Commodity Price Supports

views updated


COMMODITY PRICE SUPPORTS. Commodity price supports are statutory devices designed to enhance the net income of agricultural producers. These laws are called subsidies because they use the power and wealth of the state to "subsidize" producers by artificially supporting prices of agricultural commodities, reducing the cost of producing them, or, in some cases, providing direct cash payments to producers. In the United States, the core of statutory authority for price supports rests in Title 7 of the U.S. code and the Agricultural Act of 1949, as amended. These laws authorize loans that producers are not legally required to repay, open-market purchase of cranberries, and direct cash payments to dairy farmers under the Obey-Kohl Amendment to the 2001 Agricultural Appropriations Bill. Most of these laws were enacted in the Depression era of the 1930s but have been modified and extended up to the present time. Price support programs started out with six "basic" commodities (four from the South: peanuts, cotton, tobacco, and rice, and two from the North: wheat and corn). There now are some two dozen commodities that receive price support benefits. Both the cost and the complexity of these laws have grown dramatically. Sometimes these programs have collided with each other (like in 1983 when a federal law to kill aging dairy cattle in a futile attempt to raise milk prices seriously depressed beef prices as an avalanche of dairy cow meat buried the beef market).

While price support laws are aimed at achieving income parity for farmers and ranchers, there are many other laws that affect agricultural prosperity. For example, the Conservation Reserve Program currently idles about 36 million acres of fragile cropland. While conservation and environmental concerns may be the prime objective of this program, a substantial side-effect is the income stability for crop producers that comes from idling that enormous acreage. This phenomenon is present in other USDA conservation programs such as wetlands and forestry.

Another important agricultural law that has a major impact on farm prices and income is P.L. 83-480, the "Food for Peace" program. Through the years this major trade law has funneled billions of agricultural commodities into developing foreign nations, thus boosting domestic prices.

Other laws that indirectly boost U.S. farm prices include: Farm Credit Programs by USDA such as FmHA (Farmers Home Administration) and crop insurance. Also helping farm prosperity are the banking services of the Farm Credit Administration.

At this point it should be noted that states use their "negative" pricing power to reduce farm prices and farm income. Examples range from price controls during World World II and Korea to embargoes by Presidents Nixon, Carter, and Bush. Even seemingly unrelated programs involving agricultural research, such as the use of genetically modified organisms (GMOs), affect farm prices. Tax policy by federal, state, and local governments can also play a major role in the economics of farm owners and operators.

One final thought: In ancient Athens, it is said that the people despaired over the high price of figs, so that Archon commissioned a bevy of "fig watchers" or sycophants to keep both fig exports and fig prices low. It was probably the first "cheap food policy," but governments have been struggling ever since to organize a price support system that will be fair to both producers and consumers.

See also Agriculture since the Industrial Revolution; Food Politics: United States; Government Agencies, U.S.

Hyde H. Murray

About this article

Commodity Price Supports

Updated About content Print Article