Price And Income Supports

In 1938 farm legislation introduced the concept of a "parity" price for farmers, a price to provide farmers the same relative purchasing power that farm prices had in a favorable base period. If production is greater than that which can be sold at a specified percentage of the parity price, the government agrees to purchase the excess, generally through purchase agreements with farmers or nonrecourse loan programs. Under these loan programs, the government pays a set price to farmers as a loan for crops that are placed in storage. Farmers can pay off the loan in full by turning the crop over to the government.

For nearly half a century, debate raged over the wisdom of parity support. Many people have opposed such support because of the high cost. Another problem was that storage bins were bursting; abandoned ships from World War II were filled with grain by the 1950s, and other grain was piled on the ground where it quickly rotted.

The government's Payment-In-Kind (PIK) Program, introduced in the early 1980s, had a significant effect on crop production. This program aimed at reducing the available stocks of grains, rice and cotton, strengthening market prices, and lowering government storage costs. Under PIK, farmers were paid in government-owned farm commodities for reducing crop acreage. PIK succeeded in idling about 25 percent of American cropland.

In 1973 U.S. farmers began receiving income support in the form of "deficiency" payments. These are government payments designed to compensate farmers for the difference between the market price farmers receive for a crop and a set target price. To participate in this program, farmers must again take some of their land out of production.

Price supports and deficiency payments apply only to certain basic commodities such as grains, rice and cotton. Many other products are not federally subsidized. A few crops, such as lemons and oranges, are subject to overt marketing restrictions. Under so-called "marketing orders," the amount of a crop that a grower can market as fresh is limited week by week. By restricting sales, such orders are intended to increase the prices that farmers receive.