CASE STUDY

THE ECONOMICS OF US FARM

SUPPORT PROGRAMS
BY-Taufeeq Malik

CONTENTS
Introduction
U.S

farm support programs

Analysis
Problems faced
Suggestions and solution
Conclusion
Bibliography

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 worlds 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
America is one of the largest producer of the
agriculture commodities in the world.
To ensure smooth and bumper supply of the
commodities, it tried to reform its agriculture acts
and farm support programs.
The govt. used three basic methods to boost
farmers income i,e to buy surplus crops, incentives
and the direct subsidy if in-case market crashes.
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
goods

Direct subsidy

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 THAT AROSE

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 & Suggestions

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

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.