The farming industry is unique in that its product is constantly under great demand, is seasonal and is often affected by unpredictable factors. While farming is a successful industry, it can be difficult to weather financial challenges created by external factors. To help assuage this, the United States government provides regular funding to the farm industry through subsidies. These subsidies are instrumental in sustaining farms through difficult times.
Farm subsidies come in many forms. They can be straightforward, as direct payments to farmers for specific items, or via a loan with favorable terms. They can also come in the form of subsidized crop insurance, to help recoup losses if something out of your control destroys your crops. They can even be payments you receive for protecting environmentally sensitive land. Keep reading to discover a bit more about each of these subsidy options.
Direct subsidies
Direct farm subsidies are the easiest to understand. They are payments from the government for specific commodities and are typically based on acreage and/or commodity yields. The intention is that these payments will supplement income to accommodate for market downturns. When grain prices are low, farmers can suffer income losses, and these payments help them survive. These subsidies are primarily available for the five largest commodities: wheat, soybeans, corn, cotton and rice. Smaller subsidies are available for other commodities as well.
Subsidized loans
Subsidized farm loans avail low-interest financing to farmers so they can begin to utilize new land or expand or diversify their production. These loans are allocated by the USDA and are available for both land operations and acquisitions. The USDA also offers more focused options, such as microloans for specialty farming, youth loans for younger aspiring farmers, Native American tribal loans for those interested in farming on reservations, and emergency loans to help farmers recover from devastation due to natural disasters.
USDA may also guarantee loans made by commercial banks and other agricultural lenders which enables them to make loans with lower down payments or credit concerns that are more than for conventional loans.
Crop insurance
The government also helps farmers purchase and use crop insurance, which is another way of preparing for a loss in the case of drought, flooding or other natural disasters. Farmers receive lower cost insurance premiums and will be reimbursed for their losses if an event is out of their control. USDA helps subsidize the cost of crop insurance premiums, making insurance more affordable and allowing farmers receive reimbursement for their losses if an event is out of their control.
Conservation Reserve Program
The government wants your farm to be as successful as possible, and that sometimes means you should not farm your land environmentally sensitive areas of your land. Through the Conservation Reserve Program, farmers can receive subsidies to allow land to rest for a period of time, to control erosion, create wildlife habitat, filter runoff water and regenerate better topsoil, reduce erosion, reduce runoff of agricultural fertilizers and pesticides and be better prepared to handle farming in the future.
What's next?
The total amount of farm subsidies this year is notable, in that it’s the largest since 2005. In 2020, the federal government will have provided $46 billion in subsidies to farms. There are many possible reasons for this, such as the impact of the COVID-19 pandemic, the trade war with China or political influence.
Subsidies are a lifeline for farmers and create stability in a market that is constantly in flux. They allow farmers to afford a reasonable quality of life and make it possible for them to take advantage of modern technology in farming. Without this vital support system, farmers could not be as productive as necessary to support the basic needs of our population. As Farmers achieve success, so do many rural communities across the US.
At Halderman Real Estate and Farm Management, we can help you manage your land to ensure you receive the proper financial support. To learn more about farm subsidies or our services, contact us today.
Article Sources:
Amadeo, Kimberly. The Balance. "Farm Subsidies with Pros, Cons, and Impact: How Farm Subsidies Affect You." https://www.thebalance.com/farm-subsidies-4173885. June 29, 2020. Accessed November 25, 2020.
Taylor, Glenda. Houston Chronicle. "How Do I Know If My Land Qualifies for a Farm Subsidy?" https://smallbusiness.chron.com/land-qualifies-farm-subsidy-39572.html. Accessed November 25, 2020.
USDA. "Farm Loan Programs." https://www.fsa.usda.gov/programs-and-services/farm-loan-programs. Accessed November 25, 2020.
Rappeport, Alan. New York Times. "Trump Funnels Record Subsidies to Farmers Ahead of Election Day." https://www.nytimes.com/2020/10/12/us/politics/trump-farmers-subsidies.html. October 12, 2020. Accessed November 25, 2020.
