19 Key Pros and Cons of Agricultural Subsidies

If we do not have a thriving global system of agriculture, then we are incapable of producing enough food to feed the hungry. The problem with our current agricultural structure is that there are no guarantees for a good growing season. Many of the workers in this industry are the lowest wage earners in their community, society, or nation. The amount of work that these people do every day to grow crops relies on unpredictable factors that can make them lose an entire season in a day.

When there is no crop, then there is no income for the agricultural worker. That is why many governments around the world have agricultural subsidies in place. It acts as a form of insurance to give farmers a financial out when their season doesn’t come together like it should. These payments can also encourage commercial markets to buy specific products by making them cheaper than they would be in a free market system.

Money is the most common subsidy in the agricultural system because it is useful for the acquisition of building materials, improving the land, providing educational aid, or caring for the workers in other ways when needed. Most of what is available in the United States came about after the fallout of the Great Depression.

The pros and cons of agricultural subsidies are critical to review because they fundamentally alter the market. You move from a free market system where scarcity controls pricing mechanisms and availability dictates failure to one where the government props up companies to help them survive.

List of the Pros of Agricultural Subsidies

1. The presence of subsidies allows farmers to respond to problematic situations.
When you work in the agricultural industry, then there is always the threat of failure. This issue begins at the farm, involves delivery networks, and can even occur during the processing work that is required to bring the products to future customers. The United States currently maintains eight different subsidy programs to ensure that there is a safety net in place for anyone who might need it if they encounter problems.

“Our farmers and ranchers have never faced as many problems as they do today with drought, range fires, high gas prices, and an ever-tightening budget on agricultural studies,” Michael McCaul remarks. By having this funding available, we can keep those who help to feed the world in a place where their work is financially viable.

2. Agricultural subsidies provide revenues to the government.
Tariffs on agricultural products are common because they serve as a way to protect domestic growers. These taxes also serve as a way to balance the cost of products grown around the world where other governments may choose to subsidize different items. China is already offering to purchase an extra $30 billion per year from the United States to help offset the trade wars that were initiated by the Trump Administration after 2016, which could restore profits to local soybean farmers. Livestock products are also at the top of the list as a key area for potential exports. The only problem is that President Trump is asking China to remove all tariffs on U.S. agricultural products as part of the return.

The taxes serve as a detriment to having specific products imported, but they don’t stop the activity altogether. All of the funds which come from consumers were willing to pay the tariff will go straight to the government coffers.

3. It allows domestic workers to stay competitive with their international counterparts.
There are currently 1.1 billion workers active in agricultural production around the world. Millions of these laborers are earning wages which place them at or near the bottom rung of the rural ladder of poverty. There are some instances where their wages place them below the minimum subsistence level for their community despite the engagement of more agricultural trade and labor productivity.

30% of the workforce in some countries involves children. Wages are typically less than $2 per day. When you compare those market traits to what agricultural business owners make in the United States, there is no way to compete with the cost. By offering subsidies, it becomes possible for the domestic market to stay competitive with international players despite a substantially lower standard of living in some regions.

4. Agricultural subsidies give farmers an opportunity to restore their croplands.
Another critical benefit of agricultural subsidies involves paying a farmer or commercial producer to rest certain portions of their fields for a season or more to restore the nutrient profile of the soil. These vacancies allow for the food-growing infrastructure to remain strong because there is a rotating cycle of growing and resting that occurs throughout the country. If this subsidy were not available, then the fields would always be in use because there would be no other way to have income available to meet basic needs.

5. The presence of subsidies allow a country to become self-sufficient agriculturally.
The number of people engaged in agricultural activities over the past century has declined dramatically, with most developed countries seeing a rate of 2% or less. Singapore is well under 1%. From 1950 to 2000, the number of family farm workers and the self-employed in the United States went from 7.6 million to 2.06 million, which is a decline if 73%. The number of labor contractors for farms saw a 52% reduction during this time as well.

By offering subsidies to farmers, commercial producers, and other industry professionals, it becomes possible to stay self-sufficient from an agricultural standpoint. With this presence in the economy, Singapore has already learned that most of the food you eat must come from the expensive export market.

6. Agricultural subsidies encourage a stronger food chain.
We cannot apply the same rules of supply-and-demand on the agricultural industry as we do with other goods and services that we need. Without food, we have nothing. That means it is to the benefit of our entire society to ensure that there is enough grown to eat each year. When there are more farmers available, then you have a robust level of diversity within your food chain. The presence of agricultural subsidies allows for businesses to stick around during a tough season instead of deciding to call it quits.

“Agriculture is not crop production as popular belief holds,” says Allan Savory,” it’s the production of food and fiber from the world’s land and waters. Without agriculture, it is not possible to have a city, stock market, university, church, banks, or army. Agriculture is the foundation of civilization and any stable economy.”

7. It guarantees an income at a time when people need it the most.
The presence of agricultural subsidies in an economy ensures that farmers and their entire support network can have a steady income available. When these folks succeed, so does everyone else around them. Since it only takes one natural or human-made disaster to destroy croplands entirely, we use this funding resource from a taxpayer point of view to make sure that there is food available on the table each day even if others are struggling to find a job.

Financial assistance guarantees the upkeep of a farm. It provides income to a farmer so that they can provide for their families too. Then everyone else gets to benefit later on because the workers decide to see what the next season provides.

8. The presence of agricultural studies provides economic stability in all industries.
Country artist Luke Bryan recalled once what it was like to grow up on a farm. “Growing up in Georgia, my dad was a farmer and we worked in agriculture, so we were always looking up at the sky, checking if rain was in the forecast. That always set the tone for the mood in my household, whether we had rain coming in or not – we knew the crops would be good and it was going to be a good week around the Bryan household.”

The financial aid that farmers receive through agricultural subsidies allow them to continue achieving a maximum level of production. These funds make it possible to manage their farms better, invest in new equipment, and modernize processes so that they can increase yields. Some of the funds help with the transportation of goods to the market, while others allow for the final cost to the customer to be affordable.

List of the Cons of Agricultural Subsidies

1. Agricultural subsidies usually focus on cash crops only.
Chuck Norris makes this observation about the presence of agricultural subsidies in the United States. “Federal policy tells us to fill 50% of our plates with fruits and vegetables. At the same time, federal farm subsidies focus on financing the production of corn, wheat, rice, soybeans, sorghum, livestock, and dairy.”

About five products qualify for agricultural subsidies in the United States each year. If we are truly concerned about the viability of our food chain, then we would focus these funds on the areas where we need marketable products for the average consumer instead of cash crops that go to ethanol creation and other non-food uses.

2. It reduces the amount of crop diversity that is available in the country.
“The correlation between poverty and obesity,” writes Michael Pollan, “can be traced to agricultural policies and subsidies.”

There are numerous products which farmers produce each year that never qualify for subsidies. Unless these workers have insurance that covers their crops, then they will not qualify for any emergency funding in most situations. Because the government can dictate which subsidies are available each year, they are pushing the agricultural sector into specific behaviors that limit the amount of crop diversity that is available.

When there is a lack of diversity and what a country grows, then the quality and health of the soil that supports agricultural activities declines as well. Nutrient shortages always occur if the same crop is growing on the same land each year.

3. This process creates more government influence on society.
Milton Friedman makes this observation about this potential disadvantage of agricultural subsidies. “The Great Depression, like most other periods of severe unemployment, what is produced by government mismanagement rather than by any inherent instability of the private economy.”

The presence of agricultural subsidies creates more politics in farming. It is a redistribution of wealth to give someone something for nothing. We also need to have farmers and agricultural workers to support our overall food chain. The influence of government in society must walk a careful balance between providing safety or offering influence. Most people would agree that helping someone in need is a role that we should all support. Telling us what type of corn to purchase might not be as beneficial.

4. Agricultural subsidies can encourage environmental harm.
Farmers are encouraged to grow specific crops each year because of the presence of agricultural subsidies. The United States Department of Agriculture spends over $20 billion each year on farm-related businesses to support them. Despite this investment, only 39% of the 2.1 million farms operating in the country receive a subsidy. The goal is to protect farmers against fluctuations in revenues, yields, and pricing to subsidize the insurance coverage they already have.

What happens is that farmers focus on the Big 5 crops because they offer the most protection. There is corn, soybeans, wheat, cotton, and rice grown more often since those items provide the highest levels of income protection.

5. It can encourage a lack of participation in the agricultural industry.
When you are paying someone for something they don’t earn, the conservative argument for welfare programs goes, then there is a lack of incentive to work. Whether that is true or not depends on your perspective, but that same logic can apply to the presence of agricultural subsidies in society.

“Every time you cut programs,” remarks Grover Norquist, “you take away a person who has a vested interest in high taxes and you put him on the tax rolls and make him a taxpayer. A farmer on subsidies is part welfare bum, whereas a free-market farmer is a small businessman with a gun.”

6. The money offered through the subsidies doesn’t go to the people who actually need it.
Juan Williams makes this comment about agricultural subsidies with regards to this disadvantage. “Agricultural subsidies are far too generous. They need to be reined in because they cater to special interests while distorting free market competition. Yes, the farm laws are an anachronistic mess.”

Forbes mapped what they called the $1 million farm subsidy club in 2018, finding that the ten largest recipients of farm subsidies from 2008-2017 earned over $150 million in total receipts. Concordia Allied Producers LLC led the way with over $23.7 million earned, while the top three all had totals above $20 million. Half of the top 10 are also located in the state of Georgia. The money was used for marketing assistance, price-loss coverage, livestock forage, agricultural risk, crop disaster protection, conservation, and much more.

The top 10 on the list receive $150,000 per month, which works out to $35,000 per week. That means in just two weeks, these agencies took in what the average salary for a farmer is in the United States.

7. Agricultural subsidies discriminate in multiple ways.
Despite decades of USDA discrimination in agricultural subsidies that ultimately created a civil rights settlement in the United States, most of what is available to workers in the United States still goes toward white farmers. This practice has caused the number of African-American farmers to decrease from almost 1 million in 1910 to just 36,000 today. An internal report from 1994 even says that minorities received less than their fair share of available money.

“Reasonable limits on who can receive crop insurance premium support and the amount policyholders can receive would help to level the playing field between the largest and most successful farm businesses and family farmers struggling to overcome a long legacy of discrimination,” writes Scott Faber, Senior VP of Government Affairs in AgMag. “Greater transparency would help us know whether this discrimination is being perpetrated.”

8. It is a monetary resource that typically benefits the wealthy first.
A majority of the agricultural subsidies which are available in the United States go to commercial farms and industrial growers that already have a net worth of more than $2 million. These companies also come home with a net income of $200,000 before receiving their payment from the government. The original goal of this legislation was to help all of the families who were struggling after the Great Depression since 1 in 4 households were farmers at the time. Now only 1 in 50 households is farming, and that number is decreasing rapidly as well.

9. Agricultural subsidies also come with favorable tax policies.
Commercial entities who receive agricultural subsidies benefit from the extra infusion of cash and a favorable tax climate where they don’t need to pay as much as other businesses in different industries. Farming income plays be a different set of rules in the United States, since aggregate farm losses exceed profits, so that figure can be used to offset other sources of income in the household. That’s why only 1 in 3 farming companies of any size (including family farmers) show a taxable profit each year. This trend has been in place since 1980.

10. Most small farmers rent, which means they don’t get the subsidies.
If farmers rent land from someone as a way to product crops or manage livestock, then they are typically ineligible for the agricultural subsidies that are available in the United States. These funds typically go to the land owner instead, with 40% qualifying as a pass-through thanks to the outcomes that the farmer achieves. That means these households which rent must pay for their access, see the subsidy go into the pocket of the owner, and they have no control over how the final funds are spent.

11. You don’t need to prove a financial need for some agricultural subsidies.
Subsidies are more about politics today than they are about meeting the needs of our farmers. It is entirely possible to sell a crop at an above-average rate for the market, receive a subsidy on top of that amount, and then take advantage of the tax structures or insurance payments that might be possible if a field didn’t produce a specific yield. There are times when large-scale commercial provides get paid triple for a single crop – and we wonder why some food prices are high.

Verdict on the Pros and Cons of Agricultural Subsidies

There are times when agricultural subsidies make sense. If a farmer needs an income because their crop failed or fallowing was necessary, then most people don’t have a problem ensuring that they can survive for a couple of bad seasons with a safety net in place. Where the problem lies in this system is in the fact that the largest corporate growers reap the cash benefits of this policy when they’re earning profits already.

We shouldn’t be helping the rich at the expense of the tax payer. Large-scale farms with sales of more than $1 million have tripled in the last few decades. The average farm income (for all entities) was 77% higher than what the average American household earned. Since Congress also passed a law in 2000 that prohibits the disclosure of information about the recipients of subsidies, we only have leaked data about what is going on in the country.

The pros and cons of agricultural subsidies make sense when the money goes to support the people who need it. It doesn’t make sense to keep funneling this benefit to the companies who already earn profits from their farming activities before they receive these funds. We must work to remove the waste and abuse from this system so that we can all benefit from a food infrastructure that ensures none of us go hungry.