The government farm subsidy in the U.S. is centuries old. It is not a single subsidy or grant formula, as it can change according to the needs of the sector. An example of this is the recent agricultural subsidies in response to the impact of the coronavirus pandemic.
It should also be understood that these subsidies are based on federal laws, which in terms of amount and regulation, are regularly modified. In fact, as we will see later on, in recent years the federal laws regulating any type of agricultural subsidy have been intensively modified.
Where does the government farm subsidy come from?
Historically, governments have generated different types of grants, benefits, or tools to promote various sectors, of which agriculture is one of the most important.
This means that institutional support is not a new feature for the agricultural sector. However, if we had to place the origin of the current subsidy models for the agricultural sector in the U.S., it would be the decade of the 1930s.
At that time, in spite of having faced adverse weather conditions during the 1920s, the agricultural sector had to deal with the Great Depression of 1929. The situation of generalized collapse dragged the agricultural sector into a situation in which the production yield was lost (agriculture not only did not offer profits but also generated losses).
In this context, public aid in the form of subsidies arose to maintain balanced production: it is paid to keep farmland uncultivated to balance the production. Therefore, supply would not exceed demand and prices would be maintained. This action was complemented by the storage of agricultural products for distribution or conservation.
For all purposes, this action is considered the beginning of modern subsidies in the agricultural sector. Subsidies have been increasing and modifying their structures and concepts throughout the last century.
What does an agricultural subsidy consist of?
Clearly, subsidies in the agricultural sector today have little or nothing to do with those at the beginning of the last century. These are usually direct subsidies, as well as tax relief or subsidized financing (loans or subsidized credit).
On the other hand, structural subsidies have become a large part of the structural support on which the sector depends in one way or another, to keep it sustainable. Thus, for many farms or agricultural companies, subsidies have become a fundamental part of business development.
Some examples of government support to the agricultural sector
If we take the last two decades as a reference, we find some interesting examples that allow us to understand the basic functioning of subsidies for the agricultural sector.
Nowadays, the sector’s model is unbalanced, so that almost 70% of production is achieved by farms with a high turnover. However, these farms represent only 4% of all the existing farms. The situation has led to concentration and a model in which the large farms and companies have been swallowing up the smaller ones.
In this context, there has been an increase in subsidies to try to revive or maintain medium- and large-scale agricultural activities, but family farms or small production farms are receiving a smaller amount of aid.