A Call to Overhaul Agricultural Subsidies

Capital Markets Fall 2011: Presidio Graduate School
This post is part of the capital markets open letter project by MBA students at Presidio Graduate School.

An open letter to the U.S. Senate Committee on Agriculture, Nutrition and Forestry

Dear Chairwoman Stabenow and members of the Senate Agricultural Committee,

We are MBA students at Presidio Graduate School, a program that integrates sustainability throughout its curriculum. Our team is enrolled in a Capital Markets class, which analyzes the markets that comprise our global financial system. We are concerned that the existing farm subsidy structure does not assist small and medium sized farmers in offsetting various risks associated with common fluctuations in the market.

According to a USDA study, small farms account for more than 88 percent of total farms in the United States but account for only 16.4 percent of production. These farms are exposed to a litany of risks including production, marketing, financial, legal and human resources risk which significantly jeopardizes their ability to compete with larger farms. The majority of these farms are small, family owned businesses that are the cornerstone of our local agricultural economy. A small percentage of these farmers have access to government loans but traditional sources of risk mitigation can be difficult and expensive to access. Additionally, there are minimal tools available to meet up front capital needs for small farms interested in growing their business or exploring capital intensive changes, such as moving from traditional growing to organic farming. 

Currently, federal agricultural subsidies are disproportionately paid to large farms that produce five commodities: corn, soybeans, wheat, cotton, and rice. According to the Environmental Working Group, Congress has authorized more than $222 billion in subsidies paid from 1995 to 2010. Over that time period, the largest 10 percent of farms have received an average payment of $30,751 while the smallest 80 percent of farms have received an average payment of $587 per year.   Fruit and vegetable growers, labeled “specialty crops,” receive less than 10 percent of all subsidies.

Meanwhile, the USDA projects that farm profits this year will total $115 billion, 24 percent higher than last year. A recent New York Times article states that the average income for farm households has been higher than general household incomes every year since 1996 while direct subsidy payments of $5B per year are distributed at a set rate regardless of conditions. With childhood obesity rates tripling over the last three decades, a recent US PIRG study found that taxpayers have spent $16.9 billion since 1995 on corn syrup, high fructose corn syrup, corn starch and soy oils and only $262 million on subsidizing apples.

We are currently researching capital market mechanisms such as Alternative Trading Systems in order to provide long term solutions for small and medium farmers. We recognize that that agricultural subsidies help fill a gap in the short term by providing farmers with needed resources to address market risks in their businesses. However, these subsidies should be designed to build small and medium sized farms, promote organic farming, and encourage direct-to-consumer activities like Community Supported Agriculture (CSA) programs and farmers’ markets, all of which help build healthy and resilient communities.

Thank you for your consideration.

Paul Carp, Alyssa Holt, Christian Reyes and Nicholas Sanyal

Image source: Amagill on Flickr

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