U.S. Farm Bill and The Dairy Industry
For over eight decades American taxpayers have been subsidizing farmers through a series of complex programs, in the U.S Farm Bill (Snap to Health, par. 3). In 1933, during the Great Depression, Franklin D. Roosevelt passed a bill that supported farmers who suffered from a surplus of harvests and from the drought effects of the Dust Bowl Till this day, the Farm Bill has consistently remained an active part of the agenda of the United States government. Based on research it seems that there are arguments for both sides, i.e. the one who are in favor of the bill and other who oppose it. Supporters of the bill argue it can reduce U.S. debt by cutting food stamp programs and eliminating direct payments to farmers. On the other hand, those who oppose the bill argue it provides unnecessary subsidies to farmers and will increase the U.S. debt.
Thus, this paper will deeply examine the impacts of the bill on farmers, the issues that arise with and without the bill, and the effects of price supports on farmers.
Critiques of the Farm Bill claim that cuts in food stamps, as well as direct payment programs to farmers, will help reduce the U.S. debt, and in doing so keep dairy prices affordable while protecting other farmers from market uncertainties. Reducing direct payments may hurt a portion of farmers who heavily rely on them, however, most will not be affected because the new insurance program in the bill still protects dairy businesses from disaster.. Further analyzing the situation, the critiques has suggested that over the years the subsidies were unnoticed for many years, but now with surge in their cost and US government under pressure to cut their spending, it is quintessential for the Congress to end this subsidy rather than continuing to promote it.
The critiques have even cited such subsidies as ‘’Lavishly rewarding farmers beyond what is necessary or fiscally prudent.’’ In other words, they argue the bill increases U.S. debt by providing subsidies to farmers who do not need them.
The Obama government was recently faced with the dilemma of whether to end these taxpayer subsidies or to pass a new Farm Bill. However, despite opponents’ arguments, the bill passed this February for another five-year term. Its primary focus is on sharply rationing the food stamp program, which occupies nearly 80% of the bill, and on providing price supports for farmers (Desjardins, par. 2; Attkisson, par. 3). As for the dairy industry, the farm bill’s dairy provision were last to be solidified at the time of passing the bill and by the end of the day it lacked supply chain management provisions for the dairy farmers. Further, the new bill replaced the Milk Income Loss Control(MILC) with the new margin insurance program. With the new program, dairy farmers must pay insurance premiums, with very low costs for farms producing less than 4 million pounds per year — about 150 cows — and higher premium costs for larger farms. Thus, the bill has got mixed review from the dairy industry, primarily on the negative side.
The Farm Bill is necessary for providing stable dairy prices. There are many repercussions that could have occurred if a new bill had not been issued. As Chad Pergram of Fox news and Jeffery O’Hara, an economist for the Union of Concerned Scientists, explain, without the renewal of the bill, farm policy could return to its previous state during 1949, where permanent law would once again be in effect (Pergram; UCS). This would result in an increase in support prices as the government would purchase milk “in an effort to support U.S milk prices” (Vandenheuvel). Reverting back to permanent law policy would have had a drastic impact on the price of milk. Some claim the price of milk per gallon could have increased by as much as seven dollars (Keith). Thus, without the bill “the government would [have] to be forced to [. . .] buy milk, [. . .] at about double the going rate,” and because the price paid by the government would be more beneficial than the price paid by consumers, farmers would bottle their sales towards consumers and sell to the government (Keith). The obvious losers had the bill not passed would have been the government and consumers because of the increase in dairy prices.
Opponents of the Farm Bill contend subsidies discourage good management and encourage inefficiency among dairy industries (Collins). However, despite their claims, supporters of the bill disagree; they argue that subsidies are vital for our economy because they ensure market stability and provide a safety net for farmers, which helps to protect them from the uncertainties of the weather. The new Farm Bill cuts direct payments and replaces those with an insurance program for farmers (Desjardins). Although the Farm Bill is still a risk for the government, it is much less so than previous installments, which provided generous subsidies in the form of direct payments to farmers. The new Bill reduces the risk of the government by providing farmers with insurance programs. Not only are these insurance programs beneficial to farmers, they are less costly for the government and still provide the dairy industry with subsidies. The Bill is successful in that it continues to provide generous subsidies but at an even lower rate. The new Farm Bill is advantageous to dairy industries because it provides farmers with insurance programs, which help to protect them from the uncertainties of the weather.
Price supports protect and ensure farmers while they also help keep consumer prices low. Although some argue that price supports are an outdated system because they were initially created as a temporary fix for a market much smaller than the one today, proponents of the bill disagree. Supporters of the Farm Bill contend that without price floors, many farmers would be unprofitable, and consumers would face outrageously high dairy prices. The government administers price floors on the market for dairy; this sets a minimum price at which consumers must buy dairy products to protect dairy businesses from going out of business. Price floors set above the equilibrium market rate ensure that farmers will be profitable, as opposed to having an unregulated market. Though opponents argue inefficiency arises in the form of deadweight loss, farmers and consumers still benefit from price supports. The farmers, which are subsidized by the government, gain producer surplus that is equal to the amount paid by the consumer plus the amount paid by the government (Wilcoxen). On the other hand, buyers’ now pay a lower price so their consumer surplus increases. Under the Agricultural Act, the new bill, which was passed by the senate, replaced the direct payment system with the Dairy Producer Margin Protection Program (Chite). This price support in the form of an insurance program will help ensure market stability for both farmers and consumers with the backing by the U.S. government.
Government subsidies have long been an issue in the United States. Apart from the benefits, inefficiency is created and the government is forced to buy the surplus of dairy products in the market. In an absence of the Farm Bill, the government would have to buy as much as 12 billion dollars per year in surplus of dairy products to support the higher prices (Little). The overall effect of government subsidies on farmers results in a rightward shift in supply, and encourages dairy businesses to produce more dairy products. Not only do the industries increase the quantity supplied of dairy products, they can also lower price per dairy product because of the government price support. Overall, the new Farm Bill can be seen as good, bad, or even both. As Jerry Slominski, Senior Vice President for Legislative Affairs and Economic Policy for the International Dairy Foods Association, explains, the bill “is good news for consumers of dairy products, [. . .] and good news for dairy farmers” (Good). The importance of the bill for dairy businesses and even consumers is large. Dairy industries and farmers will still receive generous subsidies from the government, which will help safeguard them from failure. The significance for consumers is that they will not have to face huge increases in dairy prices.
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