Perhaps the most fundamental question about U.S. agricultural subsidies is how have they affected the structure of U.S. agriculture. Recently the question has become more germane as food policy has become intertwined with public health policy (obesity), with energy policy (biofuels), and with third-world economic development and population growth (food demand and sustainability). As with all important questions, this one is very difficult to answer. Agricultural subsidies have been a part of agriculture for so long and through so many policy and economic changes, it is difficult to isolate causal relationships.
By subsidizing agricultural production, large farms inevitably receive large subsidies. The table above reports the distribution of subsidy payments by sales class in 2010. From the table, the consequences of subsidizing agricultural production and farmland are clear; only about 2 percent of farms receive $1 million or more in sales revenue, but they receive over 20 percent of all farm subsidies. About 55 percent of all farms had sales less than $10,000 in 2010, and only 18 percent of these farms received agricultural subsidies. These low-sales farms received only 6 percent of the subsidies paid out.
The concentration of subsidies among the largest farms has long been the case. James Bonnen made this point in 1969, pointing out that just 20 percent of farms received a majority of 1964 agricultural subsidies, and the top 5 percent of farms, by sales, received about 30 percent of subsidies. Schultze further demonstrated that the farms receiving the lion’s share of the subsidies had the highest revenue. The 2006 Economic Report of the President (EROP) revealed little change in the intervening 37 years when it reported, “The largest of the commercial family farms received 27 percent of payments even though they account for 5.5 percent of farms receiving payments.”
The stability of the concentration of subsidies can be seen in two Lorenz curves, illustrated above, which illustrate cumulative subsidy payments from the poorest to the richest farms. The dashed curve is from Paulsen, illustrating the concentration of producer payments in 1968. The solid blue line is constructed from the 2007 Census of Agriculture. Visual inspection reveals very little change over the 39-year period. Despite increasing concern by voters about the distribution of farm subsidies, the distribution remains stable; agricultural subsidies are neither increasing nor decreasing equality. (See this post for insight into why agriculture is not become less equal despite the concentration of subsidy payments.)
(Excerpted from Barrett Kirwan. 2014. “Economic Support for Agriculture,” in Public Economics: The Government’s Role in American Economics, edited by Steven Payson. Oxford UP: New York.)