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Farm Subsidies Have Strong Roots

by Mike Godfrey,, Washington

13 July 2007

As it stages its quinquennial farm subsidy show, the US Congress is about to give another demonstration of why subsidies, like taxes, are easily cultivated but are almost impossible to uproot.

Most farm subsidies, which are thought to total nearly US$35bn, originated during the 'dust bowl' years of the Great Depression in the 1930s, when they had a clear social purpose. Now they won't go away despite periodic attempts by the legislature to cut them back. It is widely accepted that the subsidies go mostly to large, commercial operations which don't need them, rather than the poor subsistence farmers they are meant to help.

Prices for corn, wheat, soybeans and sugar are all at very high levels and all are subsidized! Farmers' incomes are now about 30% above the national average income, and the average farmer has a net worth close to US$1m.

In a report aimed at influencing the ongoing debate in Congress, the Cato Institute singles out the dairy product and sugar support regimes as being particularly egregious examples of waste. The Institute points out that:

  • Farm programs cause overproduction, the overuse of marginal farmland, land price inflation and excess borrowing by farm businesses;
  • Farm programs are prone to fraud and scandal - since 2000, the government has paid $1.3 billion in subsidies to people who own "farmland" that is not even used for farming;
  • Farm subsidies are a serious hurdle to progress on global trade agreements that could help productive US exporters;
  • Farm programs damage the environment by drawing marginal farmland into production and encouraging the overuse of fertilizers;
  • Federal controls on the dairy industry raise milk prices to consumers, while sugar industry subsidies and price support raise US sugar prices to about twice the world level, pushing up consumer costs for breakfast cereals, chocolate and other food products.

The Institute says that the farm bill gives Democrats an opportunity to show that they really do represent the interests of average families by chopping away at subsidies which benefit only the rich. But don't hold your breath!

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