Subsidy of the day: Commodity Loans and Loan Deficiency Payments

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The second subsidy program under review was authorized under the Food, Conservation, and Energy Act of 2008. According to the United States Department of Agriculture, the program’s objective is “To improve and stabilize farm income, to assist in bringing about a better balance between supply and demand of the commodities, and to assist farmers in the orderly marketing of their crops.” In 2008, the government gave out over $9 billion in loans through this program and $6 million in direct payments with unrestricted use.

What exactly does all of that mean?

Basically, the government is absorbing farmers’ production costs. If—for some reason—the price of corn, wheat, soybeans, etc. goes down due to some kind of external market force, the government is taking the fall with your tax dollars. For example, when the “swine flu” (now H1N1) first threatened to rear its nasty head, the pork industry lost a lot of money because people were afraid to buy pork products. The pork may have been perfectly fine, but consumers chose to be cautious. And, unfortunately, pig farmers took a hit. Furthermore, before the swine flu pandemic, farmers were struggling with the high cost of feed. So, the alarm surrounding the swine flu was the straw that broke the farmer’s back.

But, have no fear. If the farmer took out a loan under this subsidy program, and the price of his products subsequently plummeted, he wouldn’t be required to pay interest on the loan. Furthermore, while the local market price on the famer’s commodities remains low, the farmer may pay back a smaller portion of the original loan amount. 

It’s important that the U.S. implement agricultural policies that are solvent and that don’t move beyond the duties government was created to perform. Secondly, however enticing these subsidies may sound in theory, in practice they sometimes threaten to send farmers into further economic turmoil.  

If you’ve ever grown up in farm country (or even near farm country), you’ll know that farmers have their good years and their bad years. Because of this, farmers have to possess a measure of prescience and save for a rainy day. In an economy like this, however, putting money away is a challenge—for farmers and non-farmers alike. So, instead of doling out money it doesn’t have, the government should take steps to reduce taxes across the board so farmers and other businesses have the resources to grow and even recover from unanticipated market forces.

Furthermore, while it’s a shame pig farmers’ profits took a dive, what entitles them to the safety net government is providing farmers through this subsidy program? My aunt is a mortgage broker and works on commission. Like a lot of other hard-working, blue- and white-collar individuals, she has her good years and her bad ones, but the government doesn’t cut her a similar break when she makes less money. And yet she’s providing a service to individuals and businesses. Why isn’t my aunt treated with the same measure of equity as farmers? 

The answer is simple. The government cannot sustain such handouts, nor was such a thing delegated to the government under the U.S. Constitution. After all, since when was it the government’s job to effectively control what one consumes? Build roads, keep the peace and stay out of my kitchen.


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Carolyn Bolton

Carolyn Bolton

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