agricultural subsidies: U.S. Assistance Programs

U.S. Assistance Programs

In the United States, the federal government first assisted agriculture directly in the 1920s. During World War I farmers had been encouraged to increase production, and in the postwar period wartime levels of production were maintained. This resulted in an oversupply that caused a sharp drop in prices. The Agricultural Credits Act (1923) failed to solve the problem. In 1929, President Hoover signed the Agricultural Marketing Act, establishing the Federal Farm Board with a fund of $500 million to further farming cooperatives and to set up stabilization boards, which by their purchases on the open market were to stabilize the prices of grain and cotton. Such purchases, however, only encouraged farmers to raise still larger crops in expectation of greater profits; consequently, the Farm Board failed and had to sell its holdings at a loss of $200 million.

The Agricultural Adjustment Act (AAA) of 1933, one of the first pieces of legislation passed under President Franklin Delano Roosevelt's New Deal program, attempted to control farm prices by reducing and controlling the supply of basic crops. The AAA empowered the Secretary of Agriculture to fix marketing quotas for major farm products, to take surplus production off the market, and to reduce production of staple crops by offering producers payments in return for voluntarily reducing the acreage devoted to raising such crops. The Commodity Credit Corporation (CCC), also created in 1933, began making loans to farmers on agricultural products. Loans were granted only to farmers who agreed to sign production-control agreements. Farm prices steadily improved: between 1932 and 1937 the prices for major farm products increased by approximately 85%. However, the Supreme Court declared certain production control features of the AAA unconstitutional.

Large crops of wheat and cotton led to passage of the Agricultural Act of 1937. In its amended form, this act provided the framework for the major farm programs in effect since that time. The act made price-support loans by the CCC mandatory on the designated basic commodities of corn, wheat, and cotton; optional support was authorized for other commodities. Under this act and related legislation, the CCC has supported more than 100 different commodities, including fruit, vegetables, and various types of seed.

From 1941 to 1948, during and just after World War II, surpluses were rapidly utilized, and price supports were used as an incentive to stimulate production of agricultural commodities. In 1948 price-support levels were lowered for most of those commodities. By 1949 the agriculture of war-devastated Europe and Asia had recovered to a significant extent, and demand for American farm products declined considerably. At the same time, however, crop production in the United States had greatly increased, with the result that farm commodity prices dropped and surpluses began to build up again. Rigid support levels were once again enacted, but the Korean War strengthened farm prices and most CCC stocks were sold. Mounting surpluses and increased costs of government programs led to the enactment of a flexible price support program (1954) and of the Soil Bank program (1956), which provided for direct payments to farmers in return for reducing their acreage of major supported crops and required that they leave fallow the land removed from production. The desired effect of control programs was largely negated, because improved technology made it possible to greatly increase yields per acre.

In the early 1960s price supports on major commodities were dropped to or near market-clearing prices, and producers' incomes were protected by direct payments on fixed quantities of products. Direct payments to farmers greatly increased after the 1960s, the feed grain, cotton, and wheat programs accounting for most of this increase.

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