In present day, the United States Department of Agriculture hands out between $10 billion and $30 billion in cash subsidies to farmers and owners of farmland every year. Agricultural subsidies are manifested primarily in the agricultural commodities sectors of wheat, corn, soybeans, rice and cotton, thereby, accounting for more than 90 percent of agriculture subsidies. More than 800,000 farmers and landowners receive subsidies but, the payments are heavily tilted toward the largest producers. An agricultural subsidy is a governmental subsidy paid to farmers and agribusinesses to supplement their income, manage the supply of agricultural commodities, and influence the cost and supply of such commodities.
In addition to government provided insurance given to farmers to protect against adverse weather, pests, and low market prices, there are eight basic types of farm subsidies but, two are most important: direct payments and marketing loans. First, the direct payment of farm subsidies was established in 1996 and direct payments are the largest source of subsidies to farmers at more than $5 billion every year. The second types of subsidies provided are marketing loans that provides large subsidies by paying guaranteed minimum prices for the crops that are produced.
This program encourages the overproduction of wheat, corn, sorghum, barley, oats, cotton, rice, soybeans, minor oilseeds, and peanuts by establishing a floor on crop prices that would otherwise face producers in open markets. Recent research has shown that government funded payments under this program have ranged from $1 billion to $7 billion every year. In addition, under the marketing loan program, most farmers take “nonrecourse” loans from the USDA and use their crops as a bargaining chips. This allows farmers to default on their loans without any penalty because there are no interest rates on these loans.
Under the program, farmers who take “nonrecourse” loans from the USDA use their crops as collateral, which allows farmers to default on the loans without penalty. In the past, if market prices fell below target levels, farmers kept their loans and forfeited their low-value crop to the government. Taxpayers were stuck paying the loan costs and the costs of storing crop stockpiles. Today, most marketing loan subsidies are in the form of “loan deficiency payments,” which allow farmers to bypass the loan process and simply receive a subsidy payment. Alternatively, farmers can receive “marketing loan gains,” under which, farmers can repay their USDA loans at preferential rates.