The United States Agricultural sector has been experiencing serious woes, and it has come in the form of crop subsidies. According to an article written by Cait Murphy, it has become such a danger that smaller family-owned or run farms are being driven out of business (Murphy 21). Murphy’s article begins with Read Smith, a 57-year old, 5th generation farmer. Smith has always looked forward to seeing his son inherit the practice but the chances of that have become rather dim as small farmers are being edged out of the market.
According to Murphy, farmers like Smith have been the recipient of crop subsidies from the national government, which has unfortunately become the source of the problem. Figure 1 Taken from National Agricultural Statistics Service (Please see references) It was reported in the article that farmer Smith actually managed to secure some $220,000 of crop subsidies in eight years ending 2003. What’s more is that this is a small fleck compared to the total package – from 1999 to 2004, $99 billion in subsidy payments were made.
Yet still, smaller scaled agricultural operations subject to these subsidies are complaining that Washington’s being incompetent and that the policies are simply proving to be anything but effective. Smith, himself, complains that his operations are doing well some years but in others, he relies on government support to keep his farm solvent and operating – but the mere fact that support from government is needed is enough to underscore the fact that the subsidies are not working. The object of this research is to determine the cause behind the failure of subsidies to prop up small farmers like Read Smith.
All of civilized society began with advancement in agriculture. The ability to cultivate and harvest the land allowed for growth and, even today, it serves as a cornerstone for continued advancement. In the early part of the 20th century, there were almost 14 million individuals engaged in agricultural work. By 2000, that number has dropped significantly by about 10 million to no more than 4 million (NSSA). In the graph (table 1), a cursory glance reveals that the larger part of the decline in those engaged in farming came mainly from family workers.
According to Murphy, crop subsidies were first implemented by the national government during the Great Depression to help tide farmers over bad markets. From the graph, these subsidies (and perhaps the increase in unemployed workers amongst other factors) made noticeable impression as there was a sharp increase in the number of farm workers for half of the 1930s (Murphy 22). While the subsidies have not stopped – and in fact reached that aforementioned record-breaking figure of $99 billion, the number of farmers is still on the decline since the great depression.
Subsidies in the United States come in the form of guaranteed payments. When farmers grow their crops and eventually release such products into the market, the law of supply and demand naturally dictates prices based on the quantity supplied by farmers and the amount of demand present in the markets. When there is excessive supply or diminished demand, the price of crops goes down to the point that some farmers face losses. And this appears to be a chronic problem for crop growers in the U. S. agricultural sector.
Subsidies work as a safety net for farm operations by guaranteeing growers a minimum price for their crops. Legislative subsidies are used to guarantee minimum farm gate prices for mainly wheat, corn, rice, cotton, and soybeans (Murphy 22). The problem with subsidies is that it distorts pricing and, more pointedly, encourages farm operators to over produce their subsidized crops (Cassel). In Murphy’s article, he points at the fact that subsidies destroy the entrepreneurial spirit.
In fact, the article quoted Bruce Babcock, director of the Center for Agriculture and Rural Development at Iowa University, as saying that the subsidies cause farmers to be dependent on government support and the fear of losing out (perhaps of pride for relying on subsidies) shores up the propensity to stick to safe, proven agricultural practices. The situation begs the question as to whether it truly is the subsidy program or the lack of initiative and daring on the part of smaller farm operations.
Innovation is the key and main factor favoring the latter as the reason the subsidy program is failing. Murphy has found that farmers moving to unsubsidized crops such as organic, pesticide-free food have seen remarkable growth. In states such as California which are relatively free of subsidies as only 1 in 11 farms have government support, have an extremely dynamic agricultural sector as opposed to Iowa which has 7 out of 10 depending on subsidies and suffers from an ailing farming community (Murphy 22).
Another salient point is that the counties that receive the highest level of farming subsidies are those which show the greatest drop in population (Murphy 24). People are running away from subsidy dependent counties and, presumably, moving to greener pastures. The drop in population is a signal that the subsidies are ruining the agricultural sector of those counties that are most dependent on it. People in those areas are out looking for better opportunities.