Ag Policy

A Closer Look at the National and International Impacts from Subsidized Farming

One of the more controversial uses of the US budget is subsidizing crops. Perhaps not as of a hot button issue in today's news, with the nation's public focused on immigration and other scandalous topics. Nonetheless, due to a couple changes within the last couple of years worldwide and within the US, it is definitely important to both understanding a nation's politics and economics. To understand why subsidies are so controversial, one first needs to understand what exactly a subsidy is, and how it relates to Ag Policy. A subsidy is a form government assistance to keep the price of a commodity low.

Price stays low, quantity stays high

A subsidy is supposed to be good for both the consumer and the producer, and some see them as necessary to guarantee that farmer's stay financially safe and productive. However, subsidies have not only impacted our country, but in the world market. 

According to Dr. Daniel Summers, the only winners within the US are those farmers who own subsidized crops, like cotton, and the consumer. The US economy has to pay for these subsidies, and no other farmers except the ones growing subsidized crops benefit. As for the rest of the world, impacts vary. Our competition cannot keep up with the low prices that our farmers can sell at, which excludes poorer countries from participating in the world market. However, the lower prices make our commodities more available to those in poverty. 

A common complaint: only big agri-businesses gain from subsidies

If we were to quit subsidizing our farmers in the US, Dr. Summers thinks that farmers in developing countries would probably benefit, at least the ones that are competing with our currently subsidized crops. This is especially true for cotton, which is a very suitable crop for Africa’s environment and therefore a very popular use of its arable land. However, with the US supporting national farmers through subsidies, US cotton prices stay low, while Africa’s prices stay higher. 

For the non-competitors, however, eliminating subsidies would have a negative impact. The US keeps their prices low, and third world countries (including the ones in Africa) can afford them. Dr. Summer deduces that the change in price for most subsidized commodities would not be significant, but also states that for those in poverty, these changes could be huge. While the US itself would probably not feel the difference, other countries certainly could.

On an International Level: The Common Agricultural Policy

Subsidies are not only a big topic in the US, but also worldwide. Just a couple years ago, the UN's Common Agricultural Policy (CAP) was reformed. The new CAP sought out to fix many of the issues within the agricultural sector, especially when it came to budgeting. Of the many changes made, there are a couple that are subsidy related. One is having a 300,000 euro cap for subsidies, another is subsidizing acreage rather than production. This hopefully will continue to lead to less intensive farming, as there won't be so much pressure to produce for extra money. There also would be redistribution of payments that would take money from larger operations and support smaller farms.

There are other problems that CAP is trying to end some with the subsidy programs, problems which have for a long time had negatively impacted the rest of the world. For instance, ending sugar protection quotas. By ending these quotas, competing farmers in poor countries would have a chance in the market, and also stops the flow of money from these quotas going towards dominating European agri-businesses. 

Not everyone was ecstatic about CAP 

Despite the many huge revisions that were made, there are still several who consider CAP heavily flawed, especially when it comes to how much they pay for subsidies, and where the money is actually going. Many say that most of the subsidies will still go to huge agri-business companies, rather than smaller local farms. Others completely want to downplay subsidies and spend more on agricultural research, rather than be like the US and Japan, which are known for giving large subsidies to their farmers. 

Ironically, despite the fact that many argue that the CAP makes the EU more similar to US and Japan, other argue that is the subsidies that are keeping them from being like us. Supporters fear that without the subsidies, Europe’s landscape will be dotted with US-style factory farms.

On A National Level: The Farm Bill

A couple months after CAPs reform, a new farm bill in the US was going through congress. This bill was to replace the one that had expired in 2012, two years earlier. The bill was to cost approximately $956 billion dollars, a startling number until you realize that the US was currently on tract to spend $972 billion, so the proposed bill would actually save the US around $16 billion over the next ten years. 

A brief overview of the budgeting in the new bill

There were many changes made to the budget, especially when it came to subsidies. For the past seventy years, minimum prices for milk, cheese, and butter have been set to insure the farmers financial safety. Now, farmers will be supported with insurance when the prices of their products, or the cost of their feed, drop.

Other changes being made to the bill included the (then) current Supplemental Nutrition Assistance Program. The result in being a $8 billion cut in spending over a decade. One of which is closing the heating “loophole”. About 850,000 households have qualified for food aid because of heating bills that, according to the government, have been assumed to be higher than they actually were.

This program also now excludes college students, lottery winner, and undocumented immigrants from its benefits. Those who still are able to be part of the program will also now receive pilot programs that are designed to encourage them to apply for jobs.

A pretty controversial part of the bill was the new crop insurance policy. Seven billion dollars was added to this portion of spending to be used as insurance deductibles. Before, farmers would be able to buy their own insurance, along with the subsidies in case their crops died or prices dropped. Now, with the cut of subsidies (as mentioned before with the dairy products), the government will be paying the farmers deductibles before their insurance covers the costs. This part is considered a little controversial, because the seven billion added onto the bill for deductibles is only a projection, and the government could end up spending a lot more than their allocated amount. 

For now, the world seems to be cutting out subsidies and promoting farmers in different ways. Hopefully, all countries will be given the same chance on the market as a result.