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U.S. farm subsidies were once intended to help farmers ride out variations in their markets. Since then, they have become a massive part of the federal budget, costing taxpayers billions per year. Because the largest producers get the most government aid, these payments have the effect of further enriching profitable farms. This system not only fails to support small farms, but can create tougher competition for them.

A 2004 Government Accountability Office report detailed multiple instances of payments to ineligible parties who did not require government assistance. In response, the Obama administration has vowed to modify the program, and Agriculture Secretary Tom Vilsack is now in the process of changing the rules for 2010 recipients. The specifics of these changes have yet to be established.

Eligibility enforcement is most of the difficulty in directing payments to farmers who really need them. As with any business welfare program, using public money to assist privately-owned enterprises creates a conflict of interests. Business owners and investors don't want to be buried in paperwork, and naturally they dislike government officials looking over their shoulders. Yet they still want the subsidies, and because these payments come directly from the pockets of taxpayers, demands for greater oversight of such programs are unavoidable.

The question is whether large farming operations really need the subsidies. Free trade groups point out that a subsidized U.S. food market drives foreign farmers out of business: the surplus crops produced with government aid land in foreign, unsubsidized markets, and without a level playing field, these markets are unable to compete. This creates much higher incomes for U.S. farmers, but negatively impacts the developing world, and has little or no effect on domestic American food prices. We pay higher taxes, food prices are not affected, and international food markets are adversely impacted. There are few good arguments in favor of sustaining the existing system, and plenty of reasons to eliminate it, or at least trim it down to a reasonable size.

But like any kind of business welfare, farm payments have entrenched political support in every country in which they are used, and trying to overturn them would be a costly career move for any politician. The quickest course of action is reform, and Tom Vilsack will hopefully make the system more transparent and less wasteful, so that small farming operations might have more opportunity to benefit, and business people who are only indirectly involved in farming will not receive payments. These reforms are long overdue, and even though they represent a barely-perceptible policy shift, they might ultimately create a more profitable environment for small U.S. farms.

Learn more about this author, Jonathan Young.
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