The Farm Problem, Government Farm Programs, and Commercial Agriculture

Abstract

Despite record high government expenditures on domestic farm programs, financial distress in U.S. agriculture is at the highest level since the Great Depression. The objectives of this study are: (1) to show why U.S. farm programs do not achieve their objectives, and (2) to demonstrate that a fundamental change should be made in these programs. It is shown that farm programs, rationalized as measures to assist low income family farmers, benefit most farm operators who have higher incomes, on average, than the taxpayers financing the programs. Less than one-fifth of government payments go to farmers in financial distress who primarily rely on farming for their livelihood. Farm programs do not ensure long-run farm prosperity because program benefits are quickly incorporated into higher prices and costs of land, production facilities, and other farm assets. Moreover, price-support programs are inconsistent with free trade between nations. Price support programs that hold domestic prices above world price levels require import barriers to prevent domestic consumers from consuming lower-priced milk, sugar, peanuts, and other products. Farm productivity is increasing rapidly throughout much of the world—with pronounced implications for U.S. farm policy. The increasing competition for U.S. farm products and federal budget pressures are likely to force policymakers to modify farm programs to make them less protectionist. There is no acceptable long term alternative for commercial agriculture but to reduce price supports and trade barriers. Protectionism prevents farmers and consumers throughout the world from achieving the benefits that occur when individuals specialize in those activities where they are most productive.