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History of the Farm Bill
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Farm Policy 101 Subsidies and the Farm Bill World Trade Organization (WTO) Implications

OVerview of subsidy payments

Subsidies in Previous
Farm Bills

In the 1996 Farm Bill, a new approach to subsidies was taken. Subsidies were to be phased out and replaced temporarily with direct payments over a transition period. However, the bill did not include an effective safety net, and when the severe market downturn of the late 1990s hit many farmers were hurt and billions were spent in hastily pulled together ad-hoc disaster payments. Facing record budget surpluses when the 2002 Farm Bill was written, Congress decided to keep direct payments, counter-cyclical payments and crop insurance that resulted in a redundant and overlapping support package for commodity producers. The dramatic reform attempted in 1996 was rolled back in the 2002 Farm Bill.

A lot of attention is given to farm subsidies. Subsidies are payments made to farmers who raise any of two-dozen "commodity crops" such as wheat, cotton, rice, or peanuts. More information about the current state of farm support systems is available among our resources for the 2012 Farm Bill.

Benefits

Subsidies are considered important for maintaining a safe and secure food supply in the United States. They also provide a safety net to farmers to protect against the fluctuating nature of farming and disasters such as floods or droughts. Domestic crop yield can fluctuate considerably depending on the local weather.

As a result of these fluctuations in production levels and prices, there could be very large variations in farm revenues between years. A safety net can help to smooth farmers' income over time and ensure they are not required to maintain debt from year to year in order to maintain a consistent income.

Flooded Field
Natural disasters such as floods and droughts affect farming and ranching in unpredictable ways.

Criticisms
Subsidies are scrutinized because they often fail to provide assistance to those who need them most. While it's often perceived subsidies keep the family farm in business, in actuality most farmers and ranchers do not benefit from federal farm programs.

Subsidies face criticism for distorting the marketplace. Artificial and politically set prices encourage overproduction. This harms the environment because marginal or less productive land is cultivated unnecessarily, which often requires more inputs such as fertilizer and pesticides. A study released by the U.S. Government Accountability Office (GAO) found that access to commodity programs and crop insurance are key factors in motivating farmers to plow up native grass land into crop land [PDF]. The study shows that crop insurance, in particular, is encouraging the conversion of marginal land into cropland by greatly limiting the risks for farmers to produce crops on land that has been, historically, less productive.

Overproduction also hurts world wide crop prices and the ability for farmers in countries without subsidies to make a living. This is a key area of dicsussion at World Trade Organization (WTO) Doha round of talks.

Who gets subsidy payments?

A database released in June, 2007 provides nearly full disclosure of federal farm subsidy beneficiaries. Using previously unpublished USDA subsidy records, the disclosures include individuals and businesses collecting payments.

» Farm Subsidy Database

Solutions
American Farmland Trust worked with Senators Durbin (IL) and Brown (OH) on the Farm Safety Net Improvement Act of 2007. Parts of this program were adopted in the final farm bill as the Average Crop Revenue Election (ACRE) program. It fundamentally transforms government support by providing better protection to farmers, less market distortions and greater equity across crops. Instead of basing payments on politically set prices, it is based on drops in actual revenue (price multiplied by yield) to provide a safety net to farmers when it's needed most without excessive payments.

Why ACRE is Better
Current safety net programs only protect against price. But in years like 2007, when many farmers face yield losses due to droughts, floods and other natural disasters, they will not be covered despite a drop in revenue.

Visit the U.S. Drought Monitor for an interactive map of current drought conditions in your area.

 
American Farmland Trust