How the US supports its farmers and why this matters in Washington-Delhi trade negotiations

This might be relevant in the ongoing trade negotiations between India and the US, where Washington has sought that agriculture not be “off the table” in any deal on expanding market access and cutting tariffs. India’s farm sector “can’t stay closed” and must “open up” for American produce, the US Commerce Secretary Howard Lutnick has said.

Form of assistance

The US, unlike India, does not provide subsidies on fertiliser, electricity or water in order to underprice these inputs used by farmers. Nor does its government intervene much on the output side through physical procurement and stocking of produce.

Government support to agricultural producers in the US, instead, takes place mainly via direct payments. Two major programmes of financial assistance are Price Loss Coverage (PLC) and Agriculture Risk Coverage (ARC). These aim at protecting farmers against low prices or revenue shortfalls with respect to 22 crops — from wheat, corn, barley, oats, rice, lentils and peas, to cotton, soyabean and other oilseeds.

PLC payments are triggered when the average market price for a covered commodity falls below its “effective reference price” or ERP. The latter is similar to the minimum support price (MSP) declared for various crops in India. The US ERP for wheat, for example, is now $5.56 per bushel. It translates into around Rs 1,780 per quintal, lower than India’s MSP of Rs 2,425. However, MSP requires physical purchase of crops by the government, whereas in the US, farmres are directly paid the difference between the market-year average price and ERP.

ARC payments are, likewise, triggered when the actual revenue from growing a covered crop drops below a guaranteed level based on benchmark county-specific yields and a five-year average market price.

Besides PLC and ARC, there is a Dairy Margin Coverage (DMC) programme offering producers financial assistance when the margin between the farmgate milk price and average feed cost falls below a certain threshold level. This programme, again, ensures more stable and predictable income for farmers by protecting against output price declines and input cost surges.

Magnitude of assistance

The accompanying table gives year-wise gross cash income (from sale of produce and other agri-related sources as well as federal government payments) and expenses (on intermediate inputs, labour, interest, rent, taxes and fees) of the US farm sector.

US farm cash income and expenditure (in billion dollars)

It can be seen that direct payments to producers under different federal farm programmes have ranged from $9.3 billion to $45.6 billion in recent years. The $45.6 billion payment in 2020 — which included $31.4 billion of pandemic and other supplemental disaster assistance — constituted almost 38% of the net cash income of US farmers that year. Direct government farm payments are forecast at $42.4 billion for 2025. Much of it is on account of supplemental and ad hoc disaster assistance to farmers and ranchers under the American Relief Act of 2025, which the US Congress passed and the previous President Joe Biden signed into law in December 2024.

A December 2024 report by the US Government Accountability Office (GAO) revealed the total financial assistance to agricultural producers over the five years from 2019 to 2023 at about $161 billion. This money was disbursed by the US Department of Agriculture across 27 programmes. These encompassed payments received under the federal crop insurance ($53.6 billion), Covid-19 pandemic financial assistance ($30.9 billion), market facilitation/trade disruptions relief ($22.6 billion), PLC/ARC/DMC ($16.8 billion) and environment conservation ($16.2 billion) programmes.

What is equally interesting is to whom the payments were made. According to the GAO report, out of the aggregate $161 billion or $32.2 billion average annual financial assistance, $20.3 billion (63%) went to just 74,655 producers. The remaining $11.9 billion (37%) was distributed among 968,778 producers. While the average payment to all 1.04 million producers was $30,782, the figures were way higher for the top 10% ($271,408), top 100 ($5,930,559) and top 10 ($17,798,684).

Lessons for India

India has a federal direct income support programme — Pradhan Mantri Kisan Samman Nidhi (PM-Kisan) — with an outlay of Rs 63,500 crore in 2024-25.

Together with Central subsidies on fertiliser (Rs 171,300 crore), crop loans (Rs 22,600 crore) and insurance (Rs 15,864 crore) — plus that on MSP procurement at above market rates and state government expenditures on direct payments and provision of electricity and irrigation water at below cost, if not free — the annual support to Indian farmers may add up to, say, Rs 500,000 crore or $57.5 billion.

That is more than the $32.2 billion of yearly financial assistance to American farmers, going by the GAO report. But the estimated $57.5 billion for India is spread across several times the number of farmers in the US: PM-Kisan alone has over 111 million beneficiaries who receive a measly Rs 6,000 ($69) each a year. Contrast this to the federal payments of $30,782 (Rs 26.8 lakh) to the average US producer!

To that extent, an “opening up” of India’s agricultural market to US produce would tantamount to highly unequal competition. Not for nothing that the World Trade Organization’s rules provide for “special and differential treatment” to developing countries, when it comes to tariffs and safeguarding the interests of domestic producers.