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Thought Leadership

Farming Policies in America

In 1995 it had become clear that American agriculture would be in the midst of a political battle for several months to come. The voters had paved way for policy change by giving the Republican Party control of both chambers of the U. S. Congress for the first time in forty years. At the same time, groups who had special interest in U.S farm policy were emerging. These groups had been engaging in an ongoing debate for at least a decade over the future of government support of agriculture.

 

The Farm Bill

In 1981, the Reagan administration offered a farm bill that would considerably reduce federal funding of the major farm programs. However, after plenty of debating, the Congress passed a bill that increased financial support through program modifications that favored participating farmers. This move by the Congress proved to be unsuccessful as a major recession hit the agricultural economy in 1985. Exports declined and the value of American farmland dropped significantly. Consequently, Congress was forced to review their farm policies that year and make the necessary changes along with corrective procedures.

 

The 1985 Bill

The 1985 bill greatly reduced price supports through loan programs, thus forcing many farmers to sell their yields in the marketplace rather than to the government. At the same time, more money was shifted to deficiency payment programs as a means of offsetting the shift in policy.

Two problems emerged despite these efforts to cut back. First, market conditions were uncooperative, therefore annual program cost increased rather than declined. The government was expecting to pay farmers only $7.1 billion in 1991. However, it ended up paying $10.1 billion. Furthermore in 1992, the program costs exceeded expected costs by $1.2 billion and in 1993 the United States spent $7.3 billion more than it had projected. Moreover, the structure of the programs reduced the level of U.S. farm product exports at a time when America’s role in the world economy was becoming a major concern.

 

Farm Loan Programs

Since the Civil War, the federal government has had several policies on agriculture. However, it was only by the mid 1980s that programs were developed to determine the success or failure of America’s agricultural economy. Even though on occasions the details of the programs changed, there were notably only three types:

 

Funding Programs

Agricultural funds would be provided to eligible farmers for planting and harvesting for the coming year while using the produce’s projected value or yield as collateral. Thereafter the farmer would repay the low-cost loan and arrange for next year’s loan provided that all had gone well for him / her. However, in case the annual yield or farm prices were to fall below the projected levels, then the farmer would repay the loan by turning over his/her crop to the government.

 

Deficiency Payment Programs

The government would establish a “target price” for various farm products such as wheat, feed grains, cotton etc. Thus Deficiency Payment Programs were meant to complement loan programs. Any participating farmer would be obligated to meet certain conditions such as promising to limit their production of the designated crop.

If the actual market price for their crops was below the targeted price at harvest time, they would receive the difference in “deficiency payments” made by the U. S. government. If the market price exceeded the target price, participating farmers would reap the benefits.

 

Marketing Order Programs

Marketing order programs were created so that the producers of a certain product would have to limit their level production by entering into a government supervised agreement. This would guarantee higher prices resulting in higher average incomes-for all.

 

Controversy

Although all these programs aided farmers, they were surrounded by controversy. Even within the farming community, producers debated over the amount of support each was receiving. Within specific commodity producing communities, producers argued that the wealthiest producer was benefitting, while smaller farm operations were making losses. Outside the agricultural community purchasers of farm products small and big were increasingly fighting for changes in programs that would keep commodity and food prices artificially high.

 

Debates

The year 1981 saw several debates being raged with regard to the farm programs. The Congress passed a Farm Bill that would increase financial support through program modifications that would aid participating farmers. The results were disastrous as exports declined, commodity prices rose and the value of American farm land decreased significantly. Therefore, the Congress made a few changes that were intended to decrease spending through more reductions in loans and deficiency payments. Several problems emerged despite these changes as markets were uncooperative. To make the situation worse, the structure of the programs reduced the level of U.S farm product exports.

 

Reforms

By 1994 it had become evident that reforms were necessary. With the farm bill coming up for reauthorization in 1995, two sides emerged even before the November 1994 elections- ‘fiscalists’ and ‘radicals’. The fiscalists focused on cost reductions whereas the radicals believed that it was time to make fundamental reforms in U.S farm policy.