This guide attempts to explain how the often confusing US farm subsidy programs operate. Different programs have different effects, some of which are much more harmful to Africa than others. Generally, US farm subsidies can cause US farmers to produce more than prices would proscribe, flooding the agriculture market with surplus goods and driving down crop prices. Often these artificially low prices drive African farmers out of business, thus disrupting rural development and causing food insecurity.

Types of Subsidies

Direct Payments: Direct payments pay the farmer a fixed amount for each unit (e.g. bushel, pound) of crop that the farmer could grow on his or her land. A farmer does not have to grow anything to receive this payment.
Example: A wheat farmer whose land is estimated to be able to produce 10,000 bushels of wheat would receive 52 cents per bushel for a total of $5,200.
Effect on Africa: Negligible. These don’t cause overproduction because they don’t relate to current production levels, and one doesn’t even have to grow anything to get them!


Countercyclical Payments: These are activated when the market price for a good is lower than the target price for that good set by the Farm Bill. The government then makes up part of the difference between the target price and market price for each unit of crop. They, like direct payments, are given based on estimates of what farmers produce.
Example: The target price for a ton of peanuts is $495. If the market price for peanuts was $395 per ton, and the farmer was estimated to produce 100 tons, he or she could receive $5,440. The actual difference between the target price and market price is $100, but the government pays a fraction of that: $54.40 (see the USDA website for more about the calculation).
Effect on Africa: Mild. They do shield farmers from low prices, but since they’re based on estimates, they don’t necessarily cause them to grow more.

Commodity Loan Programs (Loan Deficiency Payments and Marketing Assistance Loans): Producers pledge a portion of their crops to the government in return for a loan. The loan amount is equal to the amount of crops pledged multiplied by a government determined rate (a quantity which is less than the target price of countercyclical payments). Later they can either pay back the loan or turn in the pledged crop to the government and keep the loan. This effectively guarantees that they will receive the government determined rate as the price of their goods
Marketing assistance loans: the farmer pledges 10,000 bushels of wheat to the government at the loan rate of $1.95 a bushel and receive a loan of $19,500. If the price goes up enough, they pay back the loan with interest and sell their crop at the higher price (e.g. if it rises to $2.10 a bushel they can get $21,000 for their crops, so they pay back the loan and take the higher price). If the price doesn’t increase to their liking, they keep the loan ($19,500) and forfeit their 10,000 bushels to the government. They thus come out $500 ahead of where they would have if they had sold at the market price, $1.90.
Loan deficiency payments: the farmer decides to "lock in" the current price of $1.90. He will then recieve a payment of 5 cents per bushel ($1.95 - $1.90 = $.05), or $500. However, if the price had suddenly dipped much lower, such as $1.00, they could have "locked in" there and recieved $0.95 a bushel, or $9,500! They then sell their goods at the market price at whatever time they wish.
Effect on Africa: Significant. If the market price falls below the guaranteed one, US farmers will still continue to produce as if they’re getting the guaranteed price. Thus there will be overproduction, pushing down the price to levels at which African farmers may not be able to compete.

Note that not all crops are eligible for all or any of these payments.