Farm subsidies often get cited as a reason for the problems in our food system. But what are they? Advocates and journalists have made the question easier to answer by revealing that the subsidies said to be paid to struggling family farmers are actually a way to subsidize the largest farm operations and businesses in the world for the production of mostly corn, soy, and wheat.
Summary of the U.S. Farm Industry
Farmers are people who grow food on land, and they make up the farm industry, which is part of the larger agriculture sector that includes farm businesses, food services, and food manufacturing. Every year, the farm industry contributes about $134.7 billion to U.S. gross domestic product (GDP), or about 0.6 percent of total GDP, according to the USDA. There are about 2 million farms in the U.S., providing work for about 3.4 million farmers.
The farm industry has significant roots in the colonization of the present-day United States. The U.S. farm industry was built on land that was taken from Indigenous peoples. In the 19th century, U.S. farmers and ranchers settled the land with the assistance of the U.S. military. Farmers also became wealthy through the enslavement of Black and Brown people working for the benefit of a small subset of mostly white men.
In the 20th century, the U.S. farm industry underwent major changes: the invention of the tractor, the use of synthetic fertilizers, and, since the 1970s, federal policies that encouraged the overproduction of corn.
What Are U.S. Farm Subsidies?
For the most part, the U.S. government only subsidizes five major crops grown by farmers: corn, soy, wheat, cotton, and rice. Other subsidies include small amounts for other crops like peanuts, sorghum, and mohair, while dairy and sugar producers have their own price and market controls.
The majority of the farm subsidies go toward producing feed for animal agriculture. David Simon writes in his book “Meatonomics” that these subsidies are largely for the production of meat: “nearly two-thirds of government farming support goes to the animal foods that the government suggests we limit, while less than 2 percent goes to the fruits and vegetables it recommends we eat.”
Why Are Farmers Subsidized?
The way that food is grown in annual cycles makes it hard for farmers to adjust their products to the market. Sometimes there will be a surplus and the price of food will fall. In response, programs set up in the New Deal of the 1930s paid farmers not to grow their crops, and instead store surplus crops. This was to prevent farmers from producing so much that the low prices endangered their livelihoods or having to dump their crops on the market when prices were low.
In his book “The Omnivore’s Dilemma,” Michael Pollan explains, “When it comes to food, nature can make a mockery of the classical economics of supply and demand—nature in the form of good or bad weather, of course, but also the nature of the human body, which can consume only so much food no matter how plentiful the supply.” Pollan writes that establishing a reserve of grains is an ancient practice, recommended in The Bible. The reserve would make sure food was available during harsher harvests while protecting farmers from putting too much food on the market.
Direct Payments
The federal government gave direct payments to farmers from 1996 to 2014 (and to 2016 for cotton producers), of about $5 billion per year. Payments were given regardless of what farmers grew and were based on historical production data from 1986. The direct payment program in the 1996 farm bill that set up these subsidies was created to help move farmers from subsidized farming to a free-market model. The 2014 farm bill ended direct payments.
As with most farm subsidies, the direct payment program favored large corporate farmers over small farmers. In “Meatonomics,” David Simon writes that 90 percent of the direct payments from 1995 to 2009 went to two-fifths of the recipients, excluding two-thirds of U.S. farmers from any payments at all.
Counter-Cyclical Payments
The Counter-Cyclical Payments (CCPs) program was a government payment based on the prices for specific crops. Like the direct payment system, CCPs formulas were based on historical data and not current production data. So, “if a farmer’s land was producing cotton at the time when the base acreage was calculated, the current owner will get a cotton CCP regardless of what he is or is not growing currently.”
The 18 crops for which direct and counter-cyclical payments were made were: barley, corn, grain sorghum, oats, canola, crambe, flax, mustard, rapeseed, safflower, sesame, sunflower, peanuts, rice (not wild rice), soybeans, cotton, and wheat. These crops are known as commodity crops. Both direct and counter-cyclical payments were established in the 2002 farm bill and administered by the USDA’s Farm Service Agency. CCPs were replaced with a new system of counter-cyclical payment for farmers when crop prices fall below certain levels, made up of Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) payments, in the 2014 farm bill.
Marketing Loans, LDPs, and Certificates
The logic behind the government’s marketing loans to farmers is to prevent them from dumping their corn on a glutted market at harvest time. The farmers can keep their crops in reserve and sell them when they are needed and will fetch a higher price. In this program, farmers use their crops as collateral. They can sell their crop at any time. If they sell when the price of their crop is high, they can repay the loan with cash. When prices are below the target price set by the program, the farmer can repay the loan at a lower rate, keep the difference between that and the full loan, and retain the crop to sell at a higher price.
Instead of taking on a marketing loan, farmers can also opt for a loan deficiency payment (LDP). This is a direct payment of what the farmer would have received if they had taken a loan on the crop and repaid at the lower repayment rate when prices were down.
Commodity certificates are another option for farmers who do take loans. They can purchase these generic commodity certificates and use them to repay their loans.
Average Crop Revenue Election Program (ACRE)
Federal lawmakers created the ACRE program as part of the 2008 farm bill. It paid farmers a minimum revenue, whether losses were due to low prices, poor weather, or other circumstances, and limited these farmers’ access to other subsidies.
U.S. legislators ended this limited program with the 2014 farm bill and replaced it with the Agriculture Risk Coverage program, which pays farmers “when actual crop revenue declines below a specified guaranteed level.” The ARC and PLC programs are eligible to producers of 22 crops, including dry peas, lentils, chickpeas, and temperate japonica rice.
Disaster Payments
Almost every year, Congress appropriates large sums of money to pay farmers who have experienced losses due to natural disasters. The payments totaled more than $1 billion per year on average from 1996 to 2010. Multiple disaster payment programs have been created for sectors of the farm industry, especially for livestock producers.
Crop Insurance
Most farmers make more money from crop insurance than they pay into it. The Federal Crop Insurance Program was created in 1938 but it was greatly expanded in 1980 and has since become a major source of cash for farmers. For the most part, crop insurance policies pay farmers “if they experience a decline in revenue or a loss in crop yields.” From 1995 to 2020, about 76 percent of crop insurance payments went to producers of just four crops: corn, soybeans, wheat, and cotton. Crop insurance policies cover 124 different types of crops.
How Many Subsidies Do Farmers Get?
More than $20 billion in subsidy payments from the USDA went to farmers and agribusinesses in 2020. Since 2014, the subsidies have totaled more than $81 billion. While payments to individual farmers are limited to about $125,000 per person (and the same again per spouse), these limits are easy to work around for larger farm operations.
Subsidies can also be found from local, state, and non-USDA programs. David Simon writes in “Meatonomics” that in 2013, the USDA spent about $30.8 billion to help farmers through “loans, insurance, research, marketing assistance, cheap water, and other help.” He adds $26.5 billion to that figure from local and state governments, mostly through irrigation subsidies. The total estimate was $57.3 billion in local, state, and federal government subsidies for commodity crops that year. He also adds $2.3 billion for fish subsidies.
Who Benefits Most From Farm Subsidies?
The richest farmers and agribusinesses producing corn, soybeans, wheat, cotton, and rice benefit the most from farm subsidies. In 2019, the wealthiest 1 percent of farm operations received nearly one-quarter of the USDA’s total subsidies. The richest 10 percent received nearly two-thirds. Meanwhile, nearly a third of all the corn grown in America is purchased by Cargill and ADM, as Michael Pollan points out in “The Omnivore’s Dilemma.”
Farm subsidies do not account for the economic needs of rural farmworkers. According to the Cato Institute, “the vast majority of aid goes to the capital-intensive production of field crops such as corn, soybeans, and wheat.” Farms that grow fruits and vegetables, and that rely most heavily on the greatest numbers of farmworkers, “receive virtually no federal subsidies.”
Why Are Farm Subsidies Good?
Nominally, subsidies are income support programs and safety net measures for the individual family farmer. But not everyone has a fair chance at being a farmer. U.S. farmers are predominantly white males, receiving benefits at the expense of Black farmers.
Why Are Farm Subsidies Bad?
Farm subsidies are bad because they entrench practices that don’t make sense for animals, the environment, local and global economies, and most people—farmers, farmworkers, and consumers alike.
Subsidies Redistribute Wealth Upward
Subsidies give the largest farms the highest payments. An EWG analysis revealed that the ad hoc Market Facilitation Program paid 58 percent of its payments to the top 10 percent of recipients, averaging $185,340 per recipient. Meanwhile, the program paid less than a quarter of its payments to the bottom 80 percent of the recipients, each of which received on average $9,109.
Subsidies Harm the Economy
According to the CATO institute, farm subsidies inflate land prices and rent. Since more than half of farmland is rented, the benefit to landowners is greater than that to farmers. Meanwhile, higher prices for land and higher rents make it harder for new farmers to enter the field.
Subsidies Are Prone to Scandal
There are many scandals to point to in programs largely administered by what Black farmers have referred to as “the last plantation,” or the USDA. Historically, the USDA has denied loans, loan payments, and access to programs to Black farmers, giving white farmers an advantage. In addition, local USDA offices have made Black farmers wait longer to get loans, often two or three times as long as their white counterparts, leaving their crops less time to grow and resulting in poorer yields. Even when Black farmers had higher yields, the USDA would record lower yields for them compared to white farmers in the same area.
Subsidies Undermine U.S. Trade Relations
U.S. farm subsidies damage the economies of poorer countries, burdening U.S. trade relations with other countries. When the government subsidizes the production of commodity crops like corn and soybeans, U.S. farmers end up dumping cheap food into world markets. That means they often sell corn at prices that are lower than the cost of producing it. U.S. corn subsidies from 1994 to 2003 “flattened Mexican corn prices by 70 percent,” according to David Simon in “Meatonomics,” which led to an increase in unemployment in Mexico by 50 percent, and a decrease in its minimum wage by 20 percent.
Subsidies Harm the Environment
Farm subsidies prop up intensive agriculture practices such as monocropping and an over-reliance on synthetic fertilizers and herbicides. These practices reduce biodiversity, pollute waterways, increase greenhouse gas emissions, and generally lower the long-term sustainability of agriculture. Even when crop insurance, disaster payments, and other subsidies require farmers to protect highly erodible land, the provisions to protect soil remain unenforced.
Subsidies Come in Addition to Favorable Taxation
The majority of U.S. farms are lightly taxed. Farms benefit from favorable tax rules and structures that allow them to report losses while still making money.
Farmers Can Provide Their Own Safety Nets
Farmers have a history of responding to economic adversity and societal neglect by building sustainable communities. In fact, the popular Community-Supported Agriculture (CSA) concept was formed by Booker T. Whatley, a Southern Black farmer. Whatley developed the concept “as the number of black farms began to decline and family farms struggled to compete with the industrialization of agriculture.” Rather than continuing today’s farm subsidies as they are now, governments can heed farmers such as Whatley to improve the lives of farmers and their families.
Farmers Would Thrive Without Subsidies
Without the current level of U.S. subsidies, farmers around the world would thrive economically and socially. In “Meatonomics,” David Simon writes that commodity subsidies cause catastrophic harm to farmers in poorer countries, making it impossible to compete with such low prices. As a result, local farmers experience “reduced incomes, increased unemployment, loss of land, a decline in quality of life.” In the U.S., there are burgeoning movements of farmers practicing vegetable and fruit farming without such USDA subsidies, demonstrating the potential for healing and creativity through a variety of Indigenous, ancestral and community-based practices.
What’s Next
Advocates for farm policy reform have worked hard to demystify the farm subsidies available to commodity crop farmers. They are helping the majority of people who do not benefit from farm subsidies to better understand the basis of commodity crop production in the U.S., most of which goes towards feeding animals who will be turned into meat, whether chickens, cows, pigs, or fish. Reading about subsidies can help us understand their role in our food systems as well as their impact on our health and that of the environment.
