An agricultural subsidy is a governmental subsidy paid to farmers to supplement their income, help manage the supply of agricultural commodities, and bolster the supply of such commodities on international markets. Examples of such commodities include wheat, feed grains (grain used as fodder, such as maize, sorghum, barley, and oats), cotton, milk, rice, peanuts, sugar, tobacco, and oilseeds such as soybeans.
The U.S. Department of Agriculture is required by law to subsidize over two dozen commodities. Between 1996 and 2002, an average of $16 billion/year was paid by programs authorized by federal legislation dating back to the Agricultural Adjustment Act of 1933, the Agricultural Act of 1949, and the Commodity Credit Corporation, among others.
The beneficiaries of the subsidies have changed as U.S. agriculture changes. In the 1930s, about 25% of the U.S. population resided on the nation's 6,000,000 small farms. By 1997, 157,000 large farms accounted for 72% of farm sales, with only 2% of the U.S. population residing on farms.
Proponents of agricultural subsidies argue that they are necessary because of the unusual nature of the agricultural industry. For one, a big part of crop yield, and therefore price, is based upon the weather both at home and abroad in remote parts of the world. Because of the uncertain nature of the weather, price subsidies are necessary to ensure that farmers receive a liveable wage.
One criticism of subsidy comes from conservatives and libertarians arguing that subsidies are against the will of the free market. For example, poor store owners don't receive relief from the market, and therefore neither should poor farmers. Furthermore, justification of subsidies from the uncertain nature of the weather can be countered by considering that many other areas of economy experience equivalent risks for which the free market can provide solutions, e.g. insurance.
Economists strongly rebuke the benefits of reduced retail prices derived from subsidising over-production. If the government were to subsidize car manufacturers to produce more cars then this would indeed lower the showroom price, but it would be the consumer's own money collected through taxes that would be used to fund the over-production. It would be impossible for the lower retail costs to outweigh the additional production costs, otherwise the manufacturers could simply implement this technique themselves.