Subsidies: Why Do Farmers Need a Safety Net?

Crop protection programs safeguard our farming families to protect against food scarcity and high food prices.

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For those of us who live a life far removed from working the land, the idea of federal payments, or subsidies, granted to offset economic fluctuations in farming might seem like a prime example of wasteful government spending. After all, other businesses and industries compete in the free market. Why shouldn’t farmers?

The answer is simple. We depend on the hard work of farmers to feed our ever-growing population¾to protect against food scarcity and high food prices. If market prices for crops consistently fall below the break-even point for farmers, why would they keep farming? In no other industry would we expect companies to stay in business after incurring financial losses year after year. Why should we expect farmers to bear financial losses for feeding our population? If we depend on farmers, doesn’t it make sense to keep the business of farming stable?

Safety Nets, Not Subsidies

The concept of federal payments for farming comes under fire due to long-held negative perceptions about past subsidy programs. Today, though, federal payments to farmers don’t come in the form of direct payments¾and certainly not direct payments for not farming, as many perceive the case to be.

Today, economic support for farming takes the form of a true safety net that fluctuates and is based on need determined by crop prices and yields. 2014 Farm Bill legislation replaced the direct payments of years past with crop protection programs in the form of Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC). Farmers elect to participate in one of the two crop insurance programs for the duration of the current farm bill (five years) and the government covers a portion of the premiums. To participate and to receive payments for either yield loss or price fluctuations, farmers must be actively engaged in farming and commit to conservation practices.

Farming Below the Break-Even Point

Farming, in general, produces a small profit margin compared to the risk. Now, farmers face even tougher economic conditions, with the USDA predicting a decline in net farm revenue for the fourth consecutive year, falling 8.7% to the lowest point since 2002.

The purpose of crop protection programs is to provide a cushion for farmers when tough economic conditions make farming cost prohibitive as a business and as a means for providing for farming families. Today’s direct costs of growing crops and the additional financial burdens of running a farm rise to new heights while prices fall to record lows. Costs for seed, fuel, fertilizer, equipment, labor, land leases, loan costs, insurance and other costs of farming business exceed the return for many crops, taking farmers below the break-even point.

For example, Washington wheat farmers contribute $1 billion to our state’s economy but are facing prices lower than they’ve been in a decade. Prices have fallen well below the break-even point for producing crops and further declines are predicted. When production value is weighed against all costs associated with farming, wheat farmers nationally incurred losses of $91 per planted acre in 2016. Those losses ranged from $112 to $139 per planted acre for wheat producing regions of Washington State, according to the USDA Economic Research Service.

With those shortfalls, crop insurance subsidies allows Washington wheat farmers to secure loans necessary to grow next year’s crops, to invest in conservation practices and to innovate to improve productivity.

Safeguards for All

Crop protection programs and other mechanisms to ensure the economic feasibility of farming benefit everyone, and benefit our environment. The cost of subsidies is returned to taxpayers in the form of lower food prices and significant contributions to our economy. Agricultural exports contribute $133 billion to the US economy. Crop protection programs ensure farmers are able to plant and grow next year’s crops, preventing food scarcity. They encourage, even require, the adoption of conservation practices and facilitate innovation and the wider adoption of advanced farming practices.

 

Resources:

“Farm Income Forecast Chart.” USDA Economic Research Service. https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=76952

“Highlights From the Farm Income Forecast.” USDA Economic Research Service. https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast/

“Commodity Costs and Returns.” USDA Economic Research Service. https://www.ers.usda.gov/data-products/commodity-costs-and-returns/commodity-costs-and-returns/#Recent%20Costs%20and%20Returns:%20Wheat

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