Agricultural subsidies: Wikis


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An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities. Examples of such commodities include wheat, feed grains (grain used as fodder, such as maize, sorghum, barley, and oats), cotton, milk, rice, peanuts, sugar, tobacco, and oilseeds such as soybeans.


Agricultural subsidies by region


European Union

Agricultural subsidies to European farmers and fisheries make up more than 40 percent of the EU budget[1]. As the EU budget is around 120 billion, this means that 48 billion is spent on agricultural subsidies alone; or about 0,321% of the EU's GDP.[2] Since 1992, the EU's Common Agricultural Policy has undergone significant change as subsidies have been decoupled from production. About € 30 billion are now spend as direct income support for farmers (the so-called Single Farm Payment). The next major reform of the CAP (scheduled for 2013) is currently being negotiated. The main issue is to target subsidies at public goods, such as biodiversity and clean water.[3]


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.[citation needed]

A study by the Overseas Development Institute 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.[citation needed]

According to policy conclusions of the Overseas Development Institute 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.[4]


Japan is best known for having agricultural subsidies for rice and wine, for cultural reasons.[citation needed]

New Zealand

Until the neo-liberal reforms started in 1984 by the Fourth Labour Government, New Zealand farmers enjoyed a high level of subsidies and protectionism. After these reforms, New Zealand had the most open agricultural markets in the world.[5]

United States

The U.S. Agricultural Department is required by law (various U.S. farm bills 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 bills dating back to the Agricultural Adjustment Act of 1933, the Agricultural Act of 1949, and the Commodity Credit Corporation (created in 1933), among others.[citation needed]

The beneficiaries of the subsidies have changed as agriculture in the United States 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. In 2006, the top 3 states receiving subsidies were Texas (10.4%), Iowa (9.0%), and Illinois (7.6%). The Total USDA Subsidies from farms in Iowa totaled $1,212,000,000 in 2006.[6] From 2003 to 2005 the top 1% of beneficiaries received 17% of subsidy payments.[6] In Texas, 72% of farms do not receive government subsidies. Of the close to $1.4 Billion in subsidy payments to farms in Texas, roughly 18% of the farms receive a portion of the payments.[7]

"Direct payment subsidies are provided without regard to the economic need of the recipients or the financial condition of the farm economy. Established in 1996, direct payments were originally meant to wean farmers off traditional subsidies that are triggered during periods of low prices for corn, wheat, soybeans, cotton, rice, and other crops." [8]

Top states for direct payments were Iowa ($501 million), Illinois ($454 million), and Texas ($397 million). Direct payments of subsidies are limited to $40,000 per person or $80,000 per couple.[9]

The subsidy programs give farmers extra money for their crops and guarantee a price floor. For instance in the 2002 Farm Bill, 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.[10] 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).

Corn is the top crop for subsidy payments, due in part to the fact that corn has uses aside from food and feed. US corn ethanol subsidies are between $5.5 Billion and $7.3 Billion per year, and US ethanol producers are protected from imports of cheaper Brazilian ethanol by a 54-cent-per-gallon tariff. Producers also benefit from a federal subsidy of 51 cents per gallon, additional state subsidies and, federal crop subsidies that can bring the total to 85 cents per gallon or more.[11] The 2005 energy law mandates that billions of gallons of ethanol be blended into vehicle fuel each year, guaranteeing demand.

2004 U.S. Crop Subsidies[12]
Commodity Millions of US$ Share
Feed grains, mostly corn 2,841 35.4%
Upland cotton and ELS cotton 1,420 17.7%
Wheat 1,173 14.6%
Rice 1,130 14.1%
Soybeans and products 610 7.6%
Dairy 295 3.7%
Peanuts 259 3.2%
Sugar 61 0.8%
Minor oilseeds 29 0.4%
Tobacco 18 0.2%
Wool and mohair 12 0.1%
Vegetable oil products 11 0.1%
Honey 3 0.0%
Other crops 160 2.0%
Total 8,022 100%

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.


Some proponents of agricultural subsidies argue[citation needed] they are necessary because domestic crop yield can fluctuate considerably depending on the local weather. International crop supply and prices also vary depending on weather (e.g., drought in Australia), politics (e.g., farm seizures in Zimbabwe), 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[citation needed] point out that other areas of economy experience equivalent risks, where insurance and futures markets are used to mitigate risks to producers.

Protect domestic production

It is argued[citation needed] 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[citation needed] 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.[citation needed]

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 made food surpluses a weapon in the war on poverty. Since then, food has been donated to poor urban areas in the United States.[citation needed] 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.[13][14]

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 in developing countries by artificially driving down world crop prices.[15] Agriculture is one of the few areas where developing countries have a comparative advantage, 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 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.[16]

Mark Malloch Brown, 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." [17][18]

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.


Subsidies in general are strongly criticized by free markets economists as distorting price signals. 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 mitigating crop failure risk.[citation needed]

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 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.[citation needed]

Market distortions have replaced grasses for grazing cattle with cheaper cattle corn.[19]

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, making high-sugar food less expensive.[20]

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.[21] Thus, the large farms, which are the most profitable because they have economies of scale, receive the most money. Between 1990 and 2001, payments to large farms have nearly tripled, while payments to small farms have remained constant.[22] 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."[21] Critics also note that, in America, over 90% of money goes to staple crops of corn, wheat, soybeans and rice while growers of other crops get shut out completely. In Europe, for instance the Common Agricultural Policy 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.[23]

Non-farming companies

Subsidies are also given to companies and individuals with little or no connection to traditional farming. It has been reported that the largest part of the sum given to these companies flow to multinational companies like food conglomerates, sugar manufacturers and liquor distillers. For example in France, the single largest beneficiary was the chicken processor Groupe Doux, at €62.8m, and was followed by about a dozen sugar manufacturers which together reaped more than €103m.

Other issues

Some subsidies aim to preserve local agricultural traditions and food customs, protect green space, encourage the production of biofuels, promote tourism, and reduce domestic unemployment. 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.[citation needed]

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.[citation needed]

See also


  1. ^
  2. ^ 48 billion (or 48x109)/14,91 trillion (or 14.91x1012)*100=0,321)
  3. ^ - arguments for fundamental CAP reform and links to relevant studies
  4. ^ "Towards 'smart' subsidies in agriculture? Lessons from recent experience in Malawi". Overseas Development Institute. September 2008. 
  5. ^ "Save the Farms -- End the Subsidies". Cato Institute. Retrieved 2008-10-22. "In 1984 New Zealand's Labor government took the dramatic step of ending all farm subsidies, which then consisted of 30 separate production payments and export incentives. This was a truly striking policy action, because New Zealand's economy is roughly five times more dependent on farming than is the U.S. economy, measured by either output or employment. Subsidies in New Zealand accounted for more than 30 percent of the value of production before reform, somewhat higher than U.S. subsidies today. And New Zealand farming was marred by the same problems caused by U.S. subsidies, including overproduction, environmental degradation and inflated land prices." 
  6. ^ a b
  7. ^
  8. ^
  9. ^
  10. ^ "The 2002 Farm Bill: Title 1 Commodity Programs". USDA. 2002-05-22. Retrieved 2006-12-06. 
  11. ^ Sweet, William. "Corn-o-Copia." IEEE Spectrum. January 2007
  12. ^ USDA 2006 Fiscal Year Budget. "USDA Budget Summary 2006. Farm and Foreign Agriculture Services". 
  13. ^ Panagariya, Arvind (2005–12). "Liberalizing Agriculture". Foreign Affairs. Retrieved 2006-12-26. 
  14. ^ Center for Economic and policy research (2005-11-22). "World Bank's Claims on WTO Doha Round Clarified". Press release. 
  15. ^ Andrew Cassel (2002-05-06). "Why U.S. Farm Subsidies Are Bad for the World". Philadelphia Inquirer. Retrieved 2007-07-20. 
  16. ^ "US blamed as Trade Talks end in acrimony". Financial Times. 2006-07-24. Retrieved 2008-05-18. 
  17. ^ [1] Address by Mark Malloch Brown, UNDP Administrator, Makerere University, Kampala, Uganda, 12 November 2002
  18. ^ [2] "Farm Subsidies That Kill", July 5, 2002, By NICHOLAS D. KRISTOF, New York Times
  19. ^ Kummer, Corby. "Back To Grass". The Atlantic. Retrieved 2008-04-29. 
  20. ^ Pollan, Michael (2003-10-12). "THE WAY WE LIVE NOW: 10-12-03; The (Agri)Cultural Contradictions Of Obesity". The New York Times. Retrieved 2008-04-29. 
  21. ^ a b Riedl, Brian M. (2002-04-30). "Still at the Federal Trough: Farm subsidies for the rich and famous shattered records in 2002". Heritage Foundation. Retrieved 2006-12-27. 
  22. ^ "Farm Programs: Information on Recipients of Federal Payments" (PDF). US General Accounting Office. 2001–06. pp. 14. Retrieved 2006-12-27. 
  23. ^ "Farm Programs: Information on Recipients of Federal Payments" (PDF). US General Accounting Office. 2001–06. pp. 15. Retrieved 2006-12-27. 

Further reading

External links


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