This paper examines the evolution of United States farm policy from its Depression-era origins through the 1996 Freedom to Farm Act and the 2002 Farm Act. It analyzes how the shift toward market-oriented agriculture affected farmers of different scales, evaluates the effectiveness of commodity loan programs and price supports, and considers the political pressures that prevented meaningful subsidy reform. Drawing on economic analyses and congressional commentary, the paper argues that the Freedom to Farm Act failed to reduce farmer dependence on government payments, rewarded inefficient production, and ultimately left the agricultural sector no more competitive than before the legislation was introduced.
The United States has always supported its farmers through a number of different policies. These policies have included programs designed to distribute the nation's land equitably, increase productivity, raise the standard of living of American farmers, and help them market their products (Westcott and Price, 2001). U.S. farm policy since the 1930s focused on price and income supports. Until the introduction of the 1996 Farm Bill, the price support system relied on a series of acreage limits and storage programs (Westcott and Price, 2001).
The basis of current farm policy began during the Great Depression. The focus of the original farm policy was limited; however, the past 15 to 20 years have seen a broadening of this policy to include many concerns beyond price support (Westcott and Price, 2001). In 1985, policy changes were instituted that moved the farm industry toward a market orientation, reducing government involvement in farm subsidy programs (Westcott and Price, 2001). This made the farm sector more closely resemble other sectors of the economy — a significant change for farmers who were accustomed to growing their product and selling it to a committed customer, the U.S. government, at a set price. Farm prices would now be market-driven and subject to the laws of supply and demand rather than determined by government policy.
Farm prices over the following several years were expected to fall at or slightly above commodity loan rates (Westcott and Price, 2001). As a result, loan deficiency payments, marketing loans, and the commodity loan program were expected to remain large (Westcott and Price, 2001). Analysts projected that this would result in more acreage being planted while simultaneously driving crop prices lower. Increased personal incomes in the United States raised domestic demand for farm products, and there was a growing interest in the preservation of rural landscapes (Westcott and Price, 2001).
Many stakeholders have a considerable interest in farm policy decisions. The needs of small farmers (annual sales under $100,000) differ vastly from those of large farmers (sales of $250,000–$499,000). Small farmers may engage in farming as a part-time activity and may be employed elsewhere, while large farmers usually rely on farming as their sole source of income. Under the new marketing program, some small farmers may be forced out of business simply because they lack the resources to compete with large operations. Large farmers, too, will feel the impact of the marketing system as prices fall and operating costs continue to rise.
A study of the impact of farm policy from 1975 to 1999 revealed that farm prices dropped over that period while domestic use rose. During this time, prices were subject to a number of global conditions, including currency risk, trade policy, and price support policy. Increases in domestic demand were not driven by larger net exports of value-added products containing domestically produced raw materials (Dittrich, 2002). Dittrich concluded that, despite very high government payments to farmers coupled with increased yields, the real gross income per acre remained at record lows — approximately one-third less than it had been in the 1980s. This evidence suggests that the current system was not working as intended.
Contrary to popular belief and media coverage, the 1996 Farm Bill did not eliminate government price controls and price support. It did not end price support but simply reduced it for a period of seven years, after which Congress would need to act again (Riley, 2003). Under the bill, subsidies of close to $4–5 billion were still allocated to fulfill contracts. Of these contracts, the largest share was allocated to corn at 46.22%, followed by wheat at 26.26%, while oats received the lowest allocation at 0.15% (1996 Farm Bill, H.R. 2854).
A policy briefing on the effects of current farm policy found that the 1996 Farm Act did improve the well-being of farm families in terms of income, wealth, consumption, and the balance between labor and leisure (Young et al., 2003). Land values for farmers rose, but this had little impact on production or trade. The 2002 Farm Act was similarly expected to have little impact on the market (Young et al., 2003). Net farm income was projected to be higher than under a continuation of the 1996 Farm Act.
A simulation of the 2002 Farm Act indicated that plantings would initially increase for the eight major program crops (Westcott et al., 2002). Westcott and associates also expected farm income to increase due to higher government payments. When prices are low, the government issues market loans to supplement returns from the marketplace for the total units of production. This has the effect of raising the producer incentive price, which in turn influences planting decisions (Westcott et al., 2002).
"Congressional criticism of subsidy inefficiency and favoritism"
"Subsidy system rewards failure and discourages efficiency"
1996 Farm Bill: Final Version and Earlier Proposals. Text and Legislative History. Public Law No. 104-127 (110 Stat. 888) Federal Agricultural Improvement and Reform Act of 1996. H.R. 2854 (Roberts). Library of Congress.
Farr, Sam, Congressman. "The 2002 Farm Bill: Another Lost Opportunity." Congress of the United States, House of Representatives, Washington, D.C. Published in The King City Rustler, June 2002.
Johnson, Len. "Farming: The Last Welfare Culture." Chicago Tribune, September 28, 2001.
Riley, John. Implications of the 1996 Farm Bill to Small and Mid-Sized Farmers. U.S. House of Representatives, Washington, D.C.
Westcott, Paul, and Michael Price. Analysis of the U.S. Commodity Loan Program with Marketing Loan Provisions. ERS Agricultural Economic Report No. 801. 26 pp., April 2001.
Westcott, Paul, Edwin Young, and Michael Price. The 2002 Farm Act: Provisions and Implications for Commodity Markets. ERS Agriculture Information Bulletin No. AIB778. November 2002.
Young, Edwin, Paul Westcott, and Anne Effland. Farm Policy Team Policy Briefing: 1996 Farm Bill. USDA Economic Research Service, March 2003.
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