effect of subsidy and taxes on agricultural production
Agricultural subsidy Government intervention, through agricultural subsidies, interferes with the price mechanism which would normally determine commodity prices, often creating crop overproduction and market discrimination. Subsidies are also an inefficient use of taxpayerâ€™s money. For instance, in 2006, the Department of Agriculture estimated that the average farm household income was $77,654 or about 17% higher than the average US household income.[58] From a public economics perspective, subsidies of any kind work to create a socially and politically acceptable equilibrium that is not necessarily Pareto efficient.[59]
Agricultural Adjustment Act When President Franklin D. Roosevelt took office in March 1933, the United States was in the midst of the Great Depression.[8] "Farmers faced the most severe economic situation and lowest agricultural prices since the 1890s."[8] "Overproduction and a shrinking international market had driven down agricultural prices."[9] Soon after his inauguration, Roosevelt called the Hundred Days Congress into session to address the crumbling economy.[9] From this Congress came the Agricultural Adjustment Administration to replace the Federal Farm Board. The Roosevelt Administration was tasked with decreasing agricultural surpluses.[9] Wheat, cotton, field corn, hogs, rice, tobacco, and milk and its products were designated as basic commodities in the original legislation. Subsequent amendments in 1934 and 1935 expanded the list of basic commodities to include rye, flax, barley, grain sorghum, cattle, peanuts, sugar beets, sugar cane, and potatoes.[10] The administration targeted these commodities for the following reasons: