Government intervention in the farm sector has taken many forms, ranging from investments in public goods to attempts to use price and income supports to raise farm incomes. As the essay on agricultural productivity in this chapter demonstrates, government policies to promote basic and applied research along with farm extension work have raised farm productivity enormously. In addition, a number of government programs, such as transportation systems, rural mail delivery, and rural electrification, have provided rural infrastructure. Land policies, by which the federal government "privatized” much of the continent, represent another class of government policy that has had a major effect on farmers. For example, the Homestead Act of 1862 allowed farmers to acquire 160 acres of federal land free of charge.¹

This essay concentrates on policies to raise farm incomes or commodity prices through a variety of schemes. These are the policies usually referred to as "farm programs.”  Collective action to raise agriculture prices in what is now the United States dates back to the early days of colonial Jamestown, when Virginia planters attempted to limit tobacco production. In the nineteenth century, many states experimented with agricultural bounties to encourage the introduction of new crops, and Maine briefly offered subsidies on wheat grown within its borders. But these initiatives were minor aberrations in an era in which farmers grew what they pleased and received prices determined by the law of supply and demand in relatively free markets. (Domestic and foreign tariff policies represented the major market distortions.) In fact, throughout the nineteenth and early twentieth centuries, American agriculture approximated the competitive model, but by the end of the twentieth century many parts of agriculture had become highly regulated and subsidized (Effland 2000). Federal commodity programs, originally justified as emergency measures, have proven difficult to end as farm incomes and land prices have become dependent on government subsidy. Table Da-P shows how the character and extent of government involvement in agriculture has changed over the decades and how resistant subsidy programs have been to major reform once they have been introduced.

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How did we come to this situation? It was only in the 1920s and 1930s that the federal government began to intervene aggressively in the markets for farm inputs and commodities. In 1921 the newly organized "farm bloc” in Congress steered through several bills regulating middlemen and subsidizing loans to farmers. But the main initiative was the "Equity for Agriculture” plan sponsored by Senator Charles McNary and Congressman Gilbert Haugen. Versions of a McNary–Haugen bill were introduced in Congress every year from 1924 to 1928. The concept was to separate the domestic and export markets through tariffs. Domestic "parity prices” would be set, based on the favorable 1905–1914 relationship between farm and nonfarm prices. In 1927 and in 1928 the bills passed both houses of Congress but were vetoed by President Coolidge, who deemed them un-American. In 1928 the Senate failed to override the veto by a scant four votes (Benedict 1953, pp. 194–8, 216–31; Shideler 1957, pp. 76–117; Knapp 1973).

As the farm depression became more severe, the Agricultural Marketing Act of 1929 created the Federal Farm Board, with a $500 million fund to buy and store commodities in order to raise prices. Almost immediately the Farm Board was in trouble, as nominal farm prices fell more than 50 percent between 1929 and 1932. The Board accumulated huge stocks of commodities, bidding up U.S. prices, discouraging exports, and encouraging even more production. With its funds exhausted, the Board unloaded its stocks, shocking commodity markets. In 1933 the Federal Farm Board was abolished (Benedict 1953, pp. 198, 239–66; Shideler 1957, pp. 270, 389; Cochrane 1979; Hamilton 1991).

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The agricultural situation was grave in March 1933 when Franklin Roosevelt entered the White House; farm income had collapsed, foreclosures were commonplace, and rural banks and farm suppliers were in distress. In all but the most conservative quarters, there was the consensus that drastic action was needed. The first step was a set of emergency credit acts to stem the tide of foreclosures. But the main thrust was to restrict production. The Agricultural Adjustment Act (AAA), signed on May 12, became the foundation for Roosevelt's New Deal agricultural relief programs. The stated goal was to raise the implied purchasing power of most agricultural products to their 1909–1914 parity ratio. Seven "basic” commodities (wheat, cotton, rice, field corn, hogs, tobacco, and dairy products) were originally eligible for production controls. (Eight other commodities were added by 1935.)

The federal government guaranteed prices by granting farmers "nonrecourse loans” secured by commodities stored with the Commodity Credit Corporation (also established in 1933). The farmer could forfeit the commodities and keep the loan money if the price fell below the support level, or reclaim the produce and repay the loan if the price rose above the support level. In addition, farmers could contract with the government to remove land from production in return for a payment as compensation for the foregone output. Because for some commodities production was already underway, the AAA paid farmers to plow up acreage and slaughter piglets and pregnant sows. The destruction of six million baby pigs against a backdrop of massive unemployment and soup kitchens caused a public outcry, ending the slaughter program (Olmstead and Rhode 2000, pp. 729–36).

Between 1932 and 1935 nominal farm income and prices increased substantially, but the AAA's impact is unclear. The severe drought in the Great Plains and changes in international markets also significantly affected farm income. The AAA was a bureaucratic nightmare; huge quantities of information had to be collected, thousands of contracts written, numerous appeals heard, and so forth (Saloutos 1982). The effort to help some farmers sometimes had adverse effects on others. As an example, land withdrawn from the production of basic commodities, such as corn, was often shifted into unregulated uses, such as pasture for cattle, thereby hurting the existing producers. Price support programs and land set aside also cut into U.S. agricultural exports.

In January 1936 the U.S. Supreme Court declared the Agricultural Adjustment Act unconstitutional, but government intervention continued under the Soil Conservation Act (1936) and the second Agricultural Adjustment Act (1938). The second AAA became the basis for many farm support programs over the next several decades. The New Deal also added other crops, created marketing boards for specialty crops, allowed farmers to renegotiate contracts and re-acquire farmsteads lost to banks, and subsidized credit, crop insurance, and exports (Rasmussen and Baker 1979; Gardner 1990). Despite limited programs for a variety of other commodities, farm price supports and related programs affected primarily grains, cotton, tobacco, peanuts, dairy, wool, and sugar. About half of U.S. agriculture, including meat products and most fruits and vegetables, has received relatively little government support.

The stated objective of these farm policies was a desire to boost low commodity prices. The results were mixed, in large part because of the inherent shortcomings of the programs. Low prices were themselves a consequence of the existing supply and demand conditions, and the New Deal policies typically made the situation worse. Higher prices led to more quantity supplied and lower quantity demanded, with the government taking the surplus its policies created. Thus, while providing some relief for farmers, these measures also tended to exacerbate the conditions that perpetuated the "oversupply” problems. It took World War II to bring cash farm income back to its 1929 level (Table Da1288–1295).

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Following World War II there was broad agreement that farm prices might again collapse, and that farm subsidies should continue. Proposals to streamline the programs by replacing price subsidies with direct payments failed to gain approval. The Agricultural Act of 1949, which remains the "permanent” farm legislation to this day, essentially continued the Depression-era programs. Since 1949, basic farm commodity legislation, usually referred to as the "Farm Bill,” has taken the form of temporary amendments to the 1949 Act. Programs that began as temporary responses to an emergency have become thoroughly established in the Washington policy landscape and continue to affect the actions of farmers across America. One of the most important effects of the government programs has been to increase farmland values (the program benefits have become capitalized into the price of farmland), thus increasing the wealth of existing landowners, many of whom are not farmers.

The effect of farm programs on the prices received by farmers and on the surpluses accumulated by the government depended on the course of market prices. The thirty-two-year period from 1949 through 1981 saw a few periods of high market prices when programs had relatively little influence. During times when prices were low, stockpiles grew, creating pressure to tighten supply controls. Figure Da-Q provides data for nominal corn prices and the government support prices that show how intervention worked for this important commodity. In particular, the figure illustrates the jump and subsequent post–World War II fall in nominal corn prices.

Figure Da-R shows the fluctuating pattern of government-held stocks and mandatory land set-asides. Over the post–World War II period stocks rose rapidly, declined briefly during the Korean War, and then reached politically unsustainable levels in the early 1960s (Table Da1403–1415). As a result, there was a significant shift away from commodity loans and stockpiling toward voluntary acreage diversion programs and direct payments when prices were low. Under the new scheme, in addition to a loan program with the government taking physical possession of crops, participating farmers could opt to sell on the open market and receive a "deficiency payment” covering the difference between the market price and a previously announced official "target price.”To qualify, farmers had to agree before planting to idle or "set aside” a share (often 10–30 percent) of their base acreage. As Figure Da-R shows, starting in the mid-1950s there was a rapid upswing in the amount of cropland idled, and by 1960 about 60 million acres of cropland were taken out of production under annual commodity programs. An additional several million acres were idled under long-term land bank programs (Table Da1453–1456). With massive land idling programs, stocks were gradually reduced. Then a commodity price boom of the early 1970s eliminated government stocks and allowed the USDA to relax the requirements that farmers leave part of their cropland unplanted. One may see the negative correspondence between these policy measures (stockpiles and land idled on the one hand, and support prices on the other) by juxtaposing Figure Da-R with Figure Da-Q.²

The brief period in the 1970s of low stocks and full production ended when world commodity prices dipped in the early 1980s, and U.S. support prices again exceeded world market prices by a wide margin. Despite significant political changes with the 1980 election, and despite the pro-market positions of the new Reagan administration, the 1981 Farm Act largely continued the 1977 Act. The lack of political resolve to lower high support prices in the early 1980s led to growing stockpiles of wheat, feed grains, and cotton. In response, the Payment-in-Kind (PIK) program added to the already existing acreage reduction programs, allowing farmers to withdraw an additional 10–30 percent of their base acreage in exchange for title to commodities in the Commodity Credit Corporation stockpiles. The result was one of the largest acreage reduction programs in U.S. history, idling 20 percent of U.S. cropland (seventy-seven million acres); PIK was also one of the most expensive programs, with many farmers receiving commodities valued at hundreds of thousands of dollars (series Da1453).

Overall, the four-decade period following World War II was one of numerous adjustments, but relatively little change in the basic structure of U.S. farm commodity programs (Bowers, Rasmussen, and Baker 1984). That changed beginning in 1985.

The Food Security Act of 1985 recognized that lowering price supports was necessary to reduce the accumulation of stocks and increase the competitiveness of American exports. The gradual reduction of support prices and increased planting flexibility signaled a change in policy direction. The Act also allocated more than $1 billion per year to direct export bonuses, mainly for wheat (Table Da1436–1439, Table Da1440–1444). The subsidy of exports was not a new policy but, rather, as Table Da-S shows, export programs have been a recurring feature of U.S. farm policy. A new long-term Conservation Reserve Program paid landlords to remove from production erodible cropland for a ten-year period. In most of the years since 1986, about thirty-six million acres have been idled under this program (series Da1456). Total annual outlays for farm programs peaked at $26 billion in fiscal 1986 and direct payments peaked at $17 billion in fiscal 1987 (series Da1357). In addition, major ad hoc disaster payment programs were enacted in the late 1980s that allocated several billion dollars in direct payments to farmers (series Da1366).

Budget pressures and moves to further liberalize farm policy led to several reforms in 1990. These included fewer acres eligible for deficiency payments, additional planting flexibility, lower price supports, and frozen nominal target prices used to determine direct payments. Export subsidies and the Conservation Reserve Program were continued with some reforms (Sumner 1995). The 1990 legislation replaced the price support program for grains and oilseeds with a "marketing loan” program under which payments were triggered whenever an average local market price was below the local loan rate. Because loan rates were set at between 75 percent and 85 percent of the moving average of past prices, the expectation was that few payments would be triggered by this new payment scheme. In fact, no payments were made until 1998 (Orden, Paarlberg, and Roe 1999).

As the 1990 farm legislation neared expiration, several forces combined to encourage further reforms (Gardner 1999; Orden, Paarlberg, and Roe 1999). First, farmers and others continued to complain that the programs limited planting flexibility and attempted to control markets. Second, budget pressures continued. Third, farm prices began to rise dramatically while the new law was being developed and farm leaders came to realize they were likely to receive no payments under the traditional target price policy. This last point turned out to be crucial, causing the Federal Agricultural Improvement and Reform (FAIR) Act of 1996 to replace payments linked to market prices with new fixed "contract” payments (Young and Westcott 1996).

Despite widespread accounts to the contrary in sources such as the New York Times, the FAIR Act did not schedule a phase-out of farm subsidy programs. Rather, it was an extension of the policy path of the previous decade. Nonetheless, by reinforcing and consolidating previous changes, the FAIR Act changed the form of crop programs by eliminating planting requirements, land set-asides, price supports, and government stockpiles.

The FAIR Act set contract payments in advance for seven years. However, when prices fell and remained depressed, ad hoc legislation raised payments by 50 percent in 1998 and doubled payments for 1999 and 2000 (series Da1366). In all, subsidies jumped from about $4.6 billion in fiscal year 1996 to $19.2 billion in fiscal year 1999 and $32.2 billion in fiscal 2000 (USDA 2001). The FAIR Act turned out to be an excellent contract for farmers. Reforms of the 1980s and 1990s that made farm programs more efficient were not reversed by these bailouts at the end of the century. However, the attempt to limit farm subsidies in times of low farm prices proved politically unsustainable when budget pressures declined. The policy clout of farmers remained powerful entering the new century.

Since World War II there has been a general movement toward freer trade for industrial goods. But for most of this period, agriculture represented a major exception to the general trend, because most industrial nations chose to protect their farmers. This began to change in 1986 when the United States supported a complete global elimination of trade-distorting farm programs at the Uruguay Round of trade negotiations. The Uruguay Round trade agreement was finally signed in 1994 and began to be implemented in 1995. This agreement has received much public attention. It opened some closed markets, eliminated nontariff barriers, began significant reductions in tariffs, and substantially reduced the use of export subsidies. But the implications for domestic farm subsidies were minimal. The agreement contained no binding limits on payment programs, loan rates, or other internal program instruments.

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Farm commodity programs have now been a part of the American political landscape for nearly seventy years. Although numerous administrations have expressed an intent to trim the subsidies, most efforts were abandoned when faced with a downturn in farm prices. Subsidies have become entitlements that have proven very difficult to abolish, even during periods of prosperity. Most estimates suggest that there has been substantial waste in the attempt to manipulate commodity markets to raise farm revenues. For this and other reasons, most economists, including many former advocates of subsidies, have come to question whether there is any remaining rationale for these farm programs (Gardner 1992). In addition, many critics recognize that price support programs have never been very effective tools for helping the rural poor; benefits are based on farm production for selected commodities and the poor simply do not produce much. The result has been a growing intellectual sentiment to eliminate farm subsidies. But so far the political consensus in support of subsidies has held firm; indeed, the nominal 2000 outlays for farm subsidies were higher than ever. Some cows are, indeed, sacred.

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[TABLE Da-P  Major government agricultural programs and policy: 1766–2000]

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Market price, series Da697; support price, series Da1368.

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Crop acres idled, series Da1453. Value of government stocks, series Da1412.

For display purposes the values in both series have been expressed as index numbers with 1960 = 100.

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[TABLE Da-S Chronology of selected agricultural export programs: 1935–1996]

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Benedict, Murray R. 1953. Farm Policies of the United States, 1790–1950: A Study of Their Origins and Development. Twentieth Century Fund.

Bowers, Douglas E., Wayne D. Rasmussen, and Gladys L. Baker. 1984. "History of Agricultural Price-Support and Adjustment Programs, 1933–84, Background for 1985 Farm Legislation.”  Agricultural Information Bulletin number 485. U.S. Department of Agriculture, Economic Research Service.

Cochrane, Willard W. 1979. The Development of American Agriculture: A Historical Analysis. University of Minnesota Press.

Effland, Anne B. W. 2000. "U.S. Farm Policy: The First 200 Years.” In Agricultural Outlook. U.S. Department of Agriculture, Economic Research Service.

Gardner, Bruce. 1990. "Why, How, and Consequences of Agricultural Policies: United States.” In Fred H. Sanderson, editor. Agricultural Protectionism in the Industrialized World. Resources for the Future.

Gardner, Bruce. 1992. "Changing Economic Perspectives on the Farm Problem.” Journal of Economic Literature 30 (March): 1.

Gardner, Bruce. 1999. "Agricultural Relief Legislation in 1998: The Bell Tolls for Reform.” Regulation 22 (1): 31–4.

Hamilton, David E. 1991. From New Day to New Deal: American Farm Policy from Hoover to Roosevelt, 1928–33. University of North Carolina Press.

Knapp, Joseph G. 1973. The Advance of American Cooperative Enterprise, 1920–1945. Interstate.

Olmstead, Alan L., and Paul Rhode. 2000. "The Transformation of Northern Agriculture, 1910–1990.” In Stanley Engerman and Robert Gallman, editors. The Cambridge Economic History of the United States, volume 3, The Twentieth Century. Cambridge University Press.

Orden, David, Robert Paarlberg, and Terry Roe. 1999. Policy Reform in American Agriculture: Analysis and Prognosis. University of Chicago Press.

Rasmussen, Wayne, and Gladys L. Baker. 1979. Price-Support and Adjustment Programs from 1933 through 1978: A Short History. U.S. Department of Agriculture, Economic Research Service.

Saloutos, Theodore. 1982. The Farmer and the New Deal. Iowa State University Press.

Shideler, James H. 1957. Farm Crisis, 1919–1923. University of California Press.

Sumner, Daniel A. 1995. "Farm Programs and Related Policy in the United States.” In R. M. A. Loyns, Karl Meilke, and Ronald D. Knutson, editors. Understanding Canada–United States Grain Disputes. Department of Agricultural Economics and Farm Management, University of Manitoba.

U.S. Department of Agriculture (USDA). 2001. Agricultural Outlook AGO-281. U.S. Department of Agriculture, Economic Research Service.

Young, C. Edwin, and P. Westcott. 1996. "The 1996 Farm Act Increases Market Orientation.”  Agricultural Information Bulletin number 726. U.S. Department of Agriculture, Economic Research Service.

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