THE ECONOMICS OF US FARM SUPPORT PROGRAMS

CASE STUDY THE ECONOMICS OF US FARM SUPPORT PROGRAMS

CONTENTS Introduction U.S farm f arm support program programs s  Analysis  Analysi s Problems faced Suggestions and solution Conclusion Bibliography

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INTRODUCTION 

 America has a rich agricultural history, U.S. farmers farmers produce about $ 143 billion worth of crops each each year. year.

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In 2010, $115 $115 billion bill ion worth of American American agricultural products were exported around the world.

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In U.S one in three farm acre is planted for for export. export.  Americans enjoy an abundant abundant food food supply at affordable affordable prices and among the world’s safest, and largest producers of

agriculture items. 

Major agricultural crops produced in the United States are Corn , Soybeans, Hay, Hay, W heat, heat, Cotton, Cott on, Sorghum (grain) and Rice.

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The U.S. produces about 10% of the world's wheat and supplies about 25% of the world's world' s wheat export export market.

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70% of wheat produced is used for food products, about 22% is used for animal feed and the remainder is used for seed.

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They use highly modern machinery and techniques like crop rotation, cross crops and high quality fertilizers for the increased growth in the production.

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"Queen Wheat City" is known as the "Wheat Capital" of Oklahoma and the United States.

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U.S has the third largest grain storage capacity in the

U.S FARM SUP SUPPORT PORT PROGRAMS 

 A farm support program focuses on the development development agenda agenda of the farmers farmers and boost in the Agriculture.

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It includes inc ludes land reform , building storage st orage places etc

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The purpose of the programme programme is:

i. To To ensure sustainable support for new new and established est ablished farmers. ii. To To focuses on quality and standards of service and advise advise to to farmers. iii. To To attract investment from the private sector. iv. iv. To measure the t he impact as delivered by the Program

The federal govt. of U.S used three basic methods to boost farmers income between 1930 to 1973 i. Govt. introduced a price support support program i.e to buy the surplus crops from the farmers to increase the income of farmers and to avoid spoiling of crops. ii. Govt. Govt. provided provided incentives incentives to farmers farmers to compensate the loss they bear by keeping their land idle iii. Govt. started providing direct subsidy to farmers if the market price of a certain commodity fall below a 

target price to ensure smooth supply and to “win hearts of the farmers’’.

 ANALYSIS OF  ANALYSIS OF THE THE CASE STUDY 

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 America  America is one of the largest largest producer producer of the agriculture commodities in the world. To ensure smooth and bumper supply of the commodities, it tried to reform its agriculture acts and farm support programs. The govt. used three basic methods to boost farmers income i,e to buy surplus crops, incentives and the direct subsidy if in-case market crashes. In the case, we analysize without the support of govt. the farmers produced 2 billion bushels wheat per year and sold at $3 per bushel making the total income $6 billion.

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Then the govt. established a floor price of $4 per bushel wheat and farmers could supply 2.2 billion bushels per year. The increase incr ease in the price reduced reduced the the demand to 1.8 billion bushels, thus farmers are left with 0.4 billion bushels.  As per per govt govt.. support support progra program m They can either buy the surplus 0.4 billion bushels at a support price $4 per bushel for the total cost of $1.6 billion and the extra cost for storing the surplus. Thus f loor loor price has effect if the market market price rises above it

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Secondly with direct subsidy, the farmers can sell equilibrium quantity of 2b bushels at $3 per bushel and govt. provide farmers a direct subsidy of $1 per bushel at a cost of $2b ,however, there is no storage charge. Thus consumers obtain wheat at the lower market price of $3 per bushel.Incentives Buying surplus goods

Direct subsidy

U.S farm support program

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Figure 1 . The Economic Effect of a Price Floor in the Wheat W heat Market

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The fair act of of 1996 free fr eed d the u.s farmers from fr om govt. production controls but they were left without govt. subsidies.

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In 1998 the price of the commodities fall and it caused a huge loss to the farmers, however the farmers lobbied lobbied congress and received $3 billion as emergency assistance.

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It continu continued ed in 1999 farmers farmers received received $7.5 billion, billion, $9 billion in 2000 and $20 billion in 2001

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It created c reated even even more trade t rade friction with the European countries and developing developing countries. countries .

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The European union and Japan provided even more aid to to their farmers farmers than t han u.s.a

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In 2005 the U.S provided $47 billion, $49 billion by Japan and $133 in European union.

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In 2008, U.S provided $307 billion as a farm support s upport program. program.

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U.S wanted the agriculture as a free market not to be controlled by govt.

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It ended up the same way way it was.

PROBLEMS PROB LEMS THA THAT T AROS AROSE E 

The economic condition of the farmers was poor, they could not even manage to support their families

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 Instability of farm prices

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 In 1998 due due to sudden sudden f all in commodity commodity price ,the farmers had to bear huge loss.

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The farmers were left with no other option than to agitate against against governm government ent f or compensation.

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The farm bill was was signed by president G.w.Bush G.w.Bush in 2002 that run from 2003-2008, which increased subsidy even more.

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The govt. govt. paid an emergency assistance to compensate the loss to the farmers.

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This caused the trouble as the govt. wanted to liberalize the agriculture market as per the law of 1996 fair act

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The govt govt ended up at same sam e situation as they they were left l eft in 1996.

Solution & Suggestions 

Expensive farm programs will not solve farm problems.

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The U.S should try to provide facilities like latest technology, better seeds, cheap fertilizers to farmers.

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The farm programs should also benefit the small scale farmers and help them to flourish their business

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The farmers farmers must mu st be equipped equipped with latest

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There should be equilibrium in prices of the commodities i,e., floor-prices should be fixed.

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Europe and Japan's farm subsidies lower down  American  American foo f ood d prices. prices. Americans Americans should welco welcome me the cheap imports to help common man.

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Govt. should let private sector to invest in agriculture which will bring down high taxes, higher commodity prices and land prices

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The govt. must follow free trade policy to ensure boost in economy.