Impact of Farm Subsidies

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Crop insurance is the primary risk management tool farmers use to financially recover from natural disasters and volatile market fluctuations; pay their bankers, fertilizer suppliers, equipment providers and landlords; purchase their production inputs for the next season; and give them the confidence to make long term investments that will increase their production efficiency.
Without effective and affordable crop insurance, catastrophic production losses would sap the rural economy by setting in motion a series of harmful events: farm failures and consolidation, job losses, farm-related small business failures, financial stress on rural banks and reduced investment in U.S. agriculture. A financially healthy rural economy requires a financially healthy farm production sector.
Furthermore, by 2050, the United Nations projects a 33 percent increase in the global population with at least a 70 percent increase in demand for food. As the number of consumers expands globally and the climate continues to exhibit more intense weather events, there will be increasing pressure on the global food production system.


Conservation Innovation Grants (CIG) are competitive grants that stimulate the development and adoption of innovative approaches and technologies for conservation on agricultural lands. CIG uses Environmental Quality Incentives Program (EQIP) funds to award competitive grants to non-Federal governmental or nongovernmental organizations, American Indian Tribes, or individuals. Producers involved in CIG funded projects must be EQIP eligible.
Through CIG, NRCS partners with public and private entities to accelerate technology transfer and adopt promising technologies. These new technologies and approaches address some of the Nation's most pressing natural resources concerns. CIG benefits agricultural producers by providing more options for environmental enhancement and compliance with Federal, State, and local regulations.
NRCS will invest $25 million for new national CIG projects in fiscal year 2017. The focus areas this year are conservation finance; data analytics for natural resources; pay-for-success models to stimulate conservation adoption; precision conservation; water management technologies and approaches; and benefitting historically underserved farmers, ranchers and private forest landowners.
Up to $2 million of this year’s CIG funding has been set aside for projects that benefit historically underserved and military veteran farmers and ranchers, beginning farmers and ranchers and those with limited resources and organizations that include or support them.


ABSTRACT: Results indicate that the removal of the premium subsidy for crop insurance would have resulted in aggregate net economic benefits of $622, $932, and $522 million in 2012, 2013, and 2014, respectively.
The deadweight loss amounts to about 9.6%, 14.4%, and 8.0% of the total crop insurance subsides paid to agricultural producers in 2012, 2013, and 2014, respectively. In aggregate, removal of the premium subsidy for crop insurance reduces farm producer surplus and consumer surplus, with taxpayers being the only aggregate beneficiary.

The findings reveal that the costs of such farm policies are often hidden from food consumers in the form of a higher tax burden. On a disaggregate level, there is significant variation in effects of removal of the premium subsidy for crop insurance across states. Agricultural producers in several Western states, such as California, Oregon, and Washington, are projected to benefit from the removal of the premium subsides for crop insurance, whereas producers in the Plains States, such as North Dakota, South Dakota, and Kansas, are projected to be the biggest losers.


Are Agricultural Policies Making Us Fat? Likely Links between Agricultural Policies and Human Nutrition and Obesity, and Their Policy Implications (2006)

The effects of agricultural policies on human nutrition and obesity are not well understood. Simple causation from farm subsidies to obesity is clearly inconsistent with international patterns across countries. For example, obesity trends for adult males and children in Australia are similar to those in the United States and the proximate causes (among them dramatic increases in fast food and soft drink consumption) are essentially the same (Australian Institute of Health and Welfare). However, Australia has much different agricultural policies, with a much greater relative emphasis on agricultural R&D and no important farm commodity programs.
U.S. agricultural policy comprises a complex set of programs that affect production costs, production, commodity prices, and farm incomes. Commodity-specific trade policy has clearly led to higher consumer prices of several major food commodities (such as dairy products, sugar, and orange juice). However, consumer prices for virtually all of these foods have trended down in real terms during the period when obesity has risen. Changes in farm subsidy programs have also shifted to provide income support with less incentive to expand production.
Agricultural R&D has led to dramatic decreases in production costs and to consequent long-term declines in commodity prices. The speed of decline has differed among commodities, reflecting the nonuniform focus of R&D expenditures and impacts over time. The consequences of commodity price changes (in either direction) for food prices are less easy to discern but are likely to be muted because the contribution of commodity costs as a share of total prepared food costs is small, having fallen dramatically over the past several decades.
Even so, through its effects on lowering commodity prices, agricultural research must contribute to lower food costs—indeed, this effect is one of the primary justifications for public involvement. Those who are concerned about obesity might conclude that agricultural research is counterproductive and that, to achieve its national health objectives, the federal government should spend less on agricultural research. This conclusion is almost surely false.
The primary consumer benefit from lower food prices is to make funds that would have been spent on food available for other purposes; only a small fraction of those funds is spent on additional food consumption per se. This argument applies for the general reduction in food costs resulting from research; more dramatic impacts may follow from changes in the relative prices of foods (such as poultry versus beef).


ABSTRACT: The extent to which crop insurance programs have resulted in additional land being brought into production has been a topic of considerable debate. We consider multiequation structural models of acreage response, insurance participation, CRP enrolment, and input usage. Our analysis focuses on corn and soybean production in the Corn Belt and wheat and barley production in the Upper Great Plains.
Our results confirm that increased participation in insurance programs provokes statistically significant acreage responses in some cases, though the response is very modest in every case. In the most extreme cases, 30% decreases in premiums as a result of increased subsidies provoke acreage increases ranging from 0.2% to 1.1%. A number of policy simulations involving increases in premium subsidies are considered.



U.S. agricultural policy underwent significant changes with the 1996 Federal Agriculture Improvementand Reform (FAIR) Act. In principle at least, the FAIR Act was meant to signal a transition toward a new policy environment characterized by diminished government involvement in agricultural markets. Market price supports and deficiency payment programs were replaced by a program with fixed payments (called “production flexibility contract” or “Agricultural Market Transition Act” (AMTA) payments) and a loan deficiency payment program intended to establish minimum support prices for program crops, including soybeans.
Our results generally suggest that the distortions brought about by AMTA payments, though statistically significant, are quite modest. However, market loss assistance payments do bring about larger statistically significant effects and may have resulted in more production of corn.
Models of land idling suggest that AMTA payments may decrease idling, though the effects are again relatively modest. Probit models of the land acquisition decision suggest that AMTA payments do not influence the likelihood that agents will acquire more land. Our results are reinforced using an aggregate county level acreage model.



Americans, on average, spend less than 10 percent of our money on food. A lot of people buy too much fast food — but from an economic standpoint, it is a good decision. "The smartest, most rational decision is to eat the crappiest food, because everywhere you turn it's more accessible, more affordable and more convenient," says David Wallinga, a senior adviser in science, food and health at the Institute for Agriculture and Trade Policy in Minneapolis. He is one of the people who say federal farm policy leads directly to overeating.
"What we've had is a cheap feed grain policy, or a cheap calorie policy, and that's been pretty consistent from farm bill to farm bill over the last 30-odd years," he says, referring to the bundle of legislation that includes agricultural subsidies.
So the farm bill helps make us fat, right? Maybe not. Let's take a closer look at this whole picture.
Technology Has Made Farmers More Productive: Ken McCauley, a farmer from White Cloud, Kan., says he is indeed growing more corn — but not because of subsidies.
"The expansion that you're hearing about in agriculture today, or for the past several years, is all about the machinery and the easy of work," McCauley says. "Your work is easier because of machinery and technology."
Subsidies are not the only way the government influences farmers. Some federal programs do make crops cheaper: Subsidized crop insurance and other traditional price supports make food more abundant and reduce prices. But some policies actually increase prices.
In that category would be "getting paid not to plant": some farmers get federal money to let land lay fallow. That cuts production and raises prices. Same goes for tariffs – if there's a tariff on imported sugar, it tends to boost the price of all sweeteners, including corn syrup. And ethanol production, which is supported by a federal mandate, now buys up about 40 percent of the corn crop — again raising prices.
"The net effect of the whole set of farm supports is to make food more expensive and actually to discourage obesity," Alston says. (article and associated recording)

THE FAT OF THE LAND: DO AGRICULTURAL SUBSIDIES FOSTER POOR HEALTH? (2004) Fields - Environmental Health Perspectives.

The market is flooded with products made from the highly subsidized crops, including sweeteners in the form of high-fructose corn syrup (HFCS), fats in the form of hydrogenated fats made from soybeans, and feed for cattle and pigs. This flood, in turn, drives down the prices of fattening fare such as prepackaged snacks, ready-to-eat meals, fast food, corn-fed beef and pork, and soft drinks. Worse yet, some scientists say, paltry support for foods other than these staples increases the contrast between prices of fat-laden, oversweetened foods and those of healthier alternatives, offering poor folks little choice but to stock their pantries with less nutritious foods.

Hogwash, say other researchers and agricultural industry professionals, who cite a number of other changes that are making Americans fat.
Even if price supports were eliminated entirely, says Larry Mitchell, CEO of the American Corn Growers Association in Washington, D.C., prices for subsidized commodities wouldn’t increase significantly, and they might even drop. Furthermore, says Sam Willett, senior director of public policy for the National Corn Growers Association, also in Washington, demand for products, not agricultural subsidies, determines what farmers choose to grow. “Connecting farm programs to obesity is quite a leap,” he says.
HFCS’s market success may be at least partly a result of two complementary government policies. Farm subsidies may reduce its cost, and tariffs plus quota restrictions on imports of foreign sugar make it a better buy than alternatives. But even eliminating farm subsidies entirely wouldn’t affect how much soda pop people drink, how many cupcakes they snack on, or even how much meat they eat, says Bruce Babcock, an economics professor at Iowa State University.
“We did an analysis that showed that if corn and soybeans were not subsidized, the price would rise at most by between five and seven percent,” Babcock explains. According to the unpublished analysis, which Babcock performed in June 2004 for the National Corn Growers Association, that much of an increase in the price of corn wouldn’t affect the price of HFCS because most of its cost is in manufacturing rather than raw materials, he says; it would affect other products, although again not by much. “A five- to seven-percent increase in the price of corn would lead to, at most, a one percent increase in the price of meat,” says Babcock. “But meat consumption doesn’t respond dramatically to price. So what that would do is reduce consumption by point-three percent.”