America Growing: Congress makes some Changes to Farm Subsidies

Congress is considering the farm bill, a gigantic appropriations measure that costs nearly $300 billion. The money goes to everything from energy to nutrition programs, but one of the hotly contested issues in the legislation is farm subsidies.

Why we subsidize

“Agricultural and food products are not like other commodities. Their price is that of life, and below a certain threshold, that of death.”-- Marcel Mazoyer and Laurence Roudart, A History of World Agriculture from the Neolithic Age to the Current Crisis

Our government subsidizes agriculture for two reasons. The first is that all farmers and agricultural businesses gamble against the weather and other unforeseeable conditions from year to year. This posed an even greater risk to our nation’s self-sufficiency when we imported less of our food. The second is that farmers vote, and they also form a powerful lobbying block, particularly in several key states for national elections. The House bill subsidizes 25 different commodities, including corn, wheat, soybeans, rice, cotton, sugar, peanuts, etc. Click here to learn more about the history of farm subsides.


Major government involvement in the farm economy began in 1929, when President Herbert Hoover (1929-1933) created the federal Farm Board. The board had trouble meeting the growing challenges of the Depression, but its creation represented the first national commitment to provide more economic stability for farmers. The next president, President Franklin D. Roosevelt, moved national agricultural policy far beyond the Hoover initiative. Roosevelt created, and Congress passed, laws designed to raise farm prices by limiting production. They also guaranteed farmers a "parity" price roughly equal to what prices should be during favorable market times. In years of overproduction, when crop prices fell below the parity level, the government agreed to buy the excess. These subsidies continue to this day, but they have a new effect on the global marketplace. )

Who gets subsidies? Winners and losers in the agricultural economy

In 1930, one in four Americans worked on farms. Today, one in 70 lives on a farm -- and one in 750 on a full-time commercial farm As ownership of more farms in this country has shifted from individual farmers to giant agribusinesses – and a far lower percentage of Americans know an actual farmer-- subsidies have increasingly come under fire. The idea that farm subsidies are a government sponsored welfare program for already prosperous farmers has been a major part of the debate over the 2007 Farm Bill. The House would ban subsidies to farms which make more that $1 million per year, a change from the current limit of $2.5 million. In addition, single owners would not be able to collect payments for multiple farm businesses. The new revenue cap would only affect about 3,000 people. The United States Department of Agriculture (USDA) has proposed denying commodity subsidies to people with adjusted gross income of $200,000 a year, impacting an estimated 38,000 of the wealthiest U.S. farmers But the House isn’t just cutting subsidies, it’s also increasing them. For the first time, it’s giving financial support to fruit and vegetable growers. A total of $1.6 billion will go to fruits and veggies, hopefully making them more affordable for consumers.

World Trade: agricultural policy in a global economy

It’s not just US consumers and producers that the Farm Bill will affect. As the US has become more integrated into the global economy, the connections between national agricultural policy and world trade have become an important consideration for legislators and taxpayers. The World Trade Organization (WTO) has declared that U.S. cotton subsidies violate global trade rules. The $19 billion in annual payments to American farmers allow for low, low prices that make it hard for producers from other nations to compete. The U.S. is the world's leading cotton exporter and second-largest grower. The leading cotton states are Texas, California, Georgia, and Mississippi. About 25,000 U.S. cotton growers harvest $3 billion to $5 billion worth of cotton annually. They collect government subsidies from $1 billion to $4 billion a year, in some years topping the value of their crop yield. Some say that without the cotton subsidies, the U.S. would not be very competitive worldwide. But the WTO says that U.S. cotton subsidies encourage American farmers to grow more cotton and depress world prices.

Taxes & treaties take center stage in the House debate

A debate about taxing foreign companies in the US that took center-stage in the House debate illustrates the connections between agricultural policy, allocation of national resources, and our role in the world economy. The debate centered on a provision that taxes some foreign corporations operating in the United States that do not currently pay taxes as a result of international treaties (the same rules go for US companies operating abroad). The downside: Taxing foreign companies inside the United States may drive millions of American jobs out of the country. These companies employ more than 5.1 million US citizens, with an average compensation per worker of $63,428 a year. The upside: The increased revenue would go in part to pay for nutrition programs for impoverished families.< of course, neither party wants to come out against keeping American jobs or feeding hungry children.

Domestic Politics

Farm policy highlights the pressure facing legislators to balance budget concerns with voting concerns, particularly when the majority party leads by very slim margins. Democratic leader Nancy Pelosi faced accusations from some fellow Democrats that she abandoned her promise to reform farm subsidies in order to protect the seats of potentially vulnerable freshman Democrats from rural districts. Parties always have to look ahead to how national legislation will affect regional constituents, especially when national elections are coming up. Farm policy is particularly tricky in this respect because it involves large amounts of federal dollars, and tends to break down sharply along regional lines. The Agricultural Committee in the Senate is full of representatives from farm states. Most of them want to keep the subsidies in place.

However, Dick Durbin of Illinois has proposed a radical change in which subsidies would be replaced by a two-tier revenue protection program. Under this proposal, farmers would take out private revenue insurance and the government would cover widespread losses at the state level.

This idea is sure to get a lot of opposition, but it would do something subsidies cannot – help farmers when prices are high but crop yields are low.

The farm bill has yet to pass in the Senate, so show your representatives that you know the details and let them know what you want them to do!

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Article Posted on: 8/5/2006