19 Pros and Cons of Agricultural Subsidies

In most countries, the people who are employed in agricultural positions are often the most overworked and underpaid people in that society. That rule applies even in the developed countries of the world. If the weather patterns shift subtly for a farmer during one season, they could lose an entire crop. That means no income, which makes it difficult for them to put food on the table.

The role of the farmer, and the agricultural worker, is critical to the health of the global food supply. To ensure that those employed in this sector can survive an off season, many countries, including the United States, provide agricultural subsidies to offer a safety net.

Available subsidies might include technological assistance, educational aid, or financial aid, depending on the circumstances involved. Many of the available subsidies today are patterned after the legislation introduced by the Franklin D. Roosevelt administration.

Here are the pros and cons of agricultural subsidies to review.

List of the Pros of Agricultural Subsidies

1. They offer stability to the agricultural infrastructure at the national level.
Financial aid allows farmers to be more effective and efficient at what they do. It gives them an opportunity to purchase or finance the farming equipment needed to produce agricultural products. They can use subsidies to enhance their farms with modern technology. Some can be used to transport the products produced on their farm to new markets. Even on a good year, some items are beyond the financial reach of the average farmer. These subsidies change that scenario.

2. It is a way to offer a consistent income to agricultural workers.
No matter how bad an economy might be, the presence of agricultural subsidies makes it possible to ensure farmers and other industry workers have a steady income. Losses can occur for a variety of reasons, including a natural disaster. All it takes is one wildfire, one hurricane, or one unexpected freeze to ruin an entire crop. With the presence of this financial assistance, the upkeep of a farm can be guaranteed, which eliminates the worry of losing people because of a poor harvest.

3. There is a stronger food supply available to everyone.
The agricultural industry doesn’t operate on the same rules of supply and demand. As a general rule, if you have more farms available that produce agricultural products, then you have more food availability. If you produce more food than can be used locally, it can be sent to the state or national level. Some agricultural products can be exported to other nations as well. When there are effective subsidies in place, there tends to be more food, more jobs, and more revenues to find.

4. Agricultural subsidies can reduce the need for food imports.
It takes a particular person to work as a farmer. It is an occupation that is inconvenient, tedious, and filled with challenging work. With a growing global population that could hit 10 billion people around 2050, the need to have comprehensive food infrastructures has never been as critical as it is today. When countries lack food infrastructure, they must import their food from somewhere else, which means there isn’t a 100% guarantee of food insecurity prevention.

Singapore is one of the best examples of this issue. Local farms in Singapore only produce 8% of the vegetables, 8% of the fish, and 26% of the eggs that the country consumes each day. Over 90% of the food that is eaten in the country is imported.

5. It gives farmers a chance to rest their land without losing their income.
Some of the agricultural subsidies available in the United States are used to encourage farmers to let their croplands remain vacant for a year or two. This vacancy allows the soil to restore itself, making it more efficient for planting when the time is right. Thanks to the subsidy, farmers who practice this policy can receive an income without the threat of losing their farm because their lands need to rest.

6. Agricultural subsidies allow local farmers to stay competitive with cheaper imports.
Over 40% of the food imports that come into the United States each year are fruits, vegetables, and specialty products. Labor costs overseas are much lower compared to what they are in the United States. What an agricultural worker earns in one hour in the U.S. might be a month’s wages in the developing world. By having subsidies available on specific foods, farmers can have their products priced competitively with imports, which means they can earn more income over time.

7. Subsidy availability makes it possible to respond to emergency situations quickly.
Farmers are always facing the threat of sudden loss. Thanks to the presence of eight different subsidy programs in the United States, they have a meaningful safety net that can get them through difficult times. Even if what they grow isn’t a trade commodity, such as oranges, they don’t need to worry about the high-interest debt that could set their finances back for several years. If an emergency occurs, farmers still have a chance to keep their land and produce food, which is something that all of us need.

8. Agricultural subsidies can be a source of revenue for governments.
The United States uses tariffs on certain food products that are imported from Japan and Western Europe because local subsidies change the pricing structure. The tariff ensures pricing remains competitive. Tariffs are taxes paid on the product, which means the government receives the difference in income. That income can then be used to offer subsidies to local farmers to stay even more competitive. In 2018, the U.S. proposed placing $34 billion in tariffs on Chinese goods, then offered $12 billion in subsidies to American farmers.

List of the Cons of Agricultural Subsidies

1. Subsidies may create a lack of diversity in the food chain.
When you look at the list of available agricultural subsidies, you’ll find that there are products and crops which do not qualify for this assistance. If farmers find themselves in dire financial straits, they’ll be forced to grow crops which are dictated by the subsidy program. That means a reduced level of diversity is available in the food supply, which will usually eliminate the advantage of reducing food imports.

A lack of diversity in the food chain can also affect the health of the soil used for croplands. Growing the same crop year after year creates nutrient shortages that crop rotation practices can avoid.

2. It is a practice which discriminates against individual workers.
If a farmer decides not to grow crops that are eligible for agricultural subsidies, then they won’t receive the same level of financial support. They’re forced to use crop insurance and other safety nets to ensure that their income levels remain at needed levels. Those are costs that the farmer is forced to pay, whereas subsidies provide money in response to specific situations. Many communities see farmers with subsidies living comfortably and those without them just scraping by to survive.

3. Agricultural subsidies require government intervention.
In the United States, the politics of farming is quite complicated. On the one hand, some farmers see any redistribution of wealth as a form of socialism. On the other hand, those same farmers might expect to have their subsidy check come in on time. A subsidy also changes the dynamics of supply and demand in the market, which affects pricing and availability for some crops as well.

4. They may cause environmental harm.
Because there is a lack of crop rotation involved with agricultural subsidies, farmers must continue using the same croplands for the same crops each year. To deal with the lack of soil nutrition, they’ll add fertilizers, chemicals, and other artificial control methods to ensure they’re able to meet the expectations of the subsidy to get their funding. Over time, these additives may cause more harm to the soil, leeching items into rivers, lakes, and streams. Some chemicals may reach the food supply. Protecting the income of the farmer shouldn’t automatically put the environment at risk for harm, but that’s precisely what happens with this type of intervention.

5. It is an issue which affects a small portion of the population.
The effect of agricultural subsidies was profound when it was introduced in the 1930s in what we would describe as a “modern” piece of legislation. At the time, over 25% of the population in the U.S. either lived or worked on a farm. Today, only 1% of the population is actively involved in the agricultural sector. Although subsidies can help this small portion of society stay on their feet, the indirect impacts that the economy used to experience are no longer part of the equation.

Most agricultural subsidies in the United States are awarded to commercial farms which have a minimum net worth of $2 million, with an average income of $200,000 before the subsidy payment is received.

6. The use of subsidies has gone beyond its intended outcome.
When agricultural subsidies were first introduced to farmers and workers, the goal was to deal with the financial emergencies caused by the Great Depression. We used subsidies as a way to ensure farmers could keep producing without the threat of poverty. Before any subsidies are calculated into the income of the modern farmer, only 2% of households that list farming as their primary education are currently classified as living in poverty.

Most subsidies are given to commercial farms that are run by organizations instead of the family farmer today. Only 39% of the 2.1 million farm households in the U.S. actually receive subsidies. Over $550 million in subsidies was given to Riceland foods for the 10-year period ending in 2006. About 15% of farmers receive 50% of the available agricultural subsidies in any given year.

7. Only five core products typically qualify for agricultural subsidies.
The government controls what products receive subsidies, and which do not. In the United States, if you are a large producer of corn, wheat, cotton, rice, or soybeans, then you’re receiving the largest share of the available subsidies. Farming is one of the riskier occupations that people can pursue, which is why this type of aid should be comprehensive and meaningful. On the other hand, subsidies should be made available to those who need it instead of giving it to the farm programs which are already producing profits.

8. Agricultural businesses also receive favorable taxation.
It would be one thing if farmers were paying federal income taxes like most other workers, but that is just not the case. Income from farming is taxed more favorably than other industries because of how farm losses are valued for tax purposes. Since 1980, aggregate farm losses have exceeded farm profits, which can then be used to offset taxes from any off-farm income that is generated. Only one-third of farms show a taxable profit in any given year, even when they are making money.

9. Landowners are the recipients of agricultural subsidies.
We often think of farmers as people who own the land, but it is not the case under the modern farming structure. Many farmers just work the land. Almost half of the farmland that receives subsidies today is rented to the farmer. That means the household of the farmer doesn’t receive the subsidy. The household of the landowner receives it.

In the United States, that means about $4 out of every $10 that is offered in agricultural subsidies is passed through to the landowner, who can then pocket it as profit while the farmer struggles to produce the crops needed for their own income.

10. Agricultural subsidies can be offered when there is no financial need.
Some of the subsidies offered today have more to do with politics than with financial need. Farmers can produce crops that are sold at current market rates, receive a subsidy on top of that, then even receive a crop insurance payment if a specific yield or quota is not achieved. That means a farmer could be paid three times for the same crop.

Since many of these subsidies go to commercial enterprises, they are often compared to “corporate welfare” schemes. Who else gets paid in triplicate for the same work, product, or service they produce?

11. Current agricultural subsidies encourage more food growth than is necessary.
According to data released by Oxfam, the world is producing about 20% more food than is required each year for the global population. For U.S. producers, about 25% of the annual crop is exported to other nations each year. Most countries don’t have domestic protections in place for their food supply, which means they base payments on market rates or assign tariffs to imported goods. Subsidies go in the reverse direction as a way to protect a market supply which doesn’t need protection at all in some instances.

These pros and cons of agricultural subsidies are not an attempt to cast a moral light in one direction or the other. Each critical point is an observation that the advantages and disadvantages of this practice product natural consequences in both directions. We need farmers. We also need healthy soils and a robust food chain for a growing population. That means a balance between these elements must be achieved in some way for us to be successful.

Blog Post Author Credentials
Louise Gaille is the author of this post. She received her B.A. in Economics from the University of Washington. In addition to being a seasoned writer, Louise has almost a decade of experience in Banking and Finance. If you have any suggestions on how to make this post better, then go here to contact our team.