Farm subsidies and their economic effects

Farm Subsidies

The subject of farm subsidies becomes convoluted when it is discussed in terms of the West, and in terms of third world nations in Africa, or elsewhere around the world. It is especially misleading and of great concern when discussions are from a third world perspective, encouraging the west to cut back on farm subsidy dollars, because there is a disparity between subsidies paid in the west, like the UK and the U.S., as compared to those paid in many third world nations. Not only is this comparing apples and oranges, but it takes the focus of the discussion away from the most relevant point when discussing farm subsidies: that they should be completely eliminated, and the agricultural business should be left to its own devices and economic enterprise without government manipulation, which can ostensibly be viewed as manipulation of commodities.

One such example of comparing apples and oranges is found in an article written by Lokogo Bafalikike (2002), for the New African. Bafalikike begins his article by talking about farm subsidies in terms income potential, and that while the West relies heavily on them, the world governments where subsidies exist, discourage "poorer countries not to use them (412)." Bafalikike is missing the point, that the third world nations are being discouraged from using them because they stunt the growth and opportunities of small agricultural producers, which is why many small farmers in the West oppose subsidies. Subsidies exist only where there are trade restrictions on farmers, limiting the freedom of economic exports from which the farmers, even small farming enterprises, could profit from. Instead, subsidies dictate to the farmers what portion of their lands they can devote to certain crops, or perhaps not to plant at all; thereby exercising a manipulated control over the commodities, and over third world countries that rely on certain imported farm production. The point that Bafalikike is missing, is that no subsidies mean no governmental interference in an agricultural free market, thereby giving small farmers an opportunity to export their products wherever they like, and to charge whatever they can get for the product. This particular article demonstrates a lack of understanding of farm subsidies, or is looking at subsidies as a form of income when what is in reality is corporate welfare (Tupy 2005). Thomas A. Lyson, in his book, Civic Agriculture: Reconnecting, Farm, Food, and Community (2004) concurs, saying:

"The entire system of commodity production is being propped up by large government subsidies. These subsidies favor some producers over others (usually large ones over small ones) and certain production practices over others (usually capital-intense over organic). A recent report by Brian Riedl of the Heritage Foundation noted that 'growers of corn, wheat, cotton, soybeans, and rice receive more than 90% of all subsidies, while growers of most of the 400 other domestic crops are completely shut out of farm subsidy programs (101).'"

So not only are there trade restrictions on agricultural producers because of subsidies, there are also rules to receiving subsidies that preclude certain producers, most of them small producers, rural American farmers, for instance. Lyson goes on to say:

"The report continued: 'farm subsidies in 2001 were distributed overwhelmingly to large growers and agribusiness, including a number of Fortune 500 companies . . . The top ten percent of recipients -- most of whom earn over $250,000 annually -- received 73% of all subsidies in 2001 (101).'"

It is important to understand, too, that farming is a way of life, and it has been, until recent years, generational. Small farms were family oriented, and handed down from fathers to sons, to grandsons, and following generational lines. That is not the case anymore, because agribusiness has grown, and, thanks to farm subsidies, has prompted large agricultural corporations to buy up small family farms. Farm subsidies may well prove to be the extinction of the family farm in America, and in other countries where subsidies are used to manipulate commodities.

We have to consider the subject of farm subsidies in terms of government dollars, versus farm land size. Corporate agriculture holds greater tracts of land than do family farms, and, therefore, receives greater far subsidies. There is also questionable self-interest in government in looking at who receives farm subsidies. Tupy writes:

"As the OECD documents, the wealthiest 20% of farmers in Europe receive 80% of the subsidies. In the United Kingdom, those wealthy farmers include Britain's richest man, the Duke of Westminster, as well as other rich noblemen, including the Dukes of Marlborough and Bedford, and the Earl of Leicester. Prince Albert of Monaco also received common agricultural policy (CAP) money, as did four Danish cabinet ministers and several members of the Danish Parliament. The Dutch agriculture minister, Cees Veerman, was also on the CAP payroll.

Likewise, in the United States, it is the wealthiest farmers who receive the most in agricultural grants. In 1999, for example, 45% of agricultural subsidies went to the largest 7% of farms in the United States. According to the Environmental Working Group's Farm Subsidy Database, a Washington-based non-profit organization, one of the more prominent recipients of U.S. agricultural subsidies is Senate Minority Whip Dick J. Durbin (online)."

From the above information, it reads more like a who's who of farm subsidies as opposed to farm subsidies with a goal to create balance and to assist the family farmer. This is what perhaps served as the basis for Chris Edwards (2007) to create a list of ten reasons to cut farm subsidies. Edwards reminds that, in the U.S., farm subsidies came about as a result of the Great Depression of the 1930s (2007), which also was the same period when, in Oklahoma, the U.S. experienced further economic and ecological crisis during what has become known as the "Dustbowl" crisis. That crisis came about as a result of a lack of understanding of environmental and agricultural practices, and, as a result of severe draught, farms in Oklahoma turned into giant dustbowls. Banks foreclosed on the failed farms, and the land was resold to agricultural corporations, which have ever since that time continued to grow and absorb small private farmland. Edwards says that it no longer makes sense to continue with farm subsidies (2007). He gives the ten reasons as the following:

"Farm subsidies transfer the earnings of average taxpaying families to well -- off farm businesses. In 2005, the average income of farm households was $79,965, or 26% higher than the $63,344 average for all U.S. households. Farm subsidies are welfare for the well -- to -- do -- even millionaire farmland owners such as David Rockefeller and Edgar Bronfman receive farm subsidies.

Although politicians love to discuss the plight of small farmers, the vast majority of farm subsidies go to the largest farms. In recent years, the biggest 10% of farm businesses have received 72% of farm subsidies, according to the Environmental Working Group.

Farm subsidies damage the economy. In most industries, market prices balance supply and demand and encourage efficient production. But Congress short -- circuits market mechanisms in agriculture. Farm programs cause overproduction, the overuse of marginal farmland, land price inflation and excess borrowing by farm businesses.

Farm programs are prone to fraud and scandal. The Government Accountability Office found that improper farm payments amount to as much as $500 million each year. Since 2000, the government has paid $1.3 billion in subsidies to people who own "farmland" that is not even used for farming. The government also frequently distributes disaster payments to farmers who don't need them and often didn't even ask for them.

"Farm subsidies are a serious hurdle to progress on global trade agreements that could help productive U.S. exporters. Agricultural trade barriers also damage U.S. security and global stability because they hinder the ability of poor countries to achieve stronger economic growth.

Farm programs damage the environment. Subsidy programs and trade barriers draw marginal farmland into production and encourage the overuse of fertilizers. Lands that might otherwise be used for parks, forests or wetlands get locked into farm use. Florida sugar cane cultivation, for example, causes substantial damage to the Everglades, yet it thrives only because of import protections.