What are Commodity Subsidies?
Farm commodity subsidies are government cash payments paid to supplement farmers’ income and influence the cost and supply of commodities (crops). The original goal of the commodity programs was to stabilize farm income by shifting some of the risks of farming to the government, allowing farmers to remain “in the black.” Two dozen crops are eligible for subsidies, including milk, peanuts, sorghum, chickpeas, and oilseeds. In reality, just five – corn, soybeans, wheat, cotton, and rice – account for 70% of all subsidy payments. Fruits, vegetables, and tree nuts fall into a category called “specialty crops.” Specialty crops are NOT eligible for subsidies.
What Kinds of Payments are Available?
There are three types of payments for growers: direct payments, countercyclical payments, and marketing assistance loans/loan deficiency payments. Direct payments go to farmers who produce an eligible crop and don’t depend on the market price. This set payment goes to the current landowner or farm operator every year. Payments are based on a formula involving the historic production on a given plot of land.
Countercyclical payments and marketing assistance loans/loan deficiency payments require the market price for each crop to fall below a specified amount. Congress sets a “target price” for each of the program commodity crops, and when prices drop below those “targets,” producers receive a government payment. For example, the target price for corn for the 2011 production year is $2.63 per bushel. If the market price for corn dips low enough that the price the farmer receives plus the direct payment amount doesn’t add up to the target price, countercyclical payments (so called because they go up as prices fall) are triggered to make up the difference. In order to moderate supply and price fluctuations, the government offers marketing loan assistance to give farmers the ability to hold onto their crop and sell it when it is most needed on the market. Without this assistance, cash-strapped farmers would be pressed to sell their crops immediately after harvest, causing a temporary glut of product and very low prices on the market, followed by a swing in the opposite direction.
Who Gets the Money?
From 1995-2009, the largest and wealthiest top 10 percent of farm program recipients received 74 percent of all farm subsidies, with an average total payment over 15 years of $445,127 per recipient. The bottom 80 percent of farmers received an average total payment of just $8,682 per recipient. According to the USDA, 62 percent of farmers in United States did not collect any subsidy payments at all.
What are Some of the Impacts of Current Commodity Programs?
Covered commodity crops and their products are incorporated into the American diet directly as ingredients in processed foods, as well as indirectly when used as livestock feed in feedlots and confined animal feeding operations in order to produce inexpensive meats. Due to the subsidies, the real prices of grain starches, oils, meats, and sweeteners have increased slowly over the past few decades, while fruits and vegetables have become more expensive, in relative terms, more quickly over time. Studies have been published about the relationship between federal commodity programs and obesity rates, particularly the extent to which the current form of these programs has helped create a glut of cheap refined grains, oils, and sweeteners which are widespread in the American diet.
Besides concern for how the subsidies influence our diet and therefore, our health, the subsidies impact struggling farmers in other countries. In the globalized commodity markets of today, their crop prices are competing against subsidy-lowered American crop prices. This has devastating consequences. One example: When the North American Free Trade Agreement (NAFTA) opened the doors to agricultural trade with Mexico, subsidized U.S. corn flooded the Mexican market; many small farmers could not compete and lost their farms. This resulted in the heavy upswing in immigration to the U.S. from Mexico in the 1990s. The disenfranchised corn farmers needed to find work.
References for this piece and more reading below!
Do Farm Subsidies Cause Obesity? (Food and Water Watch and the Public Health Institute, October, 2011) This paper concludes that the public health and health care communities and the family farm community need to advocate for comprehensive commodity policy reform that reduces overproduction and stabilizes price and supply, as well as policies and programs that expand access to healthy food in rural and urban communities. Advocating for subsidy removal as a means to combat the over-consumption of unhealthy foods and beverages is an ineffective obesity prevention strategy, as subsidy removal will not affect the price or production of these products. The paper’s recommendations focus on the need for commodity policy reform and on ensuring that agricultural policies promote healthier options.
United States Summary Information for Crop Subsidies (2011, Farm Subsidy Database)
In Battle Over Subsidies, Some Farmers Say No (Ron Nixon, NY Times, June 23, 2011)
Farm Subsidies 101 (Food and Water Watch, February, 2011)
America’s Kitchen Garden vs. America’s Subsidy Garden Roger Doiron of Kitchen Gardeners International was inspired by the diversity and nutritiousness of the crops planted in the White House kitchen garden (spring, 2011) and thought it would be eye-opening to see what the White House garden would look like if it were planted to reflect the relative importance of the crops that our tax dollars are actually supporting. There’s very little resemblance between America’s Kitchen Garden and his “Subsidy Garden.” (Data courtesy of the Farm Subsidy Database)
Excessive Speculation in Agricultural Commodity Markets: Selected Writings from 2008–2011 (IATP, April 29, 2011)
IATP has just released a first-of-its-kind collection of writings about excessive speculation in commodity markets and the toll it has taken on agricultural prices. It includes a total of 19 different pieces covering everything from the basics of what speculation in commodity markets looks like to why such speculation is responsible for the agricultural price crisis, as well as information on regulating excessive speculation.
Understanding the Farm Bill: Counter-Cyclical Payments, Base Acres, and Other Things Most People Don’t Understand (Ann Butkowski, Simply Good and Tasty, 4/05/2011)
Don’t End Agricultural Subsidies, Fix Them (Marc Bittman, NY Times, 2011)
Understanding the Farm Bill: Digging Into the Commodity Programs (Ann Butkowski, 2010)
Government’s Continued Bailout of Corporate Agriculture (Ken Cook, Environmental Working Group, Farm Subsidy Database, 2010) One can see clearly who gets the money!
Planting the Seeds of Public Health: How the Farm Bill Can Help Farmers to Produce and Distribute Healthy Foods (Jill E. Krueger, et al., for Farmers’ Legal Action Group, Inc., 2010)
Agriculture: A Glossary of Terms, Programs, and Laws (CRS Report for Congress, 2005)
State, Congressional District, and County Data (Ken Cook, Environmental Working Group, Farm Subsidy Database, 2010)
There is an interactive map posted. Click on any state to see regional subsidy information.
Understanding the Farm Bill: Tracing Out the Corn Subsidies (Ann Butkowski, 2010)
Understanding the Farm Bill: Who Benefits from the Current Commodity Programs? (Ann Butkowski, 2011)
Weed It and Reap (Michael Pollan, 2007)
The Non-Wonk Guide to Understanding Federal Commodity Payments, (The Rural Advancement Foundation International – USA, 2005)