Farm subsidies or agricultural subsidies are incentives offered by the US federal government to support agribusinesses and farmers. The support provided can be vital to the economy of the US.
The farm subsidies provide economic stability to the farmers during the depression stage and ensure there is a steady supply of agricultural output to the Americans.
This article highlights the pros and cons of government subsidies to the farmers.
1. Supplement farmer’s income: US subsidies help supplement the income of farmers and enable them to manage the supply of agricultural outputs as well as influence the supply of these outputs.
2. Reduce imports: Promoting agribusiness encourages farming in the country. There will be no need to source food from the international community because there will be a high production of locally produced commodities.
3. Reduce farming risks: The subsidies help reduce the risk incurred due to bad weather conditions, changes in demand, and commodity brokers.
4. Manages food supply: The government offer subsidies to farmers to ensure they produce the right amount of crops to serve the entire population.
5. Participation in commodity price dips: The subsidies give farmers an opportunity to participate in commodity price dips by determining the prices of products in the open exchange.
6. Enter into contracts: US subsidies allow farmers to enter into future contracts that guarantee the purchase and sale of commodities at an agreed price in the future.
7. Cheaper products: The public is able to benefit from subsidized commodities. Farm produce is sold at lower prices.
8. Builds domestic agricultural infrastructure: Subsidies help large-scale farmers acquire farming assets needed for them to increase production and ensure the production is done in a timely manner.
9. Results in competitive agribusiness: Subsidies are used to offset higher domestic costs in order to allow local products to be sold at lower prices as well as make them competitive.
10. Creates indirect employment: Subsidies make domestic products remain competitive with imported products during off-season demand. This benefits the local economies through indirect employment.
1. Government intervention: The government can intervene in the production of commodities once they offer subsidies.
2. Helps large agribusinesses: The government subsidies work like the regressive tax where they only benefit large-scale farmers. Poor farmers from rural areas only get little support.
3. Environmental impact: There are concerns that the subsidies are detrimental to the environment. Some of the subsidies provided dictate that the farmers grow a certain type of crops. This makes crops rotation difficult and it leads to soil depletion as well as increases the risk of pests and parasites.
4. Block global trade: US subsidies create trade barriers between the US and the EU blocking global trade. There will be no negotiation and elimination of tariffs between the countries in the World Trade Organization.
5. Affects other farmers not supported by subsidies: Not all farmers produce the same crops dictated or receive the subsidies from the government. This makes the prices of their products to be higher and no one wants to buy the commodities at high prices.
6. Lack of food diversity: Most of the subsidies are static and this affects the diversity of food supply within the domestic food chain. In US croplands, a lot of corn is used in the production of ethanol instead of the food supply.
7. Corporate welfare: Americans pay higher taxes to support corporations or commercial farms and they are also forced to buy agricultural products from those corporations.
8. Inflated expenses: Subsidies are given without putting into consideration the available products and services in the modern market or the status of the crop. This makes farmers produce crops, sell them at market rates, and receive subsidies.
9. No domestic protection of food supplies: The US produces more crops than what is consumed leading to the exportation of about 25% of the crops. Unsubsidized farmers are not prevented from production or the level of profit they make from unsubsidized crops.
10. Minimal effect on pricing: Almost two-thirds of food crops in the US aren’t subsidized and this has no effect on food pricing since subsidies don’t affect transport and marketing costs.