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Agricultural subsidy

Agricultural subsidy

Overview
An agricultural subsidy is a governmental subsidy
Subsidy
A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more...

 paid to farmer
Farmer
A farmer is a person who raises living organisms for food or raw materials.- Definition :The term farmer usually applies to a person who grows field crops, and/or manages orchards or vineyards, or raises livestock or poultry such as chicken and cows...

s and agribusiness
Agribusiness
In agriculture, agribusiness is a generic term that refers to the various businesses involved in food production, including farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing, and retail sales...

es to supplement their income, manage the supply of agricultural commodities
Commodity
A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is universal,...

, and influence the cost and supply of such commodities. Examples of such commodities include wheat
Wheat
Wheat is a worldwide cultivated grass from the Fertile Crescent region of the Near East. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, feed grains (grain
Cereal
Cereals, grains or cereal grains, {as a collective} are grasses cultivated for the edible components of their fruit seeds  - the endocarp, germ and bran...

 used as fodder
Fodder
In agriculture, fodder or animal feed is any foodstuff that is used specifically to feed domesticated livestock such as cattle, goats, sheep, horses, chickens and pigs. Most animal feed is from plants but some is of animal origin...

, such as maize
Maize
Maize , is a herbaceous plant domesticated in Mesoamerica and subsequently spread throughout the American continents...

, sorghum
Sorghum
Sorghum is a genus of numerous species of grasses, some of which are raised for grain and many of which are used as fodder plants either cultivated or as part of pasture. The plants are cultivated in warmer climates worldwide. Species are native to tropical and subtropical regions of all continents...

, barley
Barley
Barley is a cereal grain derived from the annual grass Hordeum vulgare. It serves as a major animal feed crop, with smaller amounts used for malting and in health food. It is used in soups, stews and barley bread in various countries, such as Scotland and in Africa...

, and oat
Oat
The common oat is a species of cereal grain grown for its seed, which is known by the same name . While oats are suitable for human consumption as oatmeal and rolled oats, one of the most common uses is as livestock feed. Oats make up a large part of the diet of horses and are regularly fed to...

s), cotton
Cotton
Cotton is a soft, staple fiber that grows in a form known as a boll around the seeds of the cotton plant, a shrub native to tropical and subtropical regions around the world, including the Americas, India and Africa. The fiber most often is spun into yarn or thread and used to make a soft,...

, milk
Milk
Milk is an opaque white liquid produced by the mammary glands of mammals. It provides the primary source of nutrition for young mammals before they are able to digest other types of food. The early lactation milk is known as colostrum, and carries the mother's antibodies to the baby. It can reduce...

, rice
Rice
Rice is the seed of a monocot plant Oryza sativa, of the grass family . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East, South, Southeast Asia, the Middle East, Latin America, and the West Indies...

, peanut
Peanut
The peanut, or groundnut , is a species in the legume family native to South America, Mexico and Central America. It is an annual herbaceous plant growing 30 to 50 cm tall...

s, sugar
Sugar
Sugar is a class of edible crystalline substances, mainly sucrose, lactose, and fructose. Human taste buds interpret its flavor as sweet. Sugar as a basic food carbohydrate primarily comes from sugar cane and from sugar beet, but also appears in fruit, honey, sorghum, sugar maple , and in many...

, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...

, and oilseeds such as soybean
Soybean
The soybean or soya bean is a species of legume native to East Asia. The plant is classed as an oilseed rather than a pulse. It is an annual plant that has been used in China for 5,000 years to primarily add nitrogen into the soil as part of crop rotation...

s.

Some subsidies are positive - that is money is paid for increased production, while other subsidies are negative where tax revenues are given to farmers in exchange for not growing a particular commodity.
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Encyclopedia
An agricultural subsidy is a governmental subsidy
Subsidy
A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more...

 paid to farmer
Farmer
A farmer is a person who raises living organisms for food or raw materials.- Definition :The term farmer usually applies to a person who grows field crops, and/or manages orchards or vineyards, or raises livestock or poultry such as chicken and cows...

s and agribusiness
Agribusiness
In agriculture, agribusiness is a generic term that refers to the various businesses involved in food production, including farming and contract farming, seed supply, agrichemicals, farm machinery, wholesale and distribution, processing, marketing, and retail sales...

es to supplement their income, manage the supply of agricultural commodities
Commodity
A commodity is some good for which there is demand, but which is supplied without qualitative differentiation across a market. It is a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk. In other words, copper is copper. The price of copper is universal,...

, and influence the cost and supply of such commodities. Examples of such commodities include wheat
Wheat
Wheat is a worldwide cultivated grass from the Fertile Crescent region of the Near East. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, feed grains (grain
Cereal
Cereals, grains or cereal grains, {as a collective} are grasses cultivated for the edible components of their fruit seeds  - the endocarp, germ and bran...

 used as fodder
Fodder
In agriculture, fodder or animal feed is any foodstuff that is used specifically to feed domesticated livestock such as cattle, goats, sheep, horses, chickens and pigs. Most animal feed is from plants but some is of animal origin...

, such as maize
Maize
Maize , is a herbaceous plant domesticated in Mesoamerica and subsequently spread throughout the American continents...

, sorghum
Sorghum
Sorghum is a genus of numerous species of grasses, some of which are raised for grain and many of which are used as fodder plants either cultivated or as part of pasture. The plants are cultivated in warmer climates worldwide. Species are native to tropical and subtropical regions of all continents...

, barley
Barley
Barley is a cereal grain derived from the annual grass Hordeum vulgare. It serves as a major animal feed crop, with smaller amounts used for malting and in health food. It is used in soups, stews and barley bread in various countries, such as Scotland and in Africa...

, and oat
Oat
The common oat is a species of cereal grain grown for its seed, which is known by the same name . While oats are suitable for human consumption as oatmeal and rolled oats, one of the most common uses is as livestock feed. Oats make up a large part of the diet of horses and are regularly fed to...

s), cotton
Cotton
Cotton is a soft, staple fiber that grows in a form known as a boll around the seeds of the cotton plant, a shrub native to tropical and subtropical regions around the world, including the Americas, India and Africa. The fiber most often is spun into yarn or thread and used to make a soft,...

, milk
Milk
Milk is an opaque white liquid produced by the mammary glands of mammals. It provides the primary source of nutrition for young mammals before they are able to digest other types of food. The early lactation milk is known as colostrum, and carries the mother's antibodies to the baby. It can reduce...

, rice
Rice
Rice is the seed of a monocot plant Oryza sativa, of the grass family . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East, South, Southeast Asia, the Middle East, Latin America, and the West Indies...

, peanut
Peanut
The peanut, or groundnut , is a species in the legume family native to South America, Mexico and Central America. It is an annual herbaceous plant growing 30 to 50 cm tall...

s, sugar
Sugar
Sugar is a class of edible crystalline substances, mainly sucrose, lactose, and fructose. Human taste buds interpret its flavor as sweet. Sugar as a basic food carbohydrate primarily comes from sugar cane and from sugar beet, but also appears in fruit, honey, sorghum, sugar maple , and in many...

, tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...

, and oilseeds such as soybean
Soybean
The soybean or soya bean is a species of legume native to East Asia. The plant is classed as an oilseed rather than a pulse. It is an annual plant that has been used in China for 5,000 years to primarily add nitrogen into the soil as part of crop rotation...

s.

Types


Some subsidies are positive - that is money is paid for increased production, while other subsidies are negative where tax revenues are given to farmers in exchange for not growing a particular commodity. Tobacco farmers in the U.S. state
U.S. state
A U.S. state is any one of 50 federated states of the United States of America that share sovereignty with the federal government . Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile...

 of North Carolina
North Carolina
North Carolina is a state located on the Atlantic Seaboard in the southeastern United States. The state borders South Carolina and Georgia to the south, Tennessee to the west and Virginia to the north. North Carolina contains 100 counties...

, for example, have recently been awarded tax-funds in exchange for not growing tobacco.

European Union


Agricultural subsidies to European farmers and fisheries make up more than 40 percent of the EU budget.

Africa


Increases in food and fertilizer prices have underlined the vulnerability of poor urban and rural households in many developing countries, especially in Africa, renewing policymakers' focus on the need to increase staple food crop productivity. The aim of introducing or re-introducing subsidies in several countries, is to shore up food security in the short term, while also implementing longer-term investments to raise productivity and stimulate growth and rural development in the long-run.

A study by the Overseas Development Institute
Overseas Development Institute
The Overseas Development Institute is one of the leading independent think tanks on international development and humanitarian issues. Based in London, its mission is "to inspire and inform policy and practice which lead to the reduction of poverty, the alleviation of suffering and the achievement...

 evaluates the benefits of the Malawi Government Agricultural Inputs Subsidy Programme, which was implemented in 2006/2007 to promote access to and use of fertilizers in both maize and tobacco production to increase agricultural productivity and food security. The subsidy was implemented by means of a coupon system which could be redeemed by the recipients for fertilizer types at approximately one-third of the normal cash price.

According to policy conclusions of the Overseas Development Institute
Overseas Development Institute
The Overseas Development Institute is one of the leading independent think tanks on international development and humanitarian issues. Based in London, its mission is "to inspire and inform policy and practice which lead to the reduction of poverty, the alleviation of suffering and the achievement...

 the voucher for coupon system can be an effective way of rationing and targeting subsidy access to maximize production and economic and social gains. Many practical and political challenges remain in the program design and implementation required to increase efficiency, control costs, and limit patronage and fraud.

Japan



Japan is best known for having agricultural subsidies for rice and wine, for cultural reasons.

New Zealand


Until the neo-liberal reforms started in 1984 by the Fourth Labour Government
Fourth Labour Government of New Zealand
The Fourth Labour Government of New Zealand was the government of New Zealand from 26 July 1984 to 2 November 1990. It enacted major social and economic reforms, including reformation of the tax system. The economic reforms were known as Rogernomics after Finance Minister Roger Douglas...

, New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses , and numerous smaller islands, most notably Stewart Island/Rakiura and the Chatham Islands. The indigenous Māori named New Zealand Aotearoa, commonly translated as The Land of the Long White Cloud...

 farmers enjoyed a high level of subsidies and protectionism. After these reforms, New Zealand had the most open agricultural markets in the world.

United States

2004 U.S. Crop Subsidies
Commodity Millions of US$ Share
Feed grain
Feed grain
Feed grain refers to any of several grains most commonly used for livestock feed, including corn, grain sorghum, oats, rye, and barley. These grains and the farms producing them historically have received federal commodity program support. They qualify for marketing assistance loans, direct...

s
2,841 35.4%
Upland cotton and ELS cotton 1,420 17.7%
Wheat
Wheat
Wheat is a worldwide cultivated grass from the Fertile Crescent region of the Near East. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

1,173 14.6%
Rice
Rice
Rice is the seed of a monocot plant Oryza sativa, of the grass family . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East, South, Southeast Asia, the Middle East, Latin America, and the West Indies...

1,130 14.1%
Soybeans and products 610 7.6%
Dairy
Dairy
A dairy is a facility for the extraction and processing of animal milk—mostly from cows or goats, but also from buffalo, sheep, horses or camels —for human consumption. Typically it is a farm or section of a farm that is concerned with the production of milk, butter and...

295 3.7%
Peanut
Peanut
The peanut, or groundnut , is a species in the legume family native to South America, Mexico and Central America. It is an annual herbaceous plant growing 30 to 50 cm tall...

s
259 3.2%
Sugar
Sugar
Sugar is a class of edible crystalline substances, mainly sucrose, lactose, and fructose. Human taste buds interpret its flavor as sweet. Sugar as a basic food carbohydrate primarily comes from sugar cane and from sugar beet, but also appears in fruit, honey, sorghum, sugar maple , and in many...

61 0.8%
Minor oilseeds 29 0.4%
Tobacco
Tobacco
Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it most commonly appears in the forms of smoking, chewing, snuffing, or...

18 0.2%
Wool
Wool
Wool is a fibrous protein derived from the specialized skin cells called follicles. The wool is taken from animals in the Caprinae family, principally sheep, but the hair of certain species of other mammals including: goats, llamas, and rabbits may also be called wool...

 and mohair
Mohair
Mohair usually refers to a silk-like fabric or yarn made from the hair of the Angora goat. The word "mohair" was adopted into English before 1570 from the Arabic mukhayyar, a type of haircloth, literally 'choice', from khayyara, 'he chose'. Mohair fiber is approximately 25-45 microns in diameter....

12 0.1%
Vegetable oil
Vegetable fats and oils
Vegetable fats and oils are lipid materials derived from plants. Physically, oils are liquid at room temperature, and fats are solid. Chemically, both fats and oils are composed of triglycerides, as contrasted with waxes which lack glycerin in their structure...

 products
11 0.1%
Honey
Honey
Honey is a sweet food made by some insects using nectar from flowers. The variety produced by honey bees is the one most commonly referred to and is the type of honey collected by beekeepers and consumed by humans...

3 0.0%
Other crops 160 2.0%
Total 8,022 100%

The U.S. Agricultural Department is required by law (various U.S. farm bill
U.S. farm bill
A U.S. farm bill or farm bill is the primary agricultural and food policy tool of the Federal government of the United States. The comprehensive omnibus bill is passed every several years by the United States Congress and deals with both agriculture and all other affairs under the purview of the...

s which are passed every few years) to subsidize over two dozen commodities. Between 1996 and 2002, an average of $16 billion/year was paid by programs authorized by various U.S. farm bill
U.S. farm bill
A U.S. farm bill or farm bill is the primary agricultural and food policy tool of the Federal government of the United States. The comprehensive omnibus bill is passed every several years by the United States Congress and deals with both agriculture and all other affairs under the purview of the...

s dating back to the Agricultural Adjustment Act of 1933, the Agricultural Act of 1949
Agricultural Act of 1949
The Agricultural Act of 1949 is a United States federal law that is known as the "permanent legislation" of U.S. agricultural policy and is, in its amended form, still in effect. The Act was enacted on October 31, 1949...

, and the Commodity Credit Corporation
Commodity Credit Corporation
The Commodity Credit Corporation is a wholly owned government corporation created in 1933 to "stabilize, support, and protect farm income and prices"...

 (created in 1933), among others.

The beneficiaries of the subsidies have changed as agriculture in the United States
Agriculture in the United States
Agriculture is a major industry in the United States and the country is a net exporter of food. As of the last census of agriculture in 2007, there were 2.2 million farms, covering an area of 922 million acres , an average of 418 acres per farm.-History:Corn, turkeys, tomatoes, potatoes, peanuts,...

 has changed. In the 1930s, about 25% of the country's population resided on the nation's 6,000,000 small farms. By 1997, 157,000 large farms accounted for 72% of farm sales, with only 2% of the U.S. population residing on farms.

The subsidy programs give farmers extra money for their crops and guarantee a price floor
Price floor
A price floor is a government- or group-imposed limit on how low a price can be charged for a product. In order for a price floor to be effective, it must be greater than the equilibrium price.-Effectiveness of price floors:...

. For instance in the 2002 Farm Bill
Farm Security and Rural Investment Act of 2002
The Farm Security and Rural Investment Act of 2002, also known as the 2002 Farm Bill, is the most recent incarnation of U.S. government assistance to domestic farmers. The act includes ten titles, addressing a great variety of issues related to agriculture, ecology, energy, trade, and nutrition...

, for every bushel of wheat sold farmers were paid an extra 52 cents and guaranteed a price of 3.86 from 2002–03 and 3.92 from 2004–2007. That is, if the price of wheat in 2002 was 3.80 farmers would get an extra 58 cents per bushel (52 cents plus the $0.06 price difference).

Arguments for and against


Farm subsidies have the direct effect of transferring income from the general tax payers to farm owners. The justification for this transfer and its effects are complex and often controversial.

Stability


Some proponents of agricultural subsidies argue they are necessary because domestic crop yield
Crop yield
In agriculture, crop yield is not only a measure of the yield of cereal per unit area of land under cultivation, it is also the seed generation of the plant itself, i.e. one grain of wheat produces a stalk yielding three grain, or 1:3...

 can fluctuate considerably depending on the local weather. International crop supply and prices also vary depending on weather (e.g., drought in Australia
Drought in Australia
Drought in Australia is defined as rainfall over a three month period being in the lowest decile of what has been recorded for that region in the past. This definition takes into account that drought is a relative term and rainfall deficiencies need to be compared to typical rainfall patterns...

), politics (e.g., farm seizures in Zimbabwe
Zimbabwe
Zimbabwe , is a landlocked country located in the southern part of the continent of Africa, between the Zambezi and Limpopo rivers...

), war, and other factors that affect crop yields in foreign countries. As a result of these fluctuations in production levels and prices, there could be very large variations in farm revenues and food available for purchase on the global market. Price support and income guarantees can help to maintain a strong domestic farm sector and domestic food supply, by smoothing farmers' income over time and better ensure that farmers are not required to maintain a hefty float from year to year to maintain consistent income.

Opponents point out that other areas of economy experience equivalent risks, where insurance
Insurance
Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known...

 and futures markets are used to mitigate risks to producers.

Protect domestic production


It is argued that in some countries that without support from government, domestic farmers would not be able to compete with foreign imports. Removing subsidies would therefore drive domestic farmers out of business, leaving the country with a much smaller (or possibly non existent) agriculture industry. A country that is unable to produce domestically enough food to feed its people is at the mercy of the world market, and is more vulnerable to trade pressure and global food shortages and price shocks.

Opponents argue the security of food could also be guaranteed by diversifying supplier relations.

Global food prices and international trade


Classical economic theory predicts that subsidizing a commodity would tend to increase production and depress the price.

Lower global food prices are considered beneficial to poor consumers, especially since they spend a high proportion of their income on food. For example, in the 1960s, President Lyndon B. Johnson
Lyndon B. Johnson
Lyndon Baines Johnson , served as the 36th President of the United States from 1963 to 1969 after his service as the Vice President of the United States from 1961 to 1963...

 made food surpluses a weapon in the war on poverty
War on Poverty
The War on Poverty is the name for legislation first introduced by United States President Lyndon B. Johnson during his State of the Union address on January 8, 1964. This legislation was proposed by Johnson in response to a national poverty rate of around nineteen percent...

. Since then, food has been donated to poor urban areas in the United States. Both critics and proponents of the WTO have noted that export subsidies, by driving down the price of commodities, can provide cheap food for consumers in developing countries.

But low prices are also considered harmful to farmers not receiving the subsidy. Because it is usually wealthy countries that can afford domestic subsidies, critics argue that they promote poverty
Poverty
Poverty is the condition of lacking basic human needs such as nutrition, clean water, health care, clothing, and shelter because of the inability to afford them. This is also referred to as absolute poverty or destitution...

 in developing countries
Developing country
Developing country is a term generally used to describe a nation with a low level of material well being. There is no single internationally-recognized definition of developed country, and the levels of development may vary widely within so-called developing countries, with some developing...

 by artificially driving down world crop prices. Agriculture is one of the few areas where developing countries have a comparative advantage
Comparative advantage
In economics, the law of comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal cost and opportunity cost than another party. It is the ability to produce a product most efficiently given all the other products that could be produced...

, but low crop prices encourage developing countries to be dependent buyers of food from wealthy countries. So local farmers, instead of improving the agricultural and economic self-sufficiency of their home country, are instead forced out of the market and perhaps even off their land. Agricultural subsidies often are a common stumbling block in trade negotiations. In 2006, talks at the Doha round
Doha round
The Doha Development Round or Doha Development Agenda is the current trade-negotiation round of the World Trade Organization which commenced in November 2001. Its objective is to lower trade barriers around the world, which allows countries to increase trade globally...

 of WTO trade negotiations stalled because the US refused to cut subsidies to a level where other countries' non-subsidized exports would have been competitive.

Mark Malloch Brown
Mark Malloch Brown
George Mark Malloch Brown, Baron Malloch-Brown, KCMG, PC is a former Minister of State in the Foreign and Commonwealth Office of the British government with responsibility for Africa, Asia and the United Nations...

, former head of the United Nations Development Program, estimated that farm subsidies cost poor countries about USD$50 billion a year in lost agricultural exports:


"It is the extraordinary distortion of global trade, where the West spends $360 billion a year on protecting its agriculture with a network of subsidies and tariffs that costs developing countries about US$50 billion in potential lost agricultural exports. Fifty billion dollars is the equivalent of today's level of development assistance."


In some cases, poor farmers who have high cost of production (perhaps due to small plots or lack mechanization) may have a cost of production higher than that of the subsidized market price, which means they cannot make any money.

Others argue that a world market with farm subsidies and other market distortion
Market distortion
A market distortion is a specific type of market failure brought about by deliberate government regulation which prevents economic agents from freely establishing a clearing price.Examples:...

s (as happens today) results in higher food prices, rather than lower food prices, as compared to a free market. Joseph Stiglitz, a Nobel laureate in economics, has argued that farm subsidies have a long term effect of raising global food prices, which in fact harms the poor and increases malnutrition. Countries such as India, Brazil or Argentina have comparative advantage in producing agricultural commodities due to their favorable weather conditions. Shifting production to inefficient countries through subsidies could be one mechanism which raises prices.

Overproduction


Subsidies
Subsidy
A subsidy is a form of financial assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry or an increase in the prices of its products or simply to encourage it to hire more...

 in general are strongly criticized by free markets economists as distorting price signal
Price signal
A price signal is message sent to consumers and producers in the form of a price charged for a commodity; this is seen as indicating a signal for producers to increase supplies and/or consumers to reduce demand....

s. Prices are the mechanism by which farmers determine which crops they should produce, and in what quantity. Profit maximization rewards work which produces the greatest benefit to consumers at the least cost. Subsidized profits can reward bad decisions such as planting crops not really needed by consumers, or not mitigate crop failure risk.

Economists discount the benefits of reduced retail prices derived from subsidizing over-production. If the government were to subsidize car manufacturers to produce more cars then this would indeed lower the showroom price but it would be the consumer's own money collected through tax that would be used to fund the over-production. Subsidies are thus a deadweight loss
Deadweight loss
In economics, a deadweight loss is a loss of economic efficiency that can occur when equilibrium for a good or service is not Pareto optimal...

 to the welfare in the aggregate economy due to the misallocation of production spending caused by the price distortion in agricultural products. Also, in the hypothetical case that lower retail costs would outweigh the additional production costs, the manufacturers would simply lower their prices themselves until they are at a point of maximum profitability.

Over-production of specific commodities can also impact land use and crop rotation practices.

Market distortions have replaced grasses for grazing cattle with cheaper cattle corn.

Impact on nutrition


Some critics argue that the artificially low prices resulting from subsidies coincidentally create unhealthy incentives for consumers. For example, cane sugar has been replaced with cheap corn syrup
Corn syrup
Corn syrup is a syrup, made using cornstarch as a feedstock, and composed mainly of glucose. A series of two enzymatic reactions are used to convert the cornstarch to corn syrup...

, making high-sugar food less expensive.

Corporate farms


Some proponents view farm subsidies as appropriate for "family" or small farmers, but inappropriate for "corporate" or large farms. Many subsidy programs have limits on the size of the farm that can receive subsidies.

Critics also argue that agricultural subsidies go mostly to the biggest farms who need subsidization the least. Research from Brian M. Riedl at the Heritage Foundation showed that nearly three quarters of subsidy money goes to the top 10% of recipients. Thus, the large farms, which are the most profitable because they have economies of scale, receive the most money. Since 1990, payments to large farms have nearly tripled, while payments to small farms have remained constant. Brian M. Riedl argues that the subsidy money is helping large farms buy out small farms. "Specifically, large farms are using their massive federal subsidies to purchase small farms and consolidate the agriculture industry. As they buy up smaller farms, not only are these large farms able to capitalize further on economies of scale and become more profitable, but they also become eligible for even more federal subsidies—which they can use to buy even more small farms." Critics also note that, in America, over 90% of money goes to staple crops of corn
Maize
Maize , is a herbaceous plant domesticated in Mesoamerica and subsequently spread throughout the American continents...

, wheat
Wheat
Wheat is a worldwide cultivated grass from the Fertile Crescent region of the Near East. In 2007 world production of wheat was 607 million tons, making it the third most-produced cereal after maize and rice...

, soybeans and rice
Rice
Rice is the seed of a monocot plant Oryza sativa, of the grass family . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East, South, Southeast Asia, the Middle East, Latin America, and the West Indies...

 while growers of other crops get shut out completely. In Europe, for instance the Common Agricultural Policy
Common Agricultural Policy
The Common Agricultural Policy is a system of European Union agricultural subsidies and programs. It represents 48% of the EU's budget, €49.8 billion in 2006 ....

 has provisions that encourage local varieties and pays out subsidies based upon total area and not production. Although, in fairness, research has shown that small farms receive more payments in relation to value of their crops than big farms.

Other issues


Some subsidies aim to preserve local agricultural traditions and food customs, protect green space, encourage the production of biofuel
Biofuel
Biofuel is defined as solid, liquid or gaseous fuel obtained from lifeless or living biological material and is similar to fossil fuels, which are derived from long dead biological material. Also, various plants and plant-derived materials are used for biofuel manufacturing...

s, promote tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people who "travel to and stay in places outside their usual environment for more than twenty-four hours and not more than one consecutive year for leisure, business and other...

, and reduce domestic unemployment
Unemployment
Unemployment occurs when a person is available to work and seeking work but currently without work. The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed...

. Opponents argue biofuel suppliers can be successful without subsidies, and free market advocates argue that it is natural for jobs on inefficient farms to be replaced by jobs on more efficient farms, with those workers displaced out of agriculture entirely representing an opportunity to grow the labor force in new industries.

Subsidies are often given in conjunction with strict regulation, reducing their benefit to farmers. For example, UK farmers have difficulty competing with Argentinian farmers, not only with higher labor costs, but with enforced meat traceability overheads from the UK government.

See also

  • Protectionism
    Protectionism
    Protectionism is the economic policy of restraining trade between states, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies...

  • Free trade
    Free trade
    Free trade is a type of trade policy that allows traders to act and transact without interference from government. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services....

  • Agricultural policy
    Agricultural policy
    Agricultural policy describes a set of laws relating to domestic agriculture and imports of foreign agricultural products. Governments usually implement agricultural policies with the goal of achieving a specific outcome in the domestic agricultural product markets...

  • Price support
    Price support
    In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level....

  • 2007–2008 world food price crisis
    2007–2008 world food price crisis
    The years 2007–2008 saw dramatic increases in world food prices, creating a global crisis and causing political and economical instability and social unrest in both poor and developed nations....


Further reading

  • Farm Commodity Programs: A Short Primer, a Congressional Research Service
    Congressional Research Service
    The Congressional Research Service , known as "Congress's think tank", is the public policy research arm of the United States Congress. As a legislative branch agency within the Library of Congress, CRS works exclusively and directly for Members of Congress, their Committees and staff on a...

     Report for Congress, June 20, 2002.

External links