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But believe it or not, there’s a good reason why the government allocates money to stop farmers from tilling their fields. In this article, we will learn more about the Agricultural Adjustment Act and how it affects farmers from then till now.
The Government offer subsidies, as well as insurance of basic commodities to avoid any unwanted surplus of crops. It is a crucial step in order to keep the prices of agricultural products high, which minimizes the farmers’ losses.
When the supply is very high, but the demand can’t keep up, farmers will be forced to sell their products at a markdown, which is the situation that the AAA was made for.
The Agricultural Adjustment Act
Economics is a very confusing topic, and that’s true even for economists themselves. Sometimes, economists do things that don’t make a lot of sense, such as paying farmers to not grow crops. It’s almost a perfect example of irony. Farmers use their resources and time to yield crops and sell the harvest in the market to make a profit. But when the right events do line up, things such as this “farming irony” can happen.
During WWI, the Government provided subsidies and help for farmers to support the war efforts. Due to this, farming became one of the biggest industries in the US, even after the war. The production of staple crops was actually very good. In fact, it was too good, that there was an oversupply for basic crops such as corn, cotton, tobacco, rice, peanuts, and wheat.
When Franklin Roosevelt became president, one of the first things he did in his term signed the Agricultural Adjustment Act of 1933. This act was meant to address the surplus and falling prices of crops. Later on, this act was replaced with the Agricultural Adjustment Act of 1938, which addressed most of the fatal flaws in the 1933 design.
Scope And Effect
The Agricultural Adjustment Act (AAA) of 1938 distributed subsidies to farmers to reduce the surplus of crops. It was the successor of the aforementioned 1933 act, which was deemed to be unconstitutional by the United States Supreme Court due to the act’s commodity tax provisions.
Instead of funding the subsidies with people’s taxes, the act was revised for Federal Government financing instead. From income enhancement, the main focus of this act was turned into soil and environment conservation.
The revisioned AAA (1938) had the following purposes:
- To preserve natural resources and to maintain the soil fertility of the area affected by the subsidy (by avoiding planting the same crop each farming season).
- To spur innovation of practices that encourage the enrichment of soil and soil-conserving crops and methods
- To help in maintaining justifiable yet profitable prices of commodities for farmers and agricultural businesses (for both domestic and export)
- To ensure that there will be enough supply of cotton, wheat, corn, and rice for both domestic usage and export purposes (without any wastage)
- To ensure that the public can get a steady supply of these commodities at an affordable price
What Is The Point Of Agricultural Adjustment Act Subsidies?
Although a bountiful harvest is usually a good thing, it would be a problem if all farmers farmed similar crops. Think of it this way: you can’t make a good vegetable stew if the only thing in your pantry are potatoes. Additionally, planting the same crop in the same area is bad in the soil due to nutrient deficiency.
As it turns out, a large member of farmers in those days only farmed similar crops: corn, cotton, rice, peanuts, wheat, and milk. Diversity in the crops is minimal. And as usual, when things are not matching up in the demand and supply, the economic stuff kicks in.
While the United States has good crop yields, their neighbors had also been making the same crops and having good harvests. Exports had been affected due to this factor back in the 1930s. What’s happening economically was pretty much apparent: the demand for staple crops was slowing down.
And when the demand is lower than the supply, the prices tend to go down. In this case, with the diminishing demand for comedy exports and the oversupply of crops, farmers are forced to sell their harvests at loss just to recuperate some of their investments.
This was bad news to the US economically. To support the farmers, the US Government went on to fund the subsidy to buy the surplus crops and stored them in silos. But consumption is not something that can be speeded up or slowed down. Most of these crops either got rotten out or were eaten by rodents and other pests. Either way, it was considered a waste of government funds.
Keeping surplus crops in silos were more expensive than not dealing with this problem at all. It is apparent that some farmers must stop farming to avoid unwanted surplus again. But farmers who depend on the yield of their fields will be hard to convince to stop their livelihood. This is where the idea of paying farmers to not grow their crops became sensible. Keeping the surplus was and is more expensive than paying the subsidy.
How Are Subsidy Recipients Selected?
Targets of this subsidy included farms that produce corn, milk, cotton, rice, wheat, peanuts, and tobacco. It is also an initiative for farmers to try other profitable crops for diversity. Soybeans are one of the most popular alternatives. Take note that the list of crops above is not a rule set in stone for each state due to local economies and other factors such as available farming technologies.
In the meantime, farmers who insured their crops via AAA can still turn their land into a profitable venture. A great example of this is using the land as a farm for different commodities. Instead of crops, farmers can raise livestock and sell the products from these animals (such as selling eggs, beef, and more. Even planting diversified vegetables are allowed.
Even after its amendment in 1938, the AAA had tons of unintended consequences. Not all people were happy when this act has been approved, like any other law. It is, after all, a double-edged sword that might or might not help the economy based on the situation.
First and foremost, the most affected ones are the buyers of these goods. Since the AAA was made to artificially make the prices of agricultural commodities high, people are also buying it at a high price. In addition, from 1933 to 1937, the subsidies were taken from taxpayers’ money, which is the main reason for the act to be restructured in 1938.
Another unintended consequence of this act is the fact that large landowners get the biggest bite in the subsidy cake. Landowners would evict the farmers that till their lands so they can get the subsidy for themselves.
And last but not least, the earnings you can get from tilling your land instead of getting the subsidy is actually a lot more. Farmers will still receive money even if they don’t work, but the potential for better earning is nonexistent.
Is Agricultural Adjustment Act Still In Effect Today?
A law that was passed decades ago might not work at this point in time. The agricultural landscape now is very different than that of the pre-WWII era. However, portions of AAA is still around and is being used today. However, the original AAA and its concept are not available anymore.
As of now, AAA is a part of a bigger bill called the Farm Bill. This bill is not only focused on crop insurance, as it tackles other things such as food stamps, nutrition programs, and more. As of now, the latest farm bill approved was the Agriculture Improvement Act of 2018, where the Hemp Farming Act of 2018 was signed.
During the Farm Bill 2014, direct payments for subsidies whether the farmer planted a crop or not has been abolished. It is a very controversial topic that has been heating since 2001. Most of the funds from direct payments are instead given to the Supplemental Nutrition Assistance Program or SNAP. Since Farm Bills usually lasts for five years, these changes from 2014 may or may not get revived.
The AAA was made in order to address the nuances of one-crop dependency during the Great Depression. However, it had evolved throughout the years, with more conditions and more complex classifications. Either way, it is an essential part of Agricultural history, albeit its weird nature.
It is safe to say that the government does not pay farmers to not grow crops. The government doesn’t destroy crops either. Instead, farmers are paid in order to farm differently. And in most cases, this approach has been effective. Take note: the Agricultural Act of 2014 or Farm Bill 2014 erased the direct payment option. This is to avoid any exploits that bad elements use to receive subsidies.