There has been some talk recently of cutting farm subsidies among the many other programs to see reductions in spending. For example, see this New York Times article.
Before anyone gets too excited about this, let me point out a couple of things: (1) it's not a surprise the farm subsidies might be reduced, (2) the proposed cuts are not necessarily that deep, and (3) what really matters is the long-term. Let me discuss each of these in turn.
I. First, it's not really much of a surprise the farm subsidies might be cut, for two reasons. One obvious reason is the current budget-cutting rhetoric that seems pervasive in Washington (and much of the rest of the US) right now. When recipients of subsidies are portrayed as "corporate farms" as they are in this article, then public support for farm subsidies decreases dramatically.
(By contrast, when subsidy recipients are portrayed as "family farmers," then public support actually quite high for subsidies. Which characterization of farm subsidies is correct? To some extent, both are. Certainly, many "family farmers" receive subsidies. But, in 2007, the richest 3% of farms/farmers received 32% of all direct payments, and the richest 9% of farms/farmers received 54% of all direct payments that year. Yet, some of the largest farms and biggest recipients of subsidies are indeed "family farms" -- that is, farms owned by families as opposed to corporations.)
The other reason that farm subsidies may be cut is because farm prices are high. Corn prices in the US reached over $6/bushel in April 2011. From 2000 to 2007, the price of corn in April averaged about $2.32/bushel. Wheat prices in the US reached $8.18/bushel. From 2000 to 2007, the price of wheat in April averaged about $3.45/bushel.
With prices reaching historic highs, government payments are less central to the income of farmers. Consequently, farmers and farm organizations may see government payments as less important and may expend fewer political resources protecting subsidies. Farm subsidies, then, are politically vulnerable. Importantly, though, this political vulnerability is a result of the particular political and economic context, which can and will change in the future.
II. Second, I would like to point out that the proposed cuts mentioned in the article may sound like large cuts -- $30 billion -- but this needs to be clarified and put into context.
Note, first of all, that the article states that this cut is over ten years, which means that the average annual cut would be $3 billion. While that is a sizable cut, it's still useful to know that between 2000 and 2007, government payments to farmers averaged about $17.5 billion per year and totaled about $140 billion.
In 2007, government payments to farmers totaled about $11.9 billion, according to the Economic Research Service of the USDA. A reduction of $3 billion would amount to a cut of about 25%, which is significant. But, at times I get the impression that people think farm subsidies will be cut altogether. My point is that subsidies will not likely disappear even under proposals such as Ryan's discussed in the NYT article.
III. Third, and finally, I want to point out that cutting farm subsidies in the near future does not necessarily mean that farm subsidies will permanently disappear.
This situation reminds me of the context in which the 1996 FAIR Act passed: prices were high, Republicans controlled the House and Senate, and cutting the budget became a central political focus.
And indeed, government payments to farmers were slashed in the 1996 farm bill. (See my book for a detailed discussion of the FAIR Act.) Within a few years, however, prices began to fall. By 2000, government payments to farmers increased significantly. Thus, the cuts in subsidies were temporary.
By contrast, the FAIR Act made one change that demonstrated much greater longevity: eliminating production controls, which put restrictions on what farmers could grow in terms of crops and acreage.
What was the difference between these two policies (income supports vs. production controls)? A significant political coalition in agriculture emerged to support eliminating production controls. For example, many organizations representing the interests of corn farmers pushed for this change. With such support, production controls have not returned -- regardless of price fluctuations.
The elimination of subsidies did not have the same support in agriculture. So, when prices fell in the late 1990s, there was a significant push to increase farm subsidies.
Will subsidies be cut? Perhaps. Will those cuts be permanent? Probably not.