is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.
In 2010, the EU spent €57 billion on agricultural development, of which €39 billion was spent on direct subsidies. Agricultural and fisheries subsidies form over 40% of the EU budget. Since 1992 (and especially since 2005), the EU's Common Agricultural Policy has undergone significant change as subsidies have mostly been decoupled from production. The largest subsidy is the Single Farm Payment.
Increases in food and fertilizer prices have underlined the vulnerability of poor urban and rural households in many developing countries, especially in Africa, renewing policymakers' focus on the need to increase staple food crop productivity. A study by the Overseas Development Institute evaluates the benefits of the Malawi Government Agricultural Inputs Subsidy Programme, which was implemented in 2006/2007 to promote access to and use of fertilizers in both maize and tobacco production to increase agricultural productivity and food security. The subsidy was implemented by means of a coupon system which could be redeemed by the recipients for fertilizer types at approximately one-third of the normal cash price. According to policy conclusions of the Overseas Development Institute the voucher for coupon system can be an effective way of rationing and targeting subsidy access to maximize production and economic and social gains. Many practical and political challenges remain in the program design and implementation required to increase efficiency, control costs, and limit patronage and fraud.
The United States currently pays around $20 billion per year to farmers in direct subsidies as "farm income stabilization" via U.S. farm bills. These bills pre-date the economic turmoil of the Great Depression with the 1922 Grain Futures Act, the 1929 Agricultural Marketing Act and the 1933 Agricultural Adjustment Act creating a tradition of government support. The beneficiaries of the subsidies have changed as agriculture in the United States has changed. In the 1930s, about 25% of the country's population resided on the nation's 6,000,000 small farms. By 1997, 157,000 large farms accounted for 72% of farm sales, with only 2% of the U.S. population residing on farms. In 2006, the top 3 states receiving subsidies were Texas (10.4%), Iowa (9.0%), and Illinois (7.6%). The Total USDA Subsidies from farms in Iowa totaled $1,212,000,000 in 2006. From 2003 to 2005 the top 1% of beneficiaries received 17% of subsidy payments. In Texas, 72% of farms do not receive government subsidies. Of the close to $1.4 Billion in subsidy payments to farms in Texas, roughly 18% of the farms receive a portion of the payments. "Direct payment subsidies are provided without regard to the economic need of the recipients or the financial condition of the farm economy. Established in 1996, direct payments were originally meant to wean farmers off traditional subsidies that are triggered during periods of low prices for corn, wheat, soybeans, cotton, rice, and other crops." Top states for direct payments were Iowa ($501 million), Illinois ($454 million), and Texas ($397 million). Direct payments of subsidies are limited to $40,000 per person or $80,000 per couple. The subsidy programs give farmers extra money for their crops and guarantee a price floor. For instance in the 2002 Farm Bill, for every bushel of wheat sold, farmers were paid an extra 52 cents and guaranteed a price of 3.86 from 2002–03 and 3.92 from 2004–2007. That is, if the price of wheat in 2002 was 3.80 farmers would get an extra 58 cents per bushel (52 cents plus the $0.06 price difference). Corn is the top crop for subsidy payments. The Energy Policy Act of 2005 mandates that billions of gallons of ethanol be blended into vehicle fuel each year, guaranteeing demand, but US corn ethanol subsidies are between $5.5 billion and $7.3 billion per year. Producers also benefitted from a federal subsidy of 51 cents per gallon, additional state subsidies, and federal crop subsidies that can bring the total to 85 cents per gallon or more. However, the federal ethanol subsidy expired December 31, 2011. (US corn-ethanol producers were shielded from competition from cheaper Brazilian sugarcane-ethanol by a 54-cent-per-gallon tariff, however that tariff also expired December 31, 2011.)
Farm subsidies have the direct effect of transferring income from the general tax payers to farm owners. The justification for this transfer and its effects are complex and often controversial. Global food prices and international trade Although some critics and proponents of the World Trade Organization have noted that export subsidies, by driving down the price of commodities, can provide cheap food for consumers in developing countries,] low prices are harmful to farmers not receiving the subsidy. Because it is usually wealthy countries that can afford domestic subsidies, critics argue that they promote poverty in developing countries by artificially driving down world crop prices. Agriculture is one of the few areas where developing countries have a comparative advantage, but low crop prices encourage developing countries to be dependent buyers of food from wealthy countries. So local farmers, instead of improving the agricultural and economic self-sufficiency of their home country, are instead forced out of the market and perhaps even off their land. This occurs as a result of a process known as "international dumping" in which subsidized farmers are able to "dump" low-cost agricultural goods on foreign markets at costs that un-subsidized farmers cannot compete with. Agricultural subsidies often are a common stumbling block in trade negotiations. In 2006, talks at the Doha round of WTO trade negotiations stalled because the US refused to cut subsidies to a level where other countries' non-subsidized exports would have been competitive. Others argue that a world market with farm subsidies and other market distortions (as happens today) results in higher food prices, rather than lower food prices, as compared to a free market. Mark Malloch Brown, former head of the United Nations Development Program, estimated that farm subsidies cost poor countries about US$50 billion a year in lost agricultural exports: "It is the extraordinary distortion of global trade, where the West spends $360 billion a year on protecting its agriculture with a network of subsidies and tariffs that costs developing countries about US$50 billion in potential lost agricultural exports. Fifty billion dollars is the equivalent of today's level of development assistance."
LDCs Impact The impact of agricultural subsidies in developed countries upon developing-country farmers and international development is well documented. Agricultural subsidies depress world prices and mean that unsubsidised developing-country farmers cannot compete; and the effects on poverty are particularly negative when subsidies are provided for crops that are also grown in developing countries since developing-country farmers must then compete directly with subsidised developed-country farmers, for example in cotton and sugar. The IFPRI has estimated in 2003 that the impact of subsidies costs developing countries $24 billion in lost incomes going to agricultural and agro-industrial production; and more than $40Bn is displaced from net agricultural exports. Moreover the same study found that the Least Developed Countries have a higher proportion of GDP dependent upon agriculture, at around 36.7%, thus may be even more vulnerable to the effects of subsidies. It has been argued that subsidised agriculture in the developed world is one of the greatest obstacles to economic growth in the developing world; which has an indirect impact on reducing the income available to invest in rural infrastructure such as health, safe water supplies and electricity for the rural poor. The total amount of subsidies that go towards agriculture in OECD countries far exceeds the amount that countries provide in development aid. Haiti and US Rice Imports Haiti is an excellent example of a developing country negatively affected by agricultural subsidies in the developed world. Haiti is a nation with the capacity to produce rice and was at one time self-sufficient in meeting its own needs. At present, Haiti does not produce enough to feed its people; 60 percent of the food consumed in the country is imported. Following advice to liberalize its economy by lowering tariffs, domestically produced rice was displaced by cheaper subsidised rice from the United States. The Food and Agriculture Organization describes this liberalization process as being the removal of barriers to trade and a simplification of tariffs, which lowers costs to consumers and promotes efficiency among producers. Opening up Haiti's economy granted consumers access to food at a lower cost; allowing foreign producers to compete for the Haitian market drove down the price of rice. However, for Haitian rice farmers without access to subsidies, the downward pressure on prices led to a decline in profits. Subsidies received by American rice farmers, plus increased efficiencies, made it impossible for their Haitian counterparts to compete.3940 According to Oxfam and the International Monetary Fund, tariffs on imports fell from 50 percent to three percent in 1995 and the nation is currently importing 80 percent of the rice it consumes. The United States Department of Agriculture notes that since 1980, rice production in Haiti has been largely unchanged, while consumption on the other hand, is roughly eight times what it was in that same year.43 Haiti is among the top three consumers of long grain milled rice produced in the United States. As rice farmers struggled to compete, many migrated from rural to urban areas in search of alternative economic opportunities. Impact on nutrition Peer-reviewed research suggests that any effects of U.S. farm policies on U.S. obesity patterns must have been negligible. However, some critics argue that the artificially low prices resulting from subsidies create unhealthy incentives for consumers. For example, in the USA, cane sugar has been replaced with cheap corn syrup, making high-sugar food cheaper; beet and cane sugar are subject to subsidies, price controls, and import tariffs that distort the prices of these products as well. The lower price of energy-dense foods such as grains and sugars could be one reason why low-income people and food insecure people in industrialized countries are more vulnerable to being overweight and obese. In fact it has been found that meat and dairy production receive 63% of subsidies in the United States, as well as sugar subsidies for unhealthy foods, which contribute to heart disease, obesity and diabetes, with enormous costs for the health sector. Market distortions due to subsidies have led to an increase in corn fed cattle rather than grass fed. Corn fed cattle require more antibiotics and their beef has a higher fat content.