Support America's farmers, but not with subsidies
This December, we’ll have a new Farm Bill, and a new opportunity to make a lasting repair to our defective system for supporting farmers. Unfortunately, signs in Washington point toward a continuation of the same short-term fixes that, over the last 60 years, have made farm policy into the faltering Rube Goldberg machine that it is today.
Instead of an occasion for serious reform, the Farm Bill, which is renewed every five years, has become an opportunity for legislators to distribute pork to their districts and to indulge other pet fixations. Big issues in the last Farm Bill, for example, included marijuana legalization, immigration, and banning dog and cat meat consumption. Explaining the importance of this last provision, sponsor Alcee Hastings stated, “It’s important that we hold ourselves to the same standard we wish to see in others.” Such arcane tinkering wastes the potential for a ground-up restructuring of farm policy. This restructuring is badly needed, and not just because farm subsidies cost too much. More fundamentally, America’s way of supporting farmers distorts our politics and limits our sovereignty, our freedom to act in crucial matters of national security and trade. Another reason our commitment to farm subsidies is lamentable is that it’s not necessary. We have a better model for national farm policy in our own history, the system of “supply management” inaugurated during the New Deal.
Within the broader history of American farm policy, our subsidy regime is actually a fairly recent creation. It dates to 1961, with the first “deficiency payments”—that is, payments by the federal government to farmers that made up the difference between the market price and a target price of a given commodity. These payments grew increasingly central in agriculture policy until they became politically untouchable. It is now a given in Washington that Congress will wave through the latest renewal of farm subsidies, which will total tens of billions of dollars. Legislators might debate how to allocate these subsidies, and the various social issues that always seem to emerge alongside them, but no one will dare attempt their outright elimination.
Subsidies take various forms, but all do the same basic thing: They make up for income lost by farmers when crop prices are low. Currently, there are three major programs under which commodity crops are subsidized: Agricultural Risk Coverage, Price Loss Coverage, and Marketing Assistance Loans. The first two programs give farmers checks when the price for the enrolled commodity falls below a given “reference price,” or when revenue falls below a certain point. The third program offers farmers a loan that enables them to hold their crop off the market until prices rise to a given level. Sometimes, farmers can pay back the loan at a reduced rate, effectively netting a profit on the loan. The Marketing Assistance Loan program is sometimes administered through a “loan deficiency payment,” which allows farmers to simply receive a check for the profit they would have realized had they received a loan and repaid it at the lower rate. While their mechanisms are diverse and complex, subsidies are basically just checks the government gives farmers to keep them in business.
To criticize subsidies is not to minimize the inherent and agonizing challenges that farmers face. USDA data on farmers’ costs and returns for the last 20 years are illustrative. They show a startling fluctuation in the profitability of different crops. In 2021, for example, farmers pocketed $119 for each acre of soybeans. In 2019, they lost $68 on the same acre. The picture is similar for other bulk commodities. Over the last decade, corn producers have lost as much as $86 per acre in a given year and cleared as much as $248. Of course, it is not unusual for a business to lose money one year and make money the next, but in agriculture entire commodity sectors routinely lurch from healthy profits one year to big losses the next. As agriculture scholar Willard Cochrane has shown, the supply and demand curves for crop agriculture, rather than the neat diagonals of Econ 101, are nearly straight up and down. What these deviant supply and demand curves show is that “market failure” is an inherent, chronic feature of agriculture.
If you pause a moment, you can see why the simple models of supply and demand you get from an economics textbook fit poorly with the realities of farming. In the textbook one might find soybean farmers adroitly modifying their production to meet prevailing demand, but one will not find these people in real life. This is because the seeds go into the ground about 100 days before the beans go to market. Once they’re in, there’s no responding to changes in demand. And of course, demand isn’t the only natural force farmers have to worry about. Weather conditions can make an enormous difference in yield from year to year. For example, between 2016 and 2018 soybean yields dropped by nearly ten bushels per acre. With the average soybean farm planting nearly 300 acres, and the largest planting thousands, this is highly consequential.
Farmers’ response to all this uncertainty has historically been to plant all the land they can and fertilize the hell out of it, hoping big yields will make up for volatile prices in the long run. One problem with this is that consumers aren’t as well-behaved in real life as they are in economics textbooks either. They don’t respond to super-abundant soybean supplies by necking down an extra block of tofu with breakfast every morning. Instead, they consume more or less the same amount of soy, regardless of price. So, when farmers respond to uncertainty by planting and harvesting as much as possible, the result is often a flooded market. This is good for companies that sell fertilizer and seed, and it’s good for companies that have to buy the beans, grain, and corn to feed animals or make finished food products. But it is often bad for farmers.
Hence subsidies. Farmers need subsidies because of the surprising truth that, despite their sometimes-vast holdings, they live lives of great economic precarity. The unpredictability of their business means that many farms would fail if the government didn’t step in to help. It is often alleged by those who criticize subsidies as mere legislative pork that government payments go to the “richest” or “biggest” farmers, who don’t really need them. It is indeed true that most subsidies go to the top 10% of farmers. But portraying these farmers as idle gentry, gorging themselves on extra government money, shows a deep misunderstanding of their position. Big acreages mean big costs, and big losses when crops don’t fetch good prices. It is perfectly conceivable that a farmer could gross seven figures and still be unable to pay their costs of production. Subsidies address a real problem and eliminating them without putting anything in their place would lead to a wave of foreclosures that would devastate rural America and destabilize the food system.
But that doesn’t mean subsidies are a good solution. Consider a corn farmer who has followed the standard strategy of maximum planting and fertilizing. At the end of the season, he, along with all the other big corn producers, has an abundant harvest on his hands. The harvest is so abundant, in fact, that it cannot be absorbed by all available markets. As a consequence, the price of corn is too low for the farmers to recoup their production costs. Farmers enrolled in commodity programs then sell their crop at a low price and receive checks to make up their losses. These checks help farmers escape the harshest consequences of their excessive production and so encourage them to repeat the same strategy the next season.
Subsidizing farmers might be justifiable if it we could do it at reasonable cost, and if it gave us an agricultural system that was stable and sustainable over the longer term. But not only are the subsidies themselves massively expensive, the overproduction they encourage is bad for the environment and threatens the long-term viability of American agriculture. Subsidizing overproduction also means subsidizing the heavy use of fertilizers that overproduction requires. As the Mississippi River winds through America’s heartland, it sweeps into its course lots of nutritious ammonia from the fertilized fields, which it carries along to the Gulf of Mexico, where it nourishes a reeking expanse of green slime the size of Massachusetts that chokes to death anything with gills. And the massive livestock operations known as “factory farms,” which are indirectly subsidized by an oversupply of feed grains, generally maintain waste ponds, or “anaerobic lagoons,” where the corn and soy that supply these operations attain their final forms. As the contents of these lagoons separate into “sludge layers” and “liquid layers” they release copious billows of methane, nitrogen, hydrogen sulfide, and CO2 into the atmosphere. And sometimes they spill, soaking the ground with millions of gallons of animal waste that is as rich with nitrogen and hormone residues as it is with antibiotic-resistant bacteria strains. Then there is the 42% of the nation’s annual water usage that goes up the thirsty roots of commodity crops every year, and the millions of tons of soil eroded in their production.
“Sustainability” often feels like a moral abstraction, if not an empty cliché, but in the case of farming the term denotes hard practical limits. An agricultural system that degrades soil and uses water far faster than these things can be restored and replenished will eventually fail. But the environmental problems created by the modern food system are not a reason to throw away the vast gains in human wellbeing made possible by this system. They should instead cause us to think about how the quantity of land devoted to the production of commodity crops, and the intensity with which this land is cultivated, can be incrementally reduced—which is unlikely to happen as long as we retain our dependence on subsidies that magnify these problems.
But the most fundamental problems with our system of farm subsidies might be political. Americans are reminded of this every four years, when the Iowa caucuses launch the presidential primary season and, when the topic of farm subsidies comes up, candidates either pander shamelessly or start talking out of several sides of their mouths. Yet the most serious political distortions this system generates are in the realm of trade policy and national security. When President Trump sought to renegotiate the North American Free Trade Agreement (NAFTA), for example, major agricultural pressure groups ardently opposed him. Placing restrictions on NAFTA would endanger farmers’ access to markets that absorb the huge glut of commodities they produce under the present system. A 2017 Politico article on meetings between trade secretary Wilbur Ross and various agriculture groups shows how the current system ties America’s hands when it comes to trade policy. Ross naively claimed that Mexico and Canada would be pliant partners in any renegotiation thanks to the large appetite they both have for American farm products, but this got it perfectly backwards. According to an anonymous source, “All the ag groups looked at him and their mouths dropped open and said, ‘Don’t you get it? The leverage is in their hands. We are completely dependent on them as this major export market.’”
To drive home the point, in October of 2017 a coalition of major farm groups and agribusiness firms signed a letter to Ross alleging that “notification of NAFTA withdrawal would cause immediate, substantial harm . . . to the U.S. economy as a whole.” Among the reasons they cited was the “$3 billion in annual soy exports” shipped to Canada and Mexico. Trump’s initial threat to withdraw from NAFTA finally morphed into the United States-Mexico-Canada Agreement (USMCA), which not only left most agricultural tariffs at zero but further loosened restrictions on dairy and peanut products. The president of the American Farm Bureau Federation, the whimsically named Zippy Duvall, urged passage of USMCA in telling language. “Demand is more important than ever,” Duvall said, “because farmers and ranchers are farming more efficiently across the board.” In other words, farmers are overproducing thanks to subsidies and need low trade barriers to guarantee an open dumping ground for their excess.
Agriculture limits America’s latitude to manage its trade relations in ways that go beyond USMCA. When China responded to Trump’s 10% tariff on steel and aluminum by putting a 25% tariff on soybeans from the U.S., Americans learned that we count on our friend China to buy about half the soybeans we raise. As a result, Trump found it necessary to dispense an extra $61 billion to “our great farmers” over three years, and liberal pundits seized on the farmers’ woes to proclaim the dangers of meddling with free trade. Commodity agriculture has thrown its full political weight behind free trade, which is a serious matter. As long Washington pays American farms to produce not just more, but vastly, staggeringly more than our domestic market can absorb, any change to our neoliberal trade regime will face powerful resistance from the agriculture lobby.
It does not have to be so. America once had a workable means to address the inherent problems of agriculture markets that did not incentivize overproduction—supply management. Under Franklin Roosevelt, the Commodity Credit Corporation (CCC) was established to address the crisis of farm foreclosures in the Great Depression. The program under which the CCC operated would undergo multiple revisions, but its basic features remained consistent for much of the 20th century. Farmers could obtain loans from the CCC by storing their crops in CCC facilities as collateral. The loans were intended to provide farmers with an immediate payment for their production at a level that enabled them to pay their costs. Farmers could pay back the loan by remitting their stored crops to the government, which could then be sold off at cost of the loan, used for government needs, or released on the market at low cost in times of scarcity. In effect, the government purchased crops at a guaranteed floor price. This program was conditioned upon acreage allotments that required farmers to reduce their cultivation below a certain level, so that they would not simply produce all they could and depend on the government to buy what they couldn’t sell. These allotments were not simply imposed on producers but had to be ratified through farmer referendums. For the first half of the 20th century, this program was reasonably successful at stabilizing prices and developing a rough alignment of supply and demand. Agriculture scholar Brad Wilson has shown that, while price floors remained in effect, commodity prices remained higher, compared to today, while “carryover,” or unsold crops levels were lower.
Ironically, the shift from this system to our extremely costly system of subsidies was triggered by free-market thinking in Washington. In 1953, the government began to lower the price floors that triggered CCC loans. This allowed commodity prices to fall ever further, according to fluctuations in the market. Predictably, this free-market approach led to a rise in farm foreclosures, and, also predictably, the resulting political pressures made new market interventions necessary. These interventions began to appear in 1961, with the first farm subsidies. As price floors went lower, outlays for various programs that gave checks to farmers went higher. The feedback loop of subsidies and overproduction was now in place. The new mentality that arose with this change in policy was expressed by Earl Butz, Agriculture Secretary under President Nixon, who urged farmers to “plant fencerow to fencerow” and “feed the world.” Export markets, rather than production controls, would be the path to prosperity for farmers. They would plant to the maximum, flood the world market with their product, and receive generous subsidies when prices were low—which this system made more likely. The final remnants of the old system disappeared with the 1996 Freedom to Farm Act, which eliminated both price floors and production controls. Following the passage of NAFTA in 1994 and the founding of the WTO in early 1995, the Freedom to Farm Act was conceived as a bold leap into the free trade future for agriculture. What resulted was a broad decline in prices and the locking in of the subsidy system we have today, in which a necessary stopgap became a way of life.
The New Deal farm policy was not perfect, but it was far better than our present system. The most challenging problems of agriculture are problems of overproduction. Rather than addressing this problem, the current farm program exacerbates it through subsidies, which are themselves wasteful and politically fraught. But the libertarian prescription of getting rid of subsidies and letting the market take over is only half right. A large-scale system of agricultural commodities freed of subsidies still leaves us with the problem of chronic market failure, and the best remedy for this problem was the New Deal-era CCC. When Congress takes up the Farm Bill once again this December, it should remember the lessons of the past and do what needs to be done: scrap subsidies, bring back supply management, and make farming sane again.