Continuing the discussion of the paper I wrote entitled "The Evolving Role of the USDA in
the Food and Agricultural Economy", today I'll discuss some USDA farm support programs (in another post, I'll discuss the academic research on effects of these and other USDA programs).
In 2012 (the last date of the Census of Ag), the average government payment per farm receiving payments was $9,925. However, a large percentage of farms receive no government payments . In particular, farms that sell less than $50,000 worth of products tend not to receive payments, while the opposite is true for farms with sales greater than $50,000. For the 3.9 percent of farms with sales of $1 million or more, 71.2 percent receive payments averaging $40,559. Whereas the smallest farms receive the smallest average payments in total dollars, they receive the largest payments when expressed relative to value of production. Farms with sales of less than $1,000 that receive payments tend to get 9.36 cents for every dollar of output produced, but farms with sales of more than $1 million that receive payments tend to get only about 2 cents for every dollar of output produced.
Although government payments represent a small fraction of the value of output (i.e., gross revenue), they are certain to represent a much higher fraction of farmers’ net income. In fact, USDA Census of Agriculture data show that in 2012, the average net cash income for each category of farm with sales of less than $24,999 was negative. Those farms operate at a loss; because of this, whatever government payment they receive is infinitely greater than what they
make from farming. The average payment as a percentage of net income (for those receiving payments) is 31 percent, 18 percent, 13 percent, and 7 percent for farms with total sales in the categories $100,000 to $249,999, $250,000 to $499,999, $500,000 to $999,999, and $1 million or more, respectively.
It is interesting to compare all this with SNAP payments. As indicated, of the farms receiving payments in 2012, the average payment was $9,925. By contrast, USDA data indicate that the average payment per individual receiving SNAP in 2012 was $133 per month, which amounts to $1,596 annually. SNAP payments increase at a decreasing rate with the size of the household. For a four-person household receiving SNAP benefits, the average payment was $440 per month, or $5,280 per year, in 2012. Food assistance programs represent a larger share of the USDA budget than do farm support programs because SNAP recipients far outnumber the recipients of farm program payments, not because each SNAP recipient receives a higher payout than does each recipient of farm supports.
It is also useful to compare US farm support payments with those in other countries. For this, we can turn to data from a World Bank project led by the Kym Anderson and colleagues.
The nominal rate of assistance (NRA) is defined as the percentage increase or decrease in gross returns to farmers caused by government policies. A positive number means a country’s
policies are pushing up agricultural prices and returns, and a negative number implies the opposite. The gross rate of assistance (GRA) is the NRA expressed in absolute dollar terms (in the year 2000) instead of in percentage terms. The GRA is the NRA multiplied by the value of agricultural production in a country divided by the number of farmers.
Figure 14 shows the average NRA, and figure 15 shows the average GRA of 53 different countries from 2000 to 2010. The figures contain a selection of developed and developing countries to provide insight into the diversity of agricultural policies around the world. The United States had an average NRA of 11.2 percent and a GRA of $3,576 per farmer over this period. That means that the gross returns of US farmers are 11.2 percent (or $3,576 per farmer) higher than would have been the case were it not for various government policies. Some countries, such as Norway, Iceland, Switzerland, and the Republic of Korea, have NRAs higher than 100 percent. Thus, US agricultural policies push farmer prices and returns higher than would be the case in the absence of such policies, but by an amount far less than is the case in some other countries and far more than in others.
Whereas figure 15 shows a snapshot of the GRA at a point in time, figure 16 shows changes in the GRA per farmer over time in eight selected locations (all in 2000 dollars). The GRA per farmer in the United States increased sharply from the 1970s to the 1980s and has subsequently stayed around $3,000 per farmer per year. The GRA per farmer in Japan has risen over the entire period considered from only $536 per farmer per year in the 1960s to $8,653 per farmer per year from 2000 to 2009. New Zealand dramatically lowered the GRA per farmer from the 1980s to the 1990s. Brazil and China have policies that are relatively neutral with regard to farmer gross returns. Until recently, countries in the European Union had highly distorting policies equivalent to taxes in excess of 100 percent.
In most locations (except eastern Europe and central Asia), agricultural policies have distorted the overall economy less since the 1980s. From 2000 to 2010, the United States had a welfare reduction index (WRI) of 17; the only locations that had less distorting policies were Australia and New Zealand, which had an average index of only 3.8 over this period (figure 17).
The welfare reduction index (WRI) accounts not only for transfers but also for trade policies that affect the food and agricultural economy. According to Anderson, Rausser, and Swinnen, the WRI is calculated as “the percentage uniform trade tax which, if applied equally to all agricultural tradables, would generate the same reduction in national economic welfare as the actual intrasectoral structure of distortions to domestic prices of these tradable goods.”
The previous graphs aggregate the effects of agricultural and trade policies across all commodities. Figure 18 shows the average NRA for 11 different commodities in the United States from 2000 to 2010. During that period, sugar, cotton, and milk producers benefited most, with NRAs of 75 percent, 56 percent, and 39 percent, respectively. Barley and wheat had relatively low NRAs. Other commodities like beef and pork (not shown in the graph) had NRAs near zero.
To put these figures in perspective, it is useful to compare them with other distortions in the economy. In a remarkable statement, Anderson, Rausser, and Swinnen write,
“In 2004, existing agricultural and trade policies accounted for an estimated 70 percent of the global welfare cost of all merchandise trade distortions, even though the agricultural sector contributes only 6 percent of global trade and 3 percent of global GDP.”
In short, despite the small contribution of agriculture to global GDP, agricultural policies are responsible for the lion’s share of welfare losses that result from trade distorting policies.
In the paper I also talked about the fact that USDA impacts on the economy likely extend beyond those caused by explicit farm-commodity policies. To get a sense of such impacts, I utilized the RegData database. You can read the paper for more details on that data set, or look at some of the work by Levi Russel who blogs at FarmerHayek.com.