1.
Introduction and Background
Agricultural commodity markets are a labyrinth of complex subsidies and other distortions on
both the demand and supply sides of the market. Government programs that impact the production of
agricultural products have been in existence in various forms since the 1930s, when they were introduced
in response to sharp declines in farm product prices. The U.S. Department of Agriculture’s (USDA’s)
Commodity Credit Corporation (CCC) is required to provide assistance to specified agricultural
commodities with three primary objectives: support prices, supplement incomes, and manage supplies.
Congress has devised a number of techniques for the CCC to employ in achieving these objectives,
including nonrecourse loans, commodity purchases, deficiency payments (based on target prices), loan
deficiency payments, acreage reduction programs, and marketing quotas, among others. There are also
numerous non-CCC farm production and marketing programs that influence agricultural commodity
markets such as farm lending, soil and water conservation, and export assistance programs, as well as
federally subsidized crop insurance. In addition, there are programs that subsidize consumption of some
agricultural commodities. For instance, under the Step 2 marketing provision for upland cotton, subsidy
payments are made to exporters and domestic mill users of U.S. cotton when the U.S. price is sufficiently
above the world price.
In addition to the government programs described above, many agricultural commodities have
industry-funded generic promotion and research (“checkoff”) programs that are designed to increase
domestic and/or international demand for the commodity. Some of the largest national checkoff
programs are for beef, pork, dairy products, cotton, and eggs. The impetus behind these programs from
the producers’ standpoint is that they may be able to improve the economic performance of commodity
producers. In markets characterized by homogeneous commodities produced by numerous suppliers,
there is little incentive for any individual producer to unilaterally fund commodity promotion or research.
Recognizing this, producers of numerous agricultural commodities have chosen to impose an assessment
on themselves to fund programs aimed at increasing the demand for the generic commodity and