NCPA - National Center for Policy Analysis

Farm Subsidies And Collapsing Prices

May 29, 2001

It might seem like a paradox, but the most heavily subsidized U.S. agricultural sectors -- row crops and dairy farms -- are the ones faring worst in the marketplace. The relatively unsubsidized pork and beef sectors actually benefit from the low prices of feed grains. And fruit and vegetable growers have evolved as a specialized, free-standing industry.

And the subsidies to the former groups just continue to mount.

  • European experts estimate that U.S. support levels will soar to $32.2 billion this fiscal year from $4.6 billion in 1996.
  • A 1997 prediction by the U.S. Department of Agriculture that the aggregate measure of support, as defined by the World Trade Organization, would drop to only $1.2 billion in 2000 simply didn't foresee the collapse of grain prices.
  • The new Bush budget calls for $79 billion in added farm subsidy spending over the next 11 years -- but that is subject to augmentation through supplemental budgets over the years and most observers see the number as only a baseline.
  • Economists point out that subsidies stimulate overproduction -- which lowers prices, wipes out profits and creates a dependency on subsidies.

One Kansas survey of 2,083 farms, cited by Doane's Agricultural Report, found that farms in the group would have had an average net loss of $6,417 last year had it not been for government payments averaging $45,614 per farm.

Analysts point out Washington wants political solutions to economic problems because there is always another election just around the corner -- and their European counterparts must believe the same thing. Total farm spending in the European Union, including subsidies, was $90 billion last year, nearly double the U.S. outlay.

Source: George Melloan, "Farm Subsidies, Like Death and Taxes, Just Won't Go Away," Wall Street Journal, May 29, 2001.

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