Iowa Public Television


Subsidies Increase Production Costs

posted on December 21, 2001

For its part, the Bush administration says it will not try to cut farm spending when Congress returns in January. The fact is maintaining the flow of government subsidies to Rural America has become critical. There is no doubt the billions spent from farm gate to foreign port are now an integral part of he nation's agri-economy.

But for all the money that's been poured into it, the American farm economy today finds itself on shaky ground. Indeed, it is broadly acknowledged that the subsidies are forming a precarious financial bubble, not unlike the one that burst in the 80s. More than a few economists say evidence of the pending disaster is the rising price of farmland in regions of the country that receive the bulk of government farm subsidies.


Subsidies Increase Production Costs

Direct government payments totaled 22.9 billion dollars last year comprising nearly 40 percent of net cash farm income compared to less than 4 percent in 1980. Most of those payments occurred under commodity programs that ostensibly pay farmers to produce more.

But even as commodity prices continue to sag under the weight of the bounty generated by the encouragement of government subsidies, the cost of production is increasing. Land prices are climbing, but more alarming say economists is the how much the government is contributing to that trend. According to a USDA study released this year 25 percent of land valuation is due to government payments. A significant reduction in farm subsidies could be devastating to land values and that impact could rip a huge hole in the Rural American economy.

But failure to reform a farm policy that encourages over-production at government expense also poses a threat. Under the last farm bill the number of farms has dwindled, and the rural population has declined. The question before Congress is how to delicately forge policies that straighten the rural economy without plunging Rural America into a depression.


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