Thompson, Robert L.

English

Research Papers in Economics

September 2006 
APB 06-03 
 
Why Some People Question Our Farm Programs 
 
When U.S. farm programs began in the 1930s, we were deep in the Great Depression. Farm 
family incomes were below those of other Americans. The original objective of farm programs 
was to reduce poverty on the farm. 
 
Farm policy has generally tried to raise farm family income by lifting prices received by farmers 
above what the market would provide. As a result, the largest farmers, who sell the most, receive 
the largest benefits. The lowest income farmers, who sell little, benefit little. The other policy used 
to increase farm income is direct payments based on historical, not current, production. The 
largest producers in the past receive the largest benefits now.  
 
Over time, the benefits of both types of farm programs get capitalized into the price of farmland, 
increasing the wealth of land owners, with those who own the most farmland gaining the most. 
This becomes a barrier to entry for beginning farmers. 
 
Variable weather conditions and commodity prices make farming a risky business. A second 
commonly cited goal of farm policy is to reduce farm income variability. Farmers have several 
ways to reduce their income variability. Cash accounting allows shifting receipts and expenses 
between two years. Farming is the only business that can still use income averaging (over four 
years) when filing federal income taxes. Farmers can buy price insurance on futures and options 
markets and heavily subsidized yield insurance under federal crop insurance programs. When the 
rhetoric is stripped away, the income stabilization objective of farm programs usually boils down 
to desire for stabilization around a higher average. 
  
Another frequently cited objective of farm programs is to increase competitiveness. Exports are 
important to the profitability of American agriculture, which produces significantly more than U.S. 
residents consume. U.S. agricultural competitiveness depends on fertile soils and favorable 
climate, high productivity due to agricultural research, and lower transport costs than our 
competitors. However, capitalization of farm program payments into farmland prices raises our 
long-term cost of production, undercutting our competitiveness.  
 
Food security is frequently cited as an objective of farm policy, however, when one acknowledges 
that U.S. farmers produce a quarter to a third more than Americans consume, there is little merit 
to this argument. 
 
Rural development is also cited as an objective of farm programs. Farm programs which 
distribute the benefits in proportion to sales provide liquidity that makes it easier for larger farmers 
to buy up their smaller neighbors, accelerating consolidation of farms and loss of jobs in 
agriculture.  
 
It is not farm programs that help most small farmers escape from poverty, but rather by becoming 
part-time farmers with income from non-farm jobs. If the objective of farm policy is to facilitate 
rural development, we need measures that improve rural infrastructure, education, and health 
services, not farm programs that distribute most benefits to the largest producers. 
 Current farm programs don’t contribute much to achievement of these five frequently cited 
objectives of U.S. agricultural policy. The one objective with the most credibility is the objective of 
reducing farm income variability, but even there, many ask where the presently available policy 
instruments and market mechanisms fall short. 
 
Robert L. Thompson 
 
 

Why Some People Question Our Farm Programs

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Research Papers in Economics