What Are Farm Subsidies?

Farm subsidies are governmental funds allocated for the purpose of encouraging and supporting agricultural efforts within the borders of a given nation. While this type of government subsidies vary from one nation to another, most will include some provisions for smaller family-owned farms that rely on crops as a way of creating a revenue stream that supports the family living on the farm. Many farm subsidies are also granted to commercial farmers who produce larger quantities of crops that are sometimes exported as well as processed for domestic use.

In many nations, farm subsidies are used to help offset factors that undermine the farming effort. This includes subsidies that help to offset losses that occur due to inclement weather that significantly damages crops, drops in market prices that make certain crops unprofitable for a season or two, and even some sort of major disaster, such as a fire that destroys all or most of a cash crop. The limitations on the subsidies are often based on the type of crop that is grown and the size of the farming operation.

There are usually some limitations on what types of crops may be eligible for subsidizing, with commodities like corn, soybeans, and wheat often included in the programs. Other types of commodities are also often eligible for farm subsidies, including peanuts, coffee, and sugarcane. The range of crops that are included in a subsidy program will depend on which crops are actually grown within a given nation and the perceived value of those crops to the overall economy.

Farm subsidies may also be used to encourage farmers to grow crops that are considered necessary but are not particularly profitable. In this scenario, governmental officials overseeing the subsidy program will determine that production of a certain amount of these lesser crops is in the best interests of the nation overall. To that end, the subsidies will serve as incentives for select farmers to grow those crops rather than devote time and resources to growing other crops that are more lucrative.

While farm subsidies are usually aimed at encouraging family and commercial farmers to produce certain crops at specified levels, there are also subsidies designed to discourage farmers from growing one or more crops. This is usually a means of exerting some sort of management over the amount of a specific commodity that is produced during a calendar year, a factor that can often be important to stabilizing the commodities market. By offering the farmer subsidies, it is easier to prevent a glut of a particular commodity on the market, which in turn helps to keep the pricing competitive and allow other farmers to enjoy equitable returns for their efforts.