction subsidies.

In 1981, President Ronald Reagan proposed to end production controls and target prices, the mechanisms that had sustained the agricultural economy since the early New Deal Era. But huge surpluses and congressional opposition forced the administration to retreat. A 1982 program combined a smaller acreage‐allotment program with guaranteed prices. Under it, the Reagan administration paid farmers more not to grow crops than any previous administration. Although the 1995 Freedom to Farm Act officially ended most agricultural subsidies, farmers continued to receive billions of dollars in phase‐out payments and “emergency relief” appropriations. An elaborate milk price‐support program remained in place as well.
See also Agriculture: Since 1920; Cotton Industry; Dairy Industry; Economic Regulation; Federal Government, Executive Branch: Department of Agriculture; Grain Processing Industry; Sharecropping and Tenantry.

Bibliography

Lauren Soth , An Embarrassment of Plenty, 1965.
Nancy Blanpied, ed., Farm Policy: The Politics of Soil, Surpluses, and Subsidies, 1984.

Richard Lowitt