CASE STUDY 2-5

THE ECONOMICS OF US FARM SUPPORT PROGRAMS

SYNDICATE 7
INTRODUCTION
 America has a rich agricultural history, U.S. farmers produce
about $ 143 billion worth of crops each year.

 In 2010, $115 billion worth of American agricultural products

were exported around the world.

 In U.S one in three farm acre is planted for export.

 Americans enjoy an abundant food supply at 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, Wheat, Cotton, Sorghum (grain) and
Rice.
 The U.S. produces about 10% of the world's wheat and supplies
about 25% of the world's wheat export market.

 70% of wheat produced is used for food products, about 22% is

used for animal feed and the remainder is used for seed.

 They use highly modern machinery and techniques like crop

rotation, cross crops and high quality fertilizers for the
increased growth in the production.

 "Queen Wheat City" is known as the "Wheat Capital"

of Oklahoma and the United States.

 U.S has the third largest grain storage capacity in the world.
U.S FARM SUPPORT
PROGRAMS
 A farm support program focuses on the development agenda of the farmers and
boost in the Agriculture.

 It includes land reform , building storage places etc

 The purpose of the programme is:

i. To ensure sustainable support for new and established farmers.

ii. To focuses on quality and standards of service and advise to farmers.

iii. To attract investment from the private sector.

iv. To measure the 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 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. provided incentives to 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 THE CASE
STUDY
 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.
 Then the govt. established a floor price of $4 per bushel
wheat and farmers could supply 2.2 billion bushels per year.
 The increase in the price reduced the demand to 1.8 billion
bushels, thus farmers are left with 0.4 billion bushels.
 As per govt. support program
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 floor price has effect if the market price rises above it
 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
Direct subsidy
goods

U.S farm
support
program
4.00

Figure 1 . The Economic Effect of a Price Floor

in the Wheat Market
 The fair act of 1996 freed the u.s farmers from govt.
production controls but they were left without govt.
subsidies.

 In 1998 the price of the commodities fall and it caused

a huge loss to the farmers, however the farmers lobbied
congress and received $3 billion as emergency
assistance.

 It continued in 1999 farmers received $7.5 billion, $9

billion in 2000 and $20 billion in 2001
 It created even more trade friction with the
European countries and developing countries.

 The European union and Japan provided even

more aid to their farmers than u.s.a

 In 2005 the U.S provided $47 billion, $49 billion by

Japan and $133 in European union.

 In 2008, U.S provided $307 billion as a farm support

program.

 U.S wanted the agriculture as a free market not to

be controlled by govt.

 It ended up the same way it was.

PROBLEMS

 The economic condition of the farmers was poor,

they could not even manage to support their
families

 Instability of farm prices

 In 1998 due to sudden fall in commodity price

,the farmers had to bear huge loss.

 The farmers were left with no other option than to

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

 The govt. paid an emergency assistance to

compensate the loss to the farmers.

 This caused the trouble as the govt. wanted to liberalize

the agriculture market as per the law of 1996 fair act

 The govt ended up at same situation as they were left

in 1996.
Solution and
Recommendation
 Expensive farm programs will not solve farm problems.

 The U.S should try to provide facilities like latest

technology, better seeds, cheap fertilizers to farmers.

 The farm programs should also benefit the small scale

farmers and help them to flourish their business

 The farmers must be equipped with latest

methodology for the optimum utilization of resources.
 There should be equilibrium in prices of the commodities
i,e., floor-prices should be fixed.

 Europe and Japan's farm subsidies lower down American

food prices. Americans should welcome the cheap
imports to help common man.

 Govt. should let private sector to invest in agriculture

which will bring down high taxes, higher commodity
prices and land prices

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

economy.