Share of each type of farm receiving federal subsidy payments

Shift in federal subsidy payments over the last decade shows elimination of direct payments with the 2014 farm bill. 

What proportion of federal agriculture subsidies does each region of the country receive?

Breakdown of farm subsidy income in Cache County, Utah

Origins of Farm Subsidies

The first major agricultural program in the United States was the Agricultural Adjustment Act of 1993. It originated in response to the Great Depression. The law was designed to protect farm income and allowed the government to set minimum prices. It also included payments to farmers for land idling and slaughtering livestock. (1) 

The Farm Bill of 1996 eliminated or phased out much of this first subsidy. It introduced a concept called direct payments which will be explained later. Subsequent farm bills have used a range of tools to protect farmers against price and income drops as well as volatility. They have also incorporated conservation incentives and requirements.

Types of Federal Farm Subsidies Explained

There are three main types of farm subsidies in the US. The first type is known as direct payments which are based on a farm’s history of producing specific incentivized crops. Farmers receive these payments irrespective of the market price of what they produce, and even without regard to whether they plant crops other than the crop for which they are receiving the payment or choose to leave the land idle. This type of payment was discontinued in 2014. The second type of subsidy is known as a countercyclical payment. These are designed to stabilize farmers’ incomes so they don’t fluctuate so wildly with commodity prices. They aren’t tied to the production of any particular crop. This provides an incentive for the farmer to overproduce since market forces are removed from consideration when determining what and how much of it should be planted. The third type of subsidies is inversely proportional to current market prices, but also directly tied to current production of a specific crop.

Additionally, there are conservation program payments that allow farmers to receive a fixed payment from the government in exchange for their most vulnerable and eroded, least economically viable land.

Economic Benefits and Costs of Farm Subsidies

A few purported benefits of farm subsidies are that they stabilize agricultural commodity markets, aid low-income farmers and rural development, help ensure national food security, and keep US farms competitive in a global market by offsetting farm subsidies provided by other countries. (2)

Agriculture subsidies affect the decisions of farmers.  Economists agree that without these payments, the production of subsidized crops would decline. This is because farm subsidies stimulate additional production of government-favored commodities by raising incentives to divert resources like land, water, and farmer talent into some products rather than on others. If a subsidy for just one crop were eliminated, it would cause production of that crop to drop much more than if all crop subsidies were ended. If all were ended, economists would expect a shift in the mix of what crops were produced, but no significant change in the amount of farmland in use or total agricultural production. (2) Some years farmers choose to opt out of subsidies by planting the total acreage of their farms and not leaving anything fallow. This allows them claim a greater base acreage and by so doing they can maximize the amount of subsidy they receive in the future. (3) This practice is particularly common among small family farmers.

So, what economic impact do farm subsidies have on consumers both domestically and internationally? Farm subsidies depress the global price of the commodities that are incentivized. Cotton is a good example of this. In 2001 and 2002, the global price of cotton hovered around forty cents per pound. Many cotton growers worldwide, including in the poorest nations of West Africa, received only this market price. Meanwhile, cotton growers in the United States, the world’s largest exporter of cotton, received seventy cents or more per pound from the subsidies alone before they collected the market price. Economists estimate that U.S. exports of cotton would have been substantially lower, and the world price of cotton 10 to 15 percent higher, if there had been no US subsidy of cotton. (2) If subsidies were ended, it would aid poorer nations because they could begin to rely more on trade than aid for economic growth. Rich nations would also benefit because they could reduce their aid payments to poorer nations and also save tax money by paying lower subsidies to farmers.

Impacts of Subsidies on Farm Structure

Subsidies may have been a major driver in the change in farm structure over the past half century because most subsidies are based on your gross sales and acreage which directs most payments to large farms and encourages the consolidation of small family farms into larger industrial farms. Additionally, subsidies incentivize the production of certain crops which has contributed to the trend away from crop diversification where the typical large specialized farm now only produces one or two distinct crops.

Farm Subsidies in Cache County

While federal farm subsidies are important drivers of farm structural change nationally, Cache Valley farms have not been as heavily affected by these programs. The main reason for this is that the climate and growing season here aren't suitable to grow most subsidized crops. According to the USDA, 82% of farms in Utah did not collect any subsidy payments in 2014. (4) Farms receiving subsidies in the Cache Valley are almost exclusively wheat or corn farms. Dairies may be the one agricultural group in Cache Valley where subsidies have been a major consideration (at least in years when milk prices are low).

In 2009, Cache Valley farmers received around $4.4 million in federal subsidies over half of which went to dairy farmers (refer to the pie chart above and to the left). This $4.4 million pales in comparison to the gross sales of what farmers produce in Cache Valley which consistently tops $130 million.

For more information about how much each state receives in farm subsidies, the breakdown of those payments by subsidy program, and who are the recipients of the payments, visit farm.ewg.org.