Billions are being poured into the agricultural sector but the beneficiaries appear limited. Farmers like Smith do receive monetary support to keep operations going but the big winners are larger scaled operations. Large farm operators, big business as opposed to independent family-run farms, receive the bulk of the subsidy payments. Some 72% of the assistance provided by the national government bolsters the operations of only 10% of farm operators (Murphy 24).
The ordeal small farmers like Smith face has caught the attention of the President but the President has responded by capping subsidies to individual operations to $250,000 – a move which seems to have budgetary concerns in mind more than to actually address the problem. Such a conclusion is drawn when it is considered that small farmers still do not benefit from economies of scale. While big businesses have the means to reduce unit costs through scaling, it also affords them the means to make the most out of government support.
Smaller operations, on the other hand, have to contend with actual losses and funds are used to simply remain solvent for another crop cycle. This leads to the conclusion that the crop subsidies go far in growing big farming business which consequently crowd out family-run operations in the market. This supports the posited idea that it is the program itself which is leading to this dilemma in the agricultural sector. As aforementioned, farming subsidies guarantee minimum payments for certain sensitive crops, and this encourages overproduction.
Larger-scaled farming operations benefit from economies of scale such that their productive resource, being greater than that of smaller farm operations, are fully utilized and allowing them to produce so much more than the average farmer. The ability of larger operations to maximize their output further lowers unit cost. Between the larger operations and family operated farms, the difference between the guaranteed prices and the cost of production heavily favors large businesses. So, between the big and the small, the subsidy program definitely allows for much larger profit margins with big businesses.
Figure 2 Taken from National Agricultural Statistics Service (Please see references) Legislation, unfortunately, fails at other points when it comes to the agricultural sector. In New Jersey, the Right to Farm Act was enacted in 1983 (NJ Dept. of Agriculture). The law was created in order to enforce the right of farmers to continue operations despite the urban sprawl. That new homeowners would be wont to complain against the smells and sounds of living next to a farm, since the law was enacted, should not preclude farms from operating after complying with certain requirements.
New Jersey is regarded as the Garden State, but family operated farms are also on the decline despite protective legislation (Sayko). The theme is similar to welfare farming, where government intervention in a problem chronic since the 1930s is ineffectual and rendered useless in the modern economy. The similarities between the two legislative measures a need to look into New Jersey in order to more fully comprehend the problem. The New Jersey Department of Agriculture maintains statistical data on the farming sector.
The data on expenditure items were summarized and graphed (figure 2). From the graph, interest and taxes have remained relatively stable for the 6-year period, which promotes the idea that the government has been lenient on farming operations in terms of fiscal and monetary policy. Although fiscal and monetary policies are subject to the analysis of more than just the agricultural sector, it does give a sense that such policies have not had much effect for the 6-year period.
On the other hand, expenditures for services, feeds, labor and other operating expenses have steadily risen. From this, costs have indeed been on the rise, eating away at profits or further driving the need for subsidy to stay afloat. Figure 3 Taken from National Agricultural Statistics Service (Please see references) But the individual cost elements used in farm operations does not fully relate the plight of smaller farmers. In the next chart, it shows the total farm expenditures as increases year-on-year with respect to the base year (Figure 3).
In the 6-year period, the total production cost of farms has risen over 20% and this, it seems, has put many smaller farmers in a precarious situation. Year Inflation Rate 2005 3. 39% 2004 2. 68% 2003 2. 27% 2002 1. 59% 2001 2. 83% 2000 3. 38% Table 1 Historical Inflation Rates The nearly 25% increase in total productions costs means that total cost increases compound at about 3. 5% annually (computed 1. 0356). From InflationData. Com, the annual inflation rate for the United States has been much lower than this value (Table 1).
The inflation data, of course, can be verified against total farm expenditures when, in 2002, inflation hit a low point at 1. 59% whereas total production expenses actually dropped between the years 2001 and 2002. The main idea, nevertheless, is that in the 6-year period, the rise in production costs in New Jersey outstripped inflation which does tend to mean that profit margins have become much slimmer particularly for smaller farmers that cannot benefit from economies of scale.