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So What Are Subsidies?

What is it, what are some of the issues, and what next?
How are subsidies a part of the value of crops?

Subsidies are a component of agriculture monetary flows in pretty much all developed countries around the world. The reasons for having a subsidy varies, though many types of subsidies are in place to help guarantee some form of payment for an agricultural crop in the event of a disaster, poor market prices, or foreign competition.

In the United States, subsidies tend to be lumped into a single term but there are actually several different kinds of subsidies.
Subsidy programs include: direct payments, marketing loans, countercyclical payments, conservation subsidies, crop insurance, disaster aid, export subsidies, and agricultural research and statistics (Cato Handbook for Policymakers, 2009).

There is a discussion going on in the US about the value of subsidies and if industry segments that are profitable, even without the subsidy, should continue to receive government assistance. There have been some recent reforms, specifically as it relates to ethanal tax credits, a form of subsidy. That tax credit was allowed to expire at the end of 2011.

“We may be the only industry in U.S. history that voluntarily let a subsidy expire,” said Matthew A. Hartwig, a spokesman for the Renewable Fuels Association, a trade group for ethanol producers.

(January 1, 2012, New York Times)

The Environmental Working Group (EWG), a watch dog group, published the Farm Subsidy Database to help people learn more about US subsidies and who receives them. When first released, the publicly available data caused concern for supporters of subsidy programs.

“It is the full Monte, so to speak,” says EWG President Ken Cook

In the current US fiscal environment, discussions are occurring to change the way subsidy programs work. While many believe there is value to certain types of subsidies, the front and center economic realities will bring changes to the subsidy system as a whole.

“Everyone has got to share in the pain, including farmers,” said Mr. Lang (dairyman and president of the Iowa Farm Bureau), whose state has received more than $22 billion in subsidies since 1995, second to Texas.

(June 23, 2011, New York Times)

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