The agricultural industry is a key pillar in the foundation of any nation. This is because every nation must have a way in which it can provide for its peoples most basic need: food. To safeguard the survival of this important industry, most developed nations have come up with means for ensuring that farmers remain in business. Subsidies are defined as payment from the government to producers or distributors in a given industry to prevent the decline of that industry.
Swain contends that agricultural subsidies are the most effective mechanism for not only accelerating the growth of the agricultural sector but also ensuring its continuity despite prevalent market realities (223).
However, this is a contentious stand since the money for subsidization is mostly from the taxpayers. A previous secretary of agriculture for the US, Sterling Morton clearly makes a case against subsidization in his statement that “Taxation was never meant for the purpose of building up one class at the expense of other classes.” (Folsom 34).
As can be highlighted from above, Farm subsidies are viewed by some as the only way to safeguard the livelihood of farmers and indeed ensure the food security of the nation while others view it as not only being a major hindrance to trade efforts but also as grossly unfair to developing countries. This paper examines several of the arguments raised both in favor of and against farm subsidies so as to draw a conclusion as to whether farm subsidies provided by the US government are justifiable.
Arguments against farm subsidies
Some opponents of farm subsidies argue that the total benefits that arise as a result of this subsidies are far outweighed by the total costs incurred in financing the schemes. Rose’s discussion on the relative costs and perceived benefits of farm subsidies exemplifies this perspective. He argues that to begin with, subsidies are financed from the public coffers to support farmers without any “return on investment” for the government.
The subsidies result in overproduction of commodities which is disadvantageous to the consumer who will incur the extra cost that he will be taxed for the subsidization to occur. The extra food produced will benefit neither the farmers nor the end consumer. This is a relevant summation of the wastage effect caused by farm subsidies. Rose supports the claim that both consumer and farmers would be better off without subsidies.
Another subsequent implication of subsidies is that food prices are kept artificially low. As a result of this, farmers in developing countries cannot compete with the subsidies produces from the developed nation farmers. Craig articulates that this is not only harmful to the global economy but also results in hardship and poverty (1). This is a view which is shared by Mandelson who concedes that farm subsidies do lead to gross trade-distorting in the international trade arena.
The result of this is that developed countries deprive the developing nations of their much-needed export currency since most developing nations are almost primarily dependent on farming as the primary export. Craig further blames subsidies for the emigration phenomena and refugee state that is as a result of agricultural communities going bankrupt (3). From these assertions, it can be advanced that trade subsidies are the main cause of the high poverty levels experienced in developing countries.
Farm subsidies were originally introduced to ensure that farmers, especially small, low-income ones, were able to support their livelihoods. However, the major beneficiaries of this support schemes are not this low-income group but rather high-income farms who reap significant benefits.
Markheim asserts that the cost of protecting farmers is significantly increased with the aid flowing to farms that have little need for aid. This argument advanced by Markheim highlights the fact that while the initial idea behind subsidies was noble, large-scale farms are exploiting this program for their own good at the expense of not only the end consumer but also the small-scale farmers who lack the machinery or land to produce on that scale.
A case for Farm Subsidies
Despite all the misgivings attributed to farm subsidies, there are benefits which are as a result of the same. Goodman, an avid proponent of farm subsidies asserts that the question of farm subsidies is complex and while a shallow view results in opposition, a deeper view leads to an appreciation of the program. He states that as a result of subsidies, the US farmer can remain in business that assuring that the nation’s food security is guaranteed.
It the subsidies did not exist, the farmers would run bankrupt and hence the nation would have to rely on outside nations for its foods. This is at best a precarious stand since if ties between the US and other countries are broken, the country may suffer greatly. This is a valid statement since the diplomatic stance of nations is every changing and hence the reliance on the goodwill of other nations might prove to be a fallacy.
While most opponents of farm subsidies insist that farmers can manage without this government support, a report by Rulon of the Washington post on black farmers shows otherwise. Rulon reports that black farmers in Virginia were lobbying the government for loans to enable them to remain in business.
This goes to show that without government aid, small farmers would like invariably run bankrupt. ABC news also reports of a named John Boyd’s efforts to solicit the government for equalization of federal farming subsidies. This, without doubt, demonstrates the important role that farm subsidies play to the lives of the farming community in America.
Reforms on Farm Subsidies
Another school of thought proposes that farm subsidies should be maintained but reforms made so as to ensure that the detrimental aspects are dealt with. Engermann states that a congressional bill proposed the protection of farmers from losing revenue but set out limits above which farmers would be ineligible for subsidies (1). This imposed limits lowered the cost of farm subsidies for the government by a significant $5 billion since it ensures that only farmers who are perceived to be in need of the benefits are assisted.
Vina et. al confirms that subsidy reforms have the potential of bringing benefits to the taxpayers, consumers and the small-scale farmers (10). This would not only be beneficial to the US but also to the many developing nations who bear the brunt of heavy subsidization.
Agricultural subsidies are an important facet of the agricultural industry in the USA and many other developed nations. The subsidies yield immense impacts on both the developed nations and the developing nations. From the above discussion, it is clear that the farm subsidies issue is both controversial and has its merits and demerits.
While the ills attributed to farm subsidies are indeed daunting in nature, doing away altogether with the policy might lead to dire consequences for not only the farmers but also the nation as a whole. As such, it would be in the best interest of the country to adopt a middle ground to reap the benefits of the farm subsidies system while at the same time doing away with as many of its faults as is possible.
While proposed farm reforms are feasible, they carry with them their relative perceived risks and come at a cost both for the farmers, taxpayers, and the government. However, the observable advantages to be reaped from the reformed subsidy system far outweigh the perceived risks, and therefore the changes should be implemented in the farm subsidies albeit with a lot of patience and support from the political body.
Engermann, Kristie, M., “U.S. Farm Subsidies.” Economic Information Newsletter, September 2008.
Folsom, B. “The Origin of American Farm Subsidies.” The Freeman: 2006.
Goodman, R. “A five-Point Defense of Farm Subsidies.” Alfa Famers 2006. Web.
John, B. “Person of the Week.” ABC News. 2003. Web.
Vina, A., Fransen, L., Faeth, P. & Kurauchi, Y. “Reforming Agricultural Subsidies: ‘No Regrets’ Policies for livelihoods and the Environment.” 2006 World Resources Institute.
Mandelson, P. “Mandelson Replies to Oxfam.” 2006. Web.
Markheim, D. “Commit to Farm Subsidy Reform to Revive the WTO’s Doha Round.” 2006. Web.
Rose, M. “Paying for Form Subsidies.” Library of Economics and Liberty, 2002. Web.
Sams C., “Subsidies – Who Gains who Loses.” The Little Food. 2000. Web.
Swain, R., Satya. “Trade Externalities of Agricultural Subsidies and World Trade Organization.” American Journal of Economics and Business Administration 1 (3): 223-229, 2009.
Rulon, M.. “Black Farmers Press for Compensation.” Washington Post. 2005. Web.