The modern agricultural subsidy program in the United States began with the New Deal and the Agricultural Adjustment Act of 1933. With trader barriers already in place for agricultural commodities, this law gave the government the power to set minimum prices and included government stock acquisition, land idling, and schemes to cut supplies by destroying livestock (Benedict, 1953).

An agricultural subsidy is a government subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities and influence the cost and supply of commodities, such as wheat, grain, corn, milk, and soybeans (Agricultural Subsidy, 2012). The government subsidy program was originally designed to protect small family farms against loss of income due to poor crop yields, as well as create lower food prices and stabilize crop supplies. Annual yields are dependent upon factors that farmers often cannot control, such as severe weather conditions. Due to this, it’s contingent upon the government to encourage crop surplus to help guarantee against shortages. The high cost of land, planting, and storage makes it necessary for farmers to borrow and exorbitant amount of money. When the farmers can’t pay this money back because of low crop yields, they rely on these government subsidies to survive.

Today’s farm operations have transformed the family farm from a small, self-contained business to a complex, technology-driven enterprise as seen in the rapidly changing rural landscape dominated by larger and wealthier farms (Gaul, Cohen, & Morgan, 2006). While small and medium-size family farms still account for nine of every 10 farms nationwide, large family farms, defined as those with revenue of more than $250,000, account for nearly 60 percent of government subsidies (Gaul, Cohen, & Morgan, 2006).

Subsidy programs have little effect on the market outcome concerning retail food prices. These programs lower the average farm prices of commodities such as grain and oilseed; however, most crops used for food products do not receive subsidies. The majority of farmers receiving large subsidies are producing items such as grain for animal feed, corn used in the production of high fructose corn syrup (HFCS), and soybeans that are stripped for their oils and used for cooking oil. Due to this, farmers tend to produce these crops in bulk and shun actual food crops like fruits and vegetables. This causes retail food prices of highly processed foods containing HFCS and oils to be cheaper. This also causes the supply curve for grain, corn and soybeans to shift to the right due to excess production. However, the demand curve for these items remains fairly consistent. Farmers are willing to sell these crops at a lower rate because they are guaranteed money through the subsidy program just for farming such crops. The lower selling price results in lower retail food prices causing a new equilibrium point at a higher quantity for a lower price.

The farm subsidy program is under scrutiny right now with the farm bill up for renewal in 2012. The 2008 farm bill, known as the Food, Conservation, and Energy Act of 2008, increased spending to $288 billion by increasing subsidies for energy, conservation, nutrition, and rural development (Food, Conservation, and Energy Act of 2008, 2012). Even with the 2008 farm bill focusing on energy and conservation efforts, it maintained high subsidy payouts for farmers growing corn, wheat, and soybeans. In 2005, the government program paid about $15 billion in income support or price guarantees, most of which went to large farms with an annual sales of $500,000 or more. Between 1989 and 2003, the share of federal payments for those large farms jumped from 13 percent to 32 percent while the share going to small and medium-size farms dropped from 63 percent to 43 percent (Gaul, Cohen, & Morgan, 2006).

The shift in subsidies to wealthier farms is also causing farmland to be consolidated. In many cases, small farms are buying neighboring tracts and outside investors are buying farmland. Land values are increasing and farms are getting bigger. Between 1990 and 2005, the average price for an acre of farmland more than doubled according to the USDA database of land values (Gaul, Cohen, & Morgan, 2006). Between 1997 and 2002, the number of farms with 1,000 or more acres climbed by nearly one-quarter, while the number of small and medium-size farms declined by 12 percent (Gaul, Cohen, & Morgan, 2006). Small farmers are being pushed out because they can’t afford the higher land values and aren’t receiving the higher subsidy amounts garnered by large industrial farms.

Increased farm subsidies are hurting tax payers as well as small farm operations. Between 1995 and 2011, taxpayers have provided $18.2 billion in subsidies towards raw material for HFCS, corn starch, and soy oils ( aka hydrogenated vegetable oils) – all additives in a number of processed foods (Sepp, 2012). That amount breaks down to $7.58 per taxpayer, per year (Sepp, 2012) towards producing food additives and not quality produce.

I believe agricultural subsidies should continue, but the farm bill needs a complete overhaul. The majority of my family operates small farms in Central Illinois. While they do benefit from the subsidy program, it doesn’t off-set the cost of land, equipment, and poor crop yields. For example, between 1995 and 2011, my family’s farm, G & R Farms, has received an average of $25,177 per year through the subsidy program (EWG Farm Subsidy Database). Our focus is on producing corn and soybeans and raising cattle. By comparison, Jacobus Farms, a large family farming operation in Fulton County, IL, received an average of $156, 656 per year (Agricultural Subsidy, 2012) for producing the same crops on a larger scale.

As a taxpayer and a farmer’s daughter, I truly believe the farm bill and agricultural subsidy program are crucial to the success of farming; however, it needs to be reformed. The practice of paying large corporate farms to produce grain, corn, and soy used in food additives needs to be diminished. Small and medium-size family farms that are producing quality food products, such as fruits and vegetables, and raising livestock need to be taken care of as well. The amount of money proposed in the 2012 farm bill includes an agricultural subsidy portion worth up to $30 billion with $5 billion in direct payments to farmers (Bittman, 2011). These direct payments need to be examined to make sure the money is going to the farmers that are in need and not just the farming operations that produce the most. References

Agricultural Subsidy. (2012, 10 20). Retrieved 10 25, 2012, from Wikipedia: http://en.wikipedia.org/wiki/Agricultural_subsidy

Benedict, M. R. (1953). Farm Policies of the United States, 1790-1950: A Study of Their Origins and Development. New York, NY: Twentieth Century Fund.

Bittman, M. (2011, 03 01). Don't End Agricultural Subsidies, Fix Them. Retrieved 10 25, 2012, from The New York Times: http://opinionator.blogs.nytimes.com/2011/03/01/dont-end-agricultural-subsidies-fix-them/

EWG Farm Subsidy Database. (n.d.). Retrieved 10 25, 2012, from Environmental Working Group (EWG): http://farm.ewg.org/addrsearch.php?search_input_text=61542

Food, Conservation, and Energy Act of 2008. (2012, 10 17). Retrieved 10 25, 2012, from Wikipedia: http://en.wikipedia.org/wiki/Food,_Conservation,_and_Energy_Act_of_2008

Gaul, G. M., Cohen, S., & Morgan, D. (2006, 12 21). Federal Subsidies Turn Farms Into Big Business. Retrieved 10 25, 2012, from The Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/12/20/AR2006122001591.html

Sepp, P. (2012, 07 31). Farm Subsidies: A Strange Game of "21". Retrieved 10 25, 2012, from National Taxpayers Union: http://www.ntu.org/governmentbytes/agriculture/731farm-subsidies-a-strange.html