Is There Any Case for Ag Subsidies?
Barry K. Goodwin
The conventional wisdom that agriculture is at an economic disadvantage is incorrect. This paper cites empirical evidence to debunk the myths often used to justify agricultural subsidies:
1) Myth: Agriculture experiences greater risks and is at a disadvantage relative to other sectors of the economy:
a. In every year since 1996, farm households have had an average income above that of all households. The average farm household income in 2008 was over $80,000.
b. Farmers have a substantially higher net worth than the average family, with a median net worth over $500,000 in 2007.
c. Leverage ratios are low and the rate of return on assets is high among farm households, especially when compared with other business sectors.
2) Myth: US farms are failing at an alarming rate: In fact, bankruptcy rates for US farms are very low compared to nonagricultural businesses. Farm exit rates in the most recent decade averaged around 3.5 percent, compared with an exit rate over 14 percent for small businesses.
3) Myth: US farmers are much more susceptible to volatile commodity prices: In fact, crop support prices are based on a historical period arbitrarily judged to have offered fair pricing. Much of the recent price volatility can be attributed to ethanol and renewable fuel policies.
4) Myth: We are seeing a decline of the US “family farm”: The number of farms has decreased from 6.5 million in 1935 to 2 million today, but the amount of land in cultivation has remained around 1 billion acres. In reality, 45.3 percent of farmland is operated by someone other than the owner, raising questions regarding who actually receives the subsidies.
5) Myth: Farm programs improve the economy in rural regions that have lost population and employment over time: In fact, employment continues to suffer and population continues to shrink in most counties where farm payments are the biggest share of income.
Based on these facts, it is hard to justify government intervention in agricultural markets on economic grounds. Volatility is fundamental to a market economy, and financial failure occurs in a large proportion of small businesses, not just farming.