How much for the little red potato?

When we first started our little micro-farm, my husband would drive me insane trying to calculate whether or not the potatoes we were growing were “cheaper” than those at the store and whenever he did, he would furrow his brow and say “I don't get it, how can it be cheaper at the store?” The problem was he was calculating our labor, the soil, the water and the time it was taking to grow our own food, much like organic farmers do when calculating how much to charge at a farmer's market. The numbers, of course, didn't add up because the price we pay at the store has nothing to do with the cost of production. We knew we weren't spending any transportation or stocking costs for our food, since it grew a mere 15 feet from our oven, but how could we be paying twice as much to grow our own food? About two years ago I decided to find and discovered the fascinating yet nonsensical world of government farm subsidies.

A (very) Brief History of Government Farm Subsidies

Government regulation of agricultural goods in the United States has been in place since at least the 18th century, but it was the Great Depression that brought us to our current system of farm subsidies and production controls. In 1933, two systems were put into place that would vastly affect the way we farm in this country. The first was the Farm Credit Act (“FCA”). The FCA began the separation of farmers from other producers by creating credit specifically designed for farmers whose income turnaround time did not match the typical loan repayment scheme. The FCA allowed farmers some protection by offering longer term loans to allow their profits and losses to accumulate over the years instead of on a yearly cycle. The second was the Agricultural Adjustment Act ("AAA") which limited production on US crops in order to increase demand and prices. Large portions of the AAA were declared unconstitutional in 1936 due to unfair taxation and forced reduction of cash crops but the AAA lives on as the Department of Agriculture. For the next several decades the Department of Agriculture has attempted various methods for U.S. farmers to either produce more or less food depending on the assessment of government needs through the Farm Bill.

How do Subsidies Work?

Most farm subsidies are allocated by contract with farmers in either a Direct Cyclical Payment ("DCP").  or Counter-Cyclical Payment ("CCP"). From 2004-2007 DCP was available for the following crops: barley, corn, grain sorghum, oats, canola, crambe, flax, mustard, rapeseed, safflower, sesame, sunflower, peanuts, rice, soybeans, upland cotton, and wheat.  For DCP, the farmer was paid on a percentage plan based on acreage, yield and payment rate. Although the payments are not tied to any particular crop, basic math dictates that a higher valued crop makes more sense to grow than a lower valued one. The formula for DCP is the 85% of the farm’s base acreage times the farm’s direct payment yield times the direct payment rate.
For instance, in 2008 a farmer has the option to raise two types of crop on his land, barley and wheat. If the farmer chooses to raise wheat exclusively on all farmable areas he can make $22,100.00 in direct payments. If the farmer chooses to raise barley exclusively, his payment would be $10,200.00. But, if he choose to raise 1/2 wheat and 1/2 barley, his direct payment would be $16,150.00. If the farmer decided to do the traditional 1/4 of the total acreage of fallow land per year and raised both crops, his payment would be $12,112.50.

CCP controls are the antithesis of free market controls. These payments kick in only when the food price drops below the target value assigned by the government in and are based on the theory that these payments are needed for the survival of a farm which chooses to produce one of the crops designated as eligible under the CCP or DCP. Farmers are paid the DCP rate plus the higher of the national market price or the national commodity loan rate.

Fiscal Impact and Distribution

The 2008 Farm Bill allowed for for $4.3 billion in DCP payments.  Billion.  With a B. Where does the money from these this multi-billion dollar subsides come from? They come from the same place all government monies do, from us. In exchange we are told that we secure the health of our farms and a steady supply of food into our shopping carts. However, the United States is actually a net exporter of food, which means we send more food to other countries than we import to our own. What happens to all the food these farms produce? Some goes to market where consumers can purchase it at a price less than it cost to produce (although they will pay the additional costs through their taxes), some does go to aid third world countries suffering from various natural and man made catastrophes, some is traded at or below market rate to trade allies such as Mexico and Canada, and some is actually repurchased by own government for various nutrition programs, such as school lunch programs.

So, there you have it:  it costs us more to raise food because we are paying the actual cost for doing so, but for most farmers it still makes more fiscal sense to raise one type of crop at a high subsidy value than to practice sustainable stewardship on the land.