Farm subsidy: How far the government spending should meet the requirements of farmers?

01 Mar Farm subsidy: How far the government spending should meet the requirements of farmers?

Federal government regularly pays funds to assist U.S agribusinesses in the shape of Farm subsidies. Such subsidies provide basic security from uncontrollable disruptions like poor weather conditions, lack of demand or commodities brokerage.  However, the issues are continually evolving and getting more complicated. Currently, the top five states getting subsidies are Arkansas, Kansas, Illinois, Nebraska, and Texas. In 2017, around 38.5 percent of the $7.2 billion funding was utilized by them.

Proponents believe that America’s food supply must be preserved from extreme climates like droughts, tornadoes, and hurricanes. The government has a purpose in warranting food production during wars, recessions, and other financial crises. Food production is more crucial to the nation’s welfare than other business commodities. Farms are susceptible to dwindling commodity prices. Commodity traders determine the rates on an open exchange. They trade futures agreements that agree to buy or sell at an accepted upon price on a date. Farmers rely on their chances about the price at the time of harvest. They can also lock in a price with a futures contract. Either way, they are gambling that their costs will be lower than expected revenue.

Both crops and animals are at the risk of diseases, weather changes and other uncontrollable natural conditions. In 2012, many farmers had to slaughter cattle because of an increased cost of maintenance due to drought. In 2015, Avian influenza spiked egg prices by 17.8 percent. In 2018, production of pecans, chickens, and hogs hit rock bottom due to Hurricanes resulting in skyrocketing prices. Many farmers rely heavily on loans. They borrow capital during the sowing season hoping to repay after harvesting. This makes farming like gambling. A personal emergency or a low-price trending in continuity can be devastating. Farms are immobile. They either go out of business, or the farmer ends up selling it if a local processing contract is canceled.

Opponents have an entirely different narrative. As per them, U.S. farms have the upper hand because of fertile soil, abundant rainfall, and access to robust irrigation facilities. Farmers have access to highly trained labor, computerized equipment, and cutting-edge chemical research in fertilizers and seeds. All industries face their unique set of challenges. Agriculture also has its avenues of failure. Hence, they shouldn’t receive any preferential treatments. Subsidies are a form of regressive tax that benefits high-income businesses; poor rural farmers are still deprived of the actual benefits. Most of the funding goes toward massive agribusinesses. Between 1995 and 2017, the top 10 percent of recipients received 77 percent of the $205.4 billion doled out. The top 1 percent collected 26 percent of the payments. That averages out to $1.7 million per company. Fifty people on the Forbes 400 list of the wealthiest Americans took farm subsidies. On the other hand, 62 percent of U.S. farms did not get any grants.

U.S. farm subsidies hinder global trade. The Doha Round of trade talks and the Transatlantic Trade and Investment Partnership failed because of U.S. and European farm subsidies. Doha would have abolished tariffs between every country in the World Trade Organization. The TTIP would have diminished trade barriers between the United States and the European Union. It would have improved U.S. GDP by 5 percent and the EU’s by 3.4 percent.

Now that the pros and cons of farm subsidies have enlightened the concerned issue it is essential to understand how it affects our economy.  The federal crop insurance program may be prompting farmers to plant crops that aren’t drought resistant. The insurance program inspires them to plant the same crops year after year, regardless of crop yield. As a result, it keeps them from switching to drought-resistant crops.

So, the worst-case scenarios are always going to be there, you get to decide and share your view, Should the US government subsidize farmers?