Farmers face many uncertainties that can affect their livelihoods. Crop production and profitability are vulnerable to weather conditions, including the rising occurrence of extreme weather events like tornadoes, floods, droughts, and early frosts that can significantly affect a farmer’s ability to bring crops to market. Fluctuations in market demand and sudden price drops also contribute to farming’s precarious nature.
Because of the unpredictability inherent in farming, since the 1930s, the US government has developed economic support mechanisms for farmers, called subsidies, intended to mitigate the effects of variable income in a vital sector and ensure uninterrupted food supplies.
WHAT ARE AGRICULTURAL SUBSIDIES?
Agricultural subsidies are monetary payments and other types of support given by the government to farmers and agribusinesses. Some subsidies are intended to protect producers from market instability, while others are designed to incentivize certain production practices or influence market behavior. Subsidies are calculated and dispersed differently across government programs. Currently, five commodity crops are particularly heavily subsidized by the US government—corn, soybeans, wheat, cotton, and rice. Other programs exist for sugar and dairy farmers. Meat producers benefit indirectly through subsidized, below-cost prices for animal feed.
The subsidy structures set in 1938 and upheld by subsequent iterations of the Farm Bill have contributed to a public health crisis in the US and a health system overburdened by high rates of chronic disease.
The US government’s first Agricultural Adjustment Act (AAA) was passed in 1933, part of Franklin D. Roosevelt’s New Deal program aimed at restructuring the US economy. The 1933 AAA paid farmers to stop producing certain commodities to reduce crop surpluses, increase prices, and safeguard farm incomes during the Great Depression.[1] Wheat, cotton, corn, rice, tobacco, and milk were covered in the initial act.
The 1933 AAA was ultimately declared unconstitutional and replaced with the 1938 AAA, which subsidized corn, cotton, and wheat. The 1938 AAA not only maintained subsidies for certain crops, but also made these subsidies permanent. This 1938 policy remains the defining legislation for agricultural subsidies in the US. The AAA is updated by the US Farm Bill every five years and can only be overturned if declared unconstitutional or supplanted by another law. Under the aegis of the AAA, the federal government has devoted considerable funds to maintaining and expanding agricultural subsidies.[2]
HOW DO AGRICULTURAL SUBSIDIES WORK?
US farm subsidies have become very complex, resulting in an unwieldy system that cost taxpayers $16 billion per year from 2010 to 2021. During the Great Depression and the period known as the Dust Bowl, the US government began compensating farmers for leaving some of their land unplanted. These payments to farmers later evolved into a system of direct payments to specific producers of targeted commodities based on historical production data—regardless of whether these farms continued to grow the same crops. These direct payments, also called “freedom to farm,” were paid in the same amounts to farmers independently of current market demand. Freedom to farm payments were intended to lessen farmers’ dependence on subsidies but ended up having the opposite effect.
In 2014, a new Farm Bill cut some direct payments and expanded other types of aid to farmers, such as crop insurance, disaster assistance, and subsidized loans. In the case of dairy, which had benefited for years from fixed minimum market prices set by the government, this bill instead provided dairy producers with insurance to protect against price declines. This Farm Bill established the contemporary subsidy system in the US.
The 2014 Farm Bill was superseded by the 2018 Agriculture Improvement Act, which further enhanced crop insurance coverage as part of $102 billion earmarked for farm subsidies over ten years. In 2020, the federal government made $45.7 billion in direct payments to farmers—a record-high amount due to pandemic assistance versus the more typical $11.7 billion to be paid out in 2022. In addition to direct payments, producers of certain goods covered by special government safety-net insurance plans have received over $32 billion in payments since those insurance programs were implemented in 2014. Farmers must meet certain requirements or produce certain commodities to be eligible for these subsidized insurance programs.
WHAT ARE THE DIFFERENT TYPES OF AGRICULTURAL SUBSIDIES?
The US farm subsidies system includes insurance programs, risk mitigation, environmental conservation incentives, disaster aid, marketing assistance, research and development services, and more.
INSURANCE
Federal crop insurance programs offer subsidized policies to farmers that pay when crop yields or revenues fall below guaranteed levels. Some policies also offer payments when certain weather conditions occur. The Federal Crop Insurance Corporation (FCIC) of the US Department of Agriculture (USDA) covers around 63% of policy premiums, and farmers and ranchers are responsible for paying the remainder. The program covers commodity field crops like wheat, corn, and soybeans. Specialty crops, a category that includes most fruits, vegetables, tree nuts, herbs, and coffee, have not historically been eligible for federal crop insurance programs. However, legislative changes in recent years have expanded coverage to 38 categories of specialty crops.
2/3 of 2020 subsidy payments went to the largest 10% of US farms.
Whole Farm Revenue Protection (WFRP) is another type of federally subsidized insurance intended to fill gaps not covered by federal crop insurance. This plan is for farmers with diversified production and insures organic, direct-to-consumer, and specialty farms that have annual revenues of up to $8.5 million.
AGRICULTURAL RISK COVERAGE (ARC)
Agricultural Risk Coverage (ARC), another USDA program, covers many row crops, including barley, soybeans, peanuts, rice, oats, corn, wheat, and chickpeas. ARC pays farmers when their crop revenues fall below a guaranteed level.
PRICE LOSS COVERAGE (PLC)
Price Loss Coverage (PLC) covers the same commodity crops as ARC. However, PLC pays farmers when the effective price of a given product falls below the national marketing-year average price or the national average loan rate. Farmers who grow crops covered by ARC and PLC must elect to use one or the other.
CONSERVATION PROGRAMS
Conservation programs create incentives for agricultural producers to improve their land and provide technical resources to help them to do so. Financial assistance is available under the Environmental Quality Incentives Program (EQIP) to help farmers and ranchers address water and air quality, soil health and erosion, wildlife habitat, and climate shocks.
The Agricultural Management Assistance Program helps producers diversify their products and market them. It also assists with natural resource conservation. The Conservation Stewardship Program offers incentives to producers to improve and maintain conservation plans via a performance-based pay scale system. Other programs work with farmers and ranchers to restore wetlands, forests, and plant and animal biodiversity.
MARKETING LOANS
The Marketing Assistance Loan (MAL) program is a price-protection program for targeted field and row crops that helps farmers avoid having to sell when prices are at relative market lows. Products eligible for MAL are called loan commodities. The program ensures a floor price and interim pricing for crops.
Farmers can take out a loan from MAL using their crops as collateral. If market prices increase above the loan rate, the farmer may reclaim the crop and repay the loan. If crop prices fall, the farmer may forfeit the crop or take a loan deficiency payment, a marketing loan gain, or commodity certificates (paper certificates that have a dollar value pegged to commodity prices) to repay the loan. All these methods result in the farmer receiving a financial gain from the difference between the initial loan and the lower repayment rate.
DISASTER AID
The federal government provides a variety of disaster aid programs to farmers and agribusinesses. The Livestock Forage Disaster program benefits ranchers who have experienced losses due to fires or droughts. The Livestock Indemnity Program pays agribusinesses whose animals die due to extreme weather or predation and provides emergency assistance to farmers who raise honeybees, fish, and other animals for losses not covered under the first two programs.
Emergency loan programs assist farmers recovering from drought, flooding, fires, and other weather events, as well as covering losses from animal quarantine laws. The Disaster Set-Aside Program allows producers who operate in federally designated disaster areas to suspend payments for up to a year. Other programs cover farmland damage and crop losses.
MARKETING AND EXPORT PROMOTION
Through the Market Facilitation Program, the US government makes payments to farmers whose earnings from exports are affected by foreign trade tariffs on certain specialty and non-specialty crops, dairy cows, and pigs. Farmers can receive up to $150 per acre for trade impacts.
The 2018 Farm Bill provides mandatory funding for promoting US agricultural exports, including market development, trade promotion, removing barriers to trade for products produced with biotechnology, and technical assistance to farmers, farm groups, and agribusinesses.
RESEARCH AND OTHER SUPPORT
USDA delivers research funding in the form of grants and other benefits to farmers, farm groups, and research facilities seeking to improve agricultural practices and develop new technologies. Farmers can apply for grants to conduct research on their farms. The Agricultural Research Service is USDA’s $1.5 billion in-house research agency, conducting projects aimed at resolving agricultural issues in the US.
WHO BENEFITS FROM AGRICULTURAL SUBSIDIES?
Before the COVID-19 pandemic, around $20 billion in subsidies went to farmers annually. Not all farmers benefit equally, however. 64.3% of total subsidy payments paid through the first half of 2020 went to the wealthiest 10% of US farms. Although there are far more small farms than large farms operating in the US and weather-related crop losses can affect any farm, the largest farms account for the vast majority of federal crop insurance policies. Between 1995 and 2020, 76% of crop insurance indemnity payments went to corn, soybean, wheat, and cotton producers, typically also the largest industrial farms in the US. In 2020 the US government paid out over $3 billion via the Market Facilitation Program alone, most of which went to large soybean, dairy, and pig producers. Agribusinesses in the top 2% by commodity sales receive the highest payments per acre from crop insurance, up to four times higher than the average.[3]
Most small-scale farmers must supplement their farm income with income from non-farm sources.
Small, mid-sized, and diverse farms do not generally gain from subsidies, and large commercial agribusinesses and corporations have manipulated the subsidy system to secure large, profitable payouts. Powerful agricultural lobbies and members of Congress from agriculture-intensive states ensure this system remains in place to create a continuous flow of wealth to already prosperous farms. For members of Congress, support for subsidies may be more than just political: between 1995 and 2012, twenty-three Congressional representatives and their families received agricultural subsidy payments.[4]
ARE AGRICULTURAL SUBSIDIES BAD?
Agricultural subsidies can provide important protections for farmers against the uncertainties of farming and secure stable and affordable food sources for consumers. However, the current system of subsidies funnels wealth and benefits to large corporate farms at the expense of small and diverse farmers. Most small-scale farmers must supplement their farm income with income from non-farm sources.
The harms of the US subsidy system extend far beyond small farmers. The practices of large agribusinesses damage the environment, promote unhealthy diets for consumers, perpetuate animal cruelty, harm farmworkers’ health and financial viability, and disrupt rural communities by outcompeting small farmers for markets and land. Yet subsidies encourage the expansion of intensive animal agriculture by supporting the dairy and pig industries, the beef industry, and the monocropped soybean and corn industries, whose outputs go mainly to feeding farmed animals. The current subsidy system incentivizes these harmful practices and is in urgent need of reform to promote more sustainable and financially equitable practices.
HOW FARM SUBSIDIES AFFECT THE US ECONOMY
Farm subsidies promote the inequitable distribution of wealth, allowing already large businesses to amass more wealth and assets. Billions of dollars are devoted to these outdated programs that strain the US budget and fail to fund the farmers, businesses, and regions where they are most needed.
Subsidies distort markets by prioritizing overproduction of certain targeted commodities and encouraging monocropping rather than diverse, ecologically appropriate agricultural production.
US subsidies also hurt the global economy and small farmers in other countries, who can’t compete when the US floods international markets with cheap, overproduced commodities. In one example, US cotton subsidies undercut the earnings of nearly 10 million cotton farmers in West Africa, some of the world’s poorest citizens, by $43 million to $125 million per year. Subsidies also lead to trade conflicts with other countries and reduce imports to the US.
HOW SUBSIDIES AFFECT CONSUMERS
Agricultural policy has had significant health effects on consumers by supporting a food system based on profitability rather than the common good. Subsidies support cheap, high-sugar diets centered on processed, low-nutrition foods made from commodities like dairy, corn, and wheat. While nutritional science supports diets high in fruit, vegetables, legumes, and whole grains, over 90% of US consumers do not eat enough of these foods.[5] Subsidies also promote high-meat diets by promoting commodity crops grown for animal feed.
The subsidy structures set in 1938 and upheld by subsequent iterations of the Farm Bill have contributed to a public health crisis in the US and a health system overburdened by high rates of chronic disease. Diets high in processed foods, sugars, and animal products have been linked to heart disease, high blood pressure, Type 2 diabetes, and certain types of cancer.[6] Black, Indigenous, and people of the global majority in the US have been disproportionately affected by a lack of access to healthy and nutritious foods.
HOW SUBSIDIES AFFECT THE ENVIRONMENT
Subsidies negatively affect the environment by encouraging monocropping, which damages biodiversity and soil health and promoting animal agriculture. Industrial agriculture operations benefit most from subsidies, and these operations are also the greatest offenders in terms of the high greenhouse gas emissions that are driving climate change, as well as many other harms to the environment.
Reformed US farm subsidies can be a powerful force for creating the agricultural system the US urgently needs.
By supporting agribusinesses in their push to clear land for cattle grazing and for feed commodity crops like soy, current US subsidies promote deforestation and land degradation domestically and around the world. Permanent land conversion for commodity crop production is responsible for at least 27% of deforestation worldwide.[7] In tropical rainforests, the full deforestation impact of certain agricultural commodities—namely beef and soy—can be much higher.
Large industrial farms pollute the air and water around them, damage ecosystems and natural resources, and kill wildlife. Overuse of pesticides destroys beneficial insect pollinators, and runoff into bodies of water creates dead zones that cannot sustain aquatic life.
HOW SUBSIDIES AFFECT ANIMALS
The current subsidies program supports the abusive practices of industrial animal agriculture and the agribusinesses that grow feed for intensively farmed animals. Animals in industrial farming operations are subjected to a lifetime of pain and suffering, including crowded, stressful living conditions, physical mutilations like dehorning and debeaking, separation of mothers from their young, and slaughter at just a few months to a year of age.
Because subsidies reimburse farmers for animal losses from environmental disasters, large agribusinesses have little motivation to develop disaster plans that protect the lives of farmed animals. As a result, during every natural disaster, millions of animals are abandoned to suffer from drowning, starvation, injury, and exposure.
HOW TO IMPROVE SUBSIDIES TO SERVE FARMERS, ANIMALS, AND THE COMMON GOOD
US farm subsidies can work differently—boosting farmers’ financial independence and encouraging sustainable production. Various pathways could improve US subsidies:
- Initiate programs that restore land and soil and encourage polycropping
- Prioritize small farms to receive subsidies
- Encourage and reward organic, agroecological, and other sustainable farming practices
- Subsidize plant-based farming and discontinue funds for intensive animal agriculture
- Subsidize products that promote consumer health, like vegetables and fruits
- Target commodities based on nutritional science and ecosystem health
- Move away from the use of chemical pesticides and fertilizers in favor of ecologically appropriate means of pest control and crop fertilization
- Fund research and innovation in sustainable, plant-based agriculture
CONCLUSION
The current subsidy system must cease supporting the destructive practices of industrial farming and its dependence on animal agriculture. Instead, subsidies must address the urgent need for equitable and sustainable food production and provide incentives for a transition toward plant-based agriculture. If reformed to benefit a diverse array of small and midsize farms that apply sustainable, plant-based practices, agricultural subsidies can be a strong force for food system transition that provides nutritious, abundant food without damaging the environment, exploiting animals, deepening racial disparities, or worsening the massive US healthcare burden.
[1] Kathleen Leary, “Agricultural Subsidies in the USA—History, Implications, and Critiques,” in Great Nations at Peril, ed. Jürgen G. Backhaus (Cham: Springer, 2015), 121–131, doi.org/10.1007/978-3-319-10055-5_7.
[2] See endnote 1.
[3] Anton Bekkerman, Eric J. Belasco, and Vincent H. Smith, “Where the Money Goes: The Distribution of Crop Insurance and Other Farm Subsidy Payments,” American Enterprise Institute, January 2018, www.aei.org/wp-content/uploads/2018/01/Where-the-Money-Goes.pdf?x91208.
[4] Gautam Ramesh et al., “Agricultural Policy and Societal Factors Influence Patients’ Ability to Follow a Healthy Diet,” American Journal of Preventive Cardiology 8 (December 2021), doi.org/10.1016/j.ajpc.2021.100285.
[5] See endnote 4.
[6] Abou Diallo et al., “Red and Processed Meat Intake and Cancer Risk: Results from the Prospective NutriNet-Santé Cohort Study,” International Journal of Cancer 142, no. 2 (January 2018): 230–237, doi.org/10.1002/ijc.31046.
[7] Philip G. Curtis et al., “Classifying Drivers of Global Forest Loss,” Science 361, no. 6407 (September 2018): 1108–1111, doi.org/10.1126/science.aau3445.
