Running Head: FARMING PROJECT 1

Faiza Ansari

Professor: Jennifer Joyner

ECON 202

04/27/2020

The Farm subsidies Project

Farm subsidies have become a somewhat debated topic in recent year, with increasing

numbers of critics believing that these are detrimental not only to the economy, but also by

implication to the health of Americans. Subsidies are offered by the USDA to farmers of

commodity crops such as corn, wheat, rice, and livestock such as cattle. This makes these types

of food cheaper than other, potentially healthier choices such as organic products. Farm subsidies

were initially implemented after the Great Depression to help farmers cope with the economic

effects after the Depression years. In other words, they were to stimulate the economy after the

difficult years of the downturn. Although initially intended as a temporary measure, the subsidies

remained part of the government assistance program for farmers even today. Farming has always

been a risky business. In some years, crops fail, resulting in little or no income for the farmer. In

years when crops prosper, prices can fall in response to surplus production. Demand for farm

products can also shift rapidly. In the twentieth century, World Wars I and II and the Korean

War created strong demand for American farm products, resulting in both higher prices and extra

production.
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In the 1920s, the federal government made its first efforts to stabilize farmers' incomes—

that is, to protect farmers from the annual ups and downs of their income due to fluctuating

market demand and farm production. These efforts achieved little success at the time. In the

early 1930s, however, the situation of farmers seemed much more desperate, as prolonged

drought caused some crops to wither entirely, while a surplus of other crops resulted in plunging

prices. As part of President Franklin D. Roosevelt's New Deal program to cope with the impact

of the Great Depression, Congress passed the Agricultural Adjustment Act (AAA) in 1933 and

created the Commodity Credit Corporation (CCC). The AAA gave the federal agriculture

secretary the authority to set quotas on production of some crops in order to avoid driving down

prices in cases of overproduction, while the CCC made loans to farmers who agreed to limit

production under the terms of the AAA.

After the Supreme Court declared the AAA unconstitutional, a modified version was

passed in 1938. Among other provisions, the Agricultural Adjustment Act of 1938 established

the Federal Crop Insurance Corporation (FCIC) to facilitate, support, and subsidize transactions

between farmers and private insurers. The Federal Crop Insurance Act of 1980 expanded the

crop-insurance program to many more crops and regions of the country. Protected crops include

wheat, corn, oats, soybeans, cotton, sugar, peanuts, tobacco, rice, and milk, among other goods.

These programs set a pattern that persists today. Corn, wheat, and cotton have long

accounted for the bulk of federal price support. Total US government spending on farm-subsidy

and price-support programs is estimated at more than $20 billion per year. In many cases, this

represents payments that go to large agribusinesses, including some corporations on Fortune

magazine's list of the five hundred largest corporations in the United States.
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The artificial presumption is that subsidies are needed in order to regulate the income of

farmers; without them, farmers will struggle to make profit. It was originally needed after World

War I when agriculture was in major financial crisis. However, today subsidies are not needed

as they were back then. Grain farmers would be able to make profit without any help, but they

continue for the sake of not changing what has been for a long time. These factors make the

natural presumption that agribusinesses and grain farmers are capable of making profit without

the help of subsidies. Although farm subsidies served a useful purpose when they were started in

the 1930s, the need for them has long since disappeared. Today they serve as welfare for wealthy

farmers and even Fortune 500 corporations at a time when farm household incomes are higher

than the average U.S. household income. Agriculture has morphed from family farms to huge

agribusiness, and no longer needs federal price supports at the cost of tens of billions of dollars

every year. These farm subsidies do not include fruits or many vegetables. This causes the prices

for the healthier foods to increase which in turn makes consumers, who obviously want to spend

less money, buy the unhealthy and cheap food. With the grains and other food covered by

subsidies this leaves the high processed food that causes obesity for the Americans to consume.

All industries face their own peculiar challenges. Agriculture faces no more risk than other

industries. Some argue that it shouldn't receive any preferential treatments.

In perfect competition, producers shut down when price is less than the variable cost. But

this assumption is distorted when subsidies are given to these farmer producers and it makes

them profitable indirectly even if the price is less than average variable cost. So, these farmer

producers continue to produce even if they get a price that is lower than the average variable

cost, it is against the principle of perfect competition. Subsidies act like a regressive tax that

helps high-income businesses, not poor rural farmers. Most of the money goes toward large
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agribusinesses. Between 1995 and 2017, the top 10% of recipients received 77% of the $205.4

billion doled out, according to EWG. The top 1% received 26% of the payments. That averages

out to $1.7 million per company. Fifty people on the Forbes 400 list of the wealthiest Americans

received farm subsidies. On the other hand, 62% of U.S. farms did not receive any subsidies.

U.S. farm subsidies block global trade. The Doha Round of trade talks and

the Transatlantic Trade and Investment Partnership failed because of U.S. and European farm

subsidies. Doha would have eliminated tariffs between every country in the World Trade

Organization. The TTIP would have lowered trade barriers between the United States and the

European Union. It would have increased U.S. GDP by 5% and the EU's by 3.4%.

US corn subsidies given to the US farmers, will make Mexican farmers to be

uncompetitive in the international market and Mexican farmers will be at loss as price will be

lower by the US farmers as they are getting subsidy. Here, price could be fixed as one solution

below that no farmer would sell the product in the market. The second solution will be to put

tariff or quota upon the US agricultural produces so that it will create a level playing field for the

farmers of both the countries. Another solution will be to eliminate the subsidy and make all

farmers equal at one ground. These solutions will work because it will help both set of farmers to

compete fairly against each other.

The argument against eliminating a farm subsidy is that cost of production in Mexico is

lower than the cost of production in USA. It will make the US farmers to be at disadvantage.

The coalition pushing to rein in farm subsidies is a disparate bunch: It includes libertarians

seeking spending cuts, environmentalists wanting to improve water quality and free marketers

like the Heritage Foundation.

Although these strange bedfellows have long tried to limit farm payments, the coalition

thought this farm bill cycle could be their moment. Not only is Congress controlled by

Republicans, many of whom express a distaste for big government, but President Donald Trump

also included proposals in his budgets that would cut off subsidies for farmers with high

incomes. But except for a failed vote in the House to limit government’s role in sugar policy and

a Hail Mary proposal to phase out all farm subsidies, almost no public debate on subsidies took

place in either chamber. Today agriculture is a huge, largely consolidated industry dominated by

corporations that have created large farms, replacing smaller, family-owned businesses. But this

change has not altered the fundamental strategic importance of agriculture, which today stands as

a major source of exports for the United States. The importance of some crops may even increase

over time as the country strives to be less dependent on petroleum and seeks to achieve part of

our energy independence by converting agricultural products into energy sources.

Over the past decades, the entire world has become locked in a series of competing

government subsidies for agriculture, and trade barriers intended to keep out imports. Poor

countries, which have implemented most of these tariffs on agricultural imports--intended to

boost the prices that their domestic farmers can get in the market--object that their competitors

from Europe and the United States are unfairly driving down market prices by subsidizing

farmers. The agricultural industry, on the other hand, complains--rightly--that without federal

subsidies they could never hope to sell crops abroad without charging well below what it costs to

produce. Without government intervention in the agriculture industry it is difficult to imagine

how American farmers could compete against producers abroad who might be willing or able to

subsist on a fraction of what it takes to support a farm household in the United States.
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Moreover, there are other factors besides easily identified farm subsidies. For example, if

foreign governments insist on setting their exchange rates at artificially low levels to protect their

domestic producers-- agricultural and industrial alike--the American agriculture industry could

be faced with profoundly unfair competition, or insist on protective tariffs to keep out foreign

goods, which would amount to the same thing as farm subsidies. America's food supply must be

protected from extreme weather like droughts, tornadoes, and hurricanes. The government has a

role in ensuring food production during wars, recessions, and other economic crises. Food

production is more important to the nation's welfare than other business products.

Farm subsidies is to develop competitiveness among the farmers and make them use of

technology to reduce the cost of operation. It will make the best performers to succeed in the

market. The subsidizing of agribusiness is slowly eliminating the original beneficiary of the

subsidies, the family farmers. Most of the farms that are still getting money are the big farming

businesses. The reason for this is because most of the family farms are not able to grow all the

crops that would make them eligible for subsidies. Subsidies should be given back to the people

that they were originally intended for, the family farmers. The government should make it an

option for the small family farms too grow crops that can be subsidized so that they can start to

thrive instead of the money going to big corporations.

However, the issue in eliminating a farm subsidy is that cost of production in Mexico is

lower than the cost of production in USA. It will make the US farmers to be at disadvantage.

My stand on the issue is that subsidy to the US farmers should continue and slowly reduced in a

timely manner, because cost of production is USA is much higher than the cost of production in

Mexico. If not done, then US farmers will be at huge loss and it will cost the USA dearly,

because food chain will hurt. Perfect competition is a hypothetical situation which cannot exist in
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a real-world market. Every components of perfect competition are ideal. It is a situation with

numerous buyers and sellers who produce and demands homogeneous product. Everyone can

earn equal profits, and no one can earn higher profits. When farm subsidies are provided, it could

possibly destroy the situation of perfect competition in the agricultural sector. The reason is,

farm subsidies are not provided equally for all agricultural sectors. The lion's share is focused

towards cotton, wheat, and other most demanded products. This will cause farmers to focus only

on such items which are getting more subsidies. Another problem arises when the small-scale

farmers are not getting any subsidies and it will affect their efficiency to earn from agriculture.

High subsidies can reduce the global price of crops. So, when the subsidies are proved as price

effective, it is to be removed for maintaining the perfect competition in the sector.

References:

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[Link]

wealthy-farmers-1772351

[Link]

2017/agricultural-policy