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Roughly every five years, Congress debates and eventually passes an agriculture (i.e., farm) bill. The first farm bill, as I understand it, was passed during the Great Depression as a means of protecting farmers against excess supply that resulted in lower prices, thus originating the farm subsidy.

Is the farm subsidy still needed today? Does it stabilize farm prices? Does it still protect the small farmer from loss? Or is it simply another form of welfare?

  • Since the FARMM bill is 80% SNAP/food stamps, the acronym doesn't really fit any more. I would remove the "need" Q, it is open to opinion. The FARMM bill can both protect small (or large farming conglomerates) from loss and be welfare. – user1873 Dec 29 '13 at 22:31
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    " Or is it simply another form of welfare?" seems subjective unless you provide clear definition of "welfare" – user4012 Dec 30 '13 at 17:44
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    To get congressmen from ag heavy states reelected. – SoylentGray Jan 8 '14 at 20:23
  • The argued purpose then (and now) was income stabilization. Of course, what has changed is the demographics of who receives them. Wikipedia has a good overview: en.wikipedia.org/wiki/Agricultural_subsidy#United_States – user1530 May 18 '14 at 23:41
  • @user1873 food stamps are still a subsidy to the food industry. – David Rice Jan 22 at 15:39
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One at least plausible reason for the subsidies is national defence. If America imports food from potentially belligerent countries, then there could be serious loss of life if the country cut off trade abruptly. This doesn't really hold up to scrutiny when we consider just how far above 'what America needs to survive' the government has decided to subsidize agriculture (up to a 32 billion dollar agricultural surplus in 2012). Even if there wasn't a huge agricultural trade surplus it's hard to imagine that unsubsidized US food production couldn't meet a minimum wartime ration.

The downside of subsidies is the dead-weight loss they produce.DWL is the loss of wealth induced by the subsidy http://0.tqn.com/d/economics/1/0/p/F/subsidy-10.png

If you're not familiar with economics, subsidies destroy wealth by pushing people from working to produce what consumers want, to producing more of the subsidized item than people would otherwise be willing to buy. Subsidies can sometimes be justified if they deal with some kind of externality, but distorting food prices below what people want to pay doesn't seem to have any external benefit to society. Agricultural subsidies might help certain groups, but government could just give them money more directly and with less dead-weight loss than with the wealth destroying distortions induced by a subsidy.

One explanation of why agricultural subsidies exist is that they are an excellent example of concentrated benefits dispersed costs. A relatively small number of farmers (represented by lobbyists) can make deals with the government to get huge gains in subsidies, but the cost to any individual taxpayer is too low for the average voter to think much about the subsidy let alone exert the incredible amount of effort needed to influence policy.

  • do you think EU farm subsidies are matter of 'national defense'? – lowtech May 21 '14 at 15:50
  • @lowtech I think that would make a great question of its own. I can't speak to to the unsubsidized agricultural output relative to foreign policy dangers of every European country, but I suspect much of Europe could feed itself enough to fight a war even without subsidies. – lazarusL May 22 '14 at 11:26
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Weather

Farm products are heavily dependent on factors like weather. Good weather and there is a bumper crop. Bad weather and there is a shortage. Farm subsidies help make sure that there isn't a shortage and help manage bumper crops by buying the excess.

My grandfather, who grew up on a farm, had a dim view of farm subsidies. What he remembered was that they grew their own food in the days before subsidies. However, with the subsidies, many farmers don't do that. Why? Crops for personal use aren't subsidized, but crops for sale are. So to maximize the subsidy, farmers grow only crops for sale. But this then makes it harder to weather a bad or great crop (great crops drive down prices when widespread). Because if you only have one crop, you need to sell it to buy other foods and maintain proper nutrition. If you grow many things, you can eat or store what you need and sell the rest. At least you won't go hungry.

My great-grandfather used farm subsidies as a retirement program. The subsidies provided income for leaving his fields fallow. Without them, he would have probably rented his fields out to someone else or gotten help from other family members. So his son, my grandfather, still thought that it was a bad idea.

Anyway, it may not be true, but one of the excuses for continuing the subsidy program is that it helps farmers manage random occurrences like weather.

  • This is certainly a real reason used to justify subsidies. It might help to include the counter-argument that farmers could just buy unsubsidized crop (weather) insurance and make lower profits. – lazarusL Jan 24 at 14:48
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One reason that I've been led to believe is true is to stabilize the supply of food against the risk of excess food resulting in low prices eliminating farm jobs while allowing for excess food production to hedge against the possibility of unexpected low crop yields. So rather than just "protect farmers" its to "keep a supply of food by protecting farmers". Since it can take around a year (or more!) of lead time to produce additional food by growing a new harvest, and the food is also seasonal, the food production market is not a standard widget market modeled by normal economic forces. Deficits in supply thus take too long to make up for by regular market forces (the increased price from a crop shortage cannot make anyone grow crops any faster to take advantage of the prices), and the benefits of not having to put away additional money to hedge against a crop shortage by having a steady and reliable supply of food is seen as being worth the costs.

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