Government Aid: Is it Making or Breaking Agriculture in the United States?

Government Payment Trap Headlines Spark More Questions

If you’ve scanned popular articles lately in the ag sector you’ve likely come across several that include the phrase ‘government payment trap’ in their headlines, many of which argue that government payments are contributing to rising agricultural production costs.  Farm income based on input costs and yields is intertwined with risk management funding like crop insurance and emergency payments so much so that ascertaining the true economic health of American agriculture is nuanced, to say the least.

A No Longer Relevant Approach

Is government aid supporting growth and development or trapping farm families in a debt cycle?

The current system is meant to support farm incomes by filling financial gaps when market values are low or disaster strikes, that would otherwise put a farmer out of business. However, current data shows that government payments through insurance and emergency assistance have far exceeded farm losses; by a whopping $88 billion over the last decade. And approximately one-fifth of all farm income in the United States comes from government payments. It seems the current system is more than filling the gap.

Farm policy experts at Ohio State University and the University of Illinois reported farm income losses of $32 billion and payouts totaling $120 billion over the last ten years. The excess $88 billion was primarily rolled back into farm assets, which their data shows saw an increase of 52%. Along with the increase in asset purchases came an increase of debt which grew by 73% suggesting that the reality of farm income is somewhat distorted and farm families are making land and equipment purchases they can only afford if government payouts continue. 

Simultaneously, and as the university policy experts suggest, possibly as a result of government assistance, crop land prices have increased by as much as $5,445. Land rent prices have also gone up between $131 and $158 per acre. Meanwhile, row crops have experienced a decrease in market returns.  Yields are consistently worth less or lost if we look at the decade-long arc, but perhaps because of distorted farm incomes the cost of purchasing the land and equipment to continue farming go up.

Are more economic assistance programs and subsidies needed to rebalance the industry, or have these types of payouts stopped serving their purpose all together?

Are Subsidies, Ad Hoc Disaster Aid & Crop Insurance Stunting Ag?

The most heavily subsidized commodity crops in the U.S. are corn, soybeans, wheat, rice, and cotton. Growing these affords some measure of income guarantee thanks to attainable crop insurance plans plus aid packages if yield or values drop. Farmers keep planting, growing more than they would if market prices were left to rise and fall with less of a government safety net. As it stands, three quarters of cropland in America is covered by crop insurance which could imply that farming operations have become increasingly tied to insurance payouts over letting market trends shape the type and quantity of crops grown here in the U.S.

The regenerative movement has chimed in arguing that, aside from creating a debt cycle, the current model of risk management favors the big five commodity crops and gives American farmers little incentive to change what and how they produce on their land. Small farm owners have lobbied for an expansion of risk management that considers individuals who want to break into agriculture facing rising costs on land, equipment, seeds and fertilizers.  Whether or not it was government payouts that played a role in driving farm asset prices up, emerging farmers see an imbalance in the system that puts the future of farming in the United States in jeopardy.

What if Government Payouts Disappeared?

If you’ve conjured up an image of a kid throwing a stick in the spokes of a moving bike, me too.  It is hard to imagine a scale back on government aid and market influence in the form of crop insurance leading to anything but a wrecking ball for American agriculture.  Yet, farms are being sold everyday as families who have been in agriculture for generations see the only way out of debt is to let go of assets, often at a loss, sell off acres or rent farmland to clear debt. And who is buying the farmland? Is the debt simply being absorbed by yet another farm family who will find themselves in a similar situation three years down the road? Or, are the consolidated sectors of Big Ag the only entities that can take on rising operational costs and also weather the blows of market disruptions?

Other economists argue that we are not giving farmers enough credit. Rolling with the ebbs and flows of markets, planning for unknowns like weather and natural disasters and watching global trade dynamics is the job just as much as putting seeds in the ground and harvesting yields. Perhaps the current agricultural climate in the U.S. feels volatile because 2020 and 2021 were record breaking years for commodity crops and were quickly followed by market competition. Removing Ad Hoc Disaster Aid would be one less thing American taxpayers had to contribute to.  It would also remove the double safety net it creates in addition to crop insurance. Could crop insurance and subsidy programs accommodate market drops and still offer a measure of guarantee around farm incomes? Without disaster aid money, perhaps farm income actuality would become more clear and would ultimately serve to help farmers step out of debt cycles of spending and earning.

On the other hand, farmers anxiously awaiting aid are happy to receive the one time payments that help them get through another year. Crop insurance can help recoup losses on low yields due to droughts, flooding or other natural and unforeseen disaster situations, but, according to farmers, doesn't always help when the price of seeds, fertilizer, fuel and equipment go up the next year. They argue the gap to be filled has little to do with harvest quantity and more to do with inflated operational costs. Which brings us full circle. While it seems unrealistic to prop up any industry through aid, subsidies and insurance plans from start to finish, can we afford to dismantle the support systems that ensure predictable commodity crop production?