Target prices

The federal government also intervenes in the market for other agricultural commodities in various ways. The method most recently used to support the incomes of grain producers has been the imposition of target prices for crops. Target prices are price floors 10 sellers However unlike the price supports discussed above for milk target prices do not directly increase the market price paid by buyers. Instead, the entire quantity supplied by farmers at the target price is dumped on the market. The resulting price depends on the demand for the commodity. Farmers are then
subsidized by the government through a payment for each bushel sold equal to the difference between the target price and the price paid by buyers .
At the beginning of each crop year the US Department of Agriculture announces the target prices for various crops and the eligibility requirements to participate the target price program. For example, in 1987 the target price for wheat was $4,38 per bushel Typically, farmers are required to hold a certain percentage of the their acreage land to be eligible for the target price. In 1987 farmers had to hold idle 25% of their land to gain the right to the target price.

The government does not buy grain surplus, on the target price instead all produced graine amount is offered for sale at the market.

Consumers are clearly better under the target price program than they would be under a price floor of $4.38 per bushel. In fact, one of the justifications of the target price program in recent years has been that it does contribute to lower prices for U.S. crops, thereby increasing the ability of U.S. producers to compete with foreign competitors in international commodity markets. However, because of the acreage restrictions that go along with the program, prices can be higher than would be the case.

Subsidizing farmers in this way therefore transfers income from taxpayers in general to farmers, but it does not necessarily result in lower commodity prices to consumers compared to those that would prevail in a free market The United States Is not the only nation that subsidizes farmers in ways that increase quantities supplied. Other nations have their own subsidy programs that tend to raise prices received by their farmers above the equilibrium level. The result of these programs has in recent years has been a glut of grain on international markets, sharply reducing prices. Farmers in nations without subsidy programs have suffered. For example, in Canada where farm subsidies are below those in other nations, many farmers have been forced out of business.
There are also other examples. The policy of encouragement of the domestic manufacturers of sugar in the advanced countries damages to a number of the developing countries, whose climate is best suited for sugar production. The surplus of sugar in the advanced countries because of price thresholds on surpluses causes the sugar exports from these countries. And it means, that the developing countries should compete with them at the world markets. Thus policy of support of sugar manufacturers in the advanced countries results in decrease of the producers incomes in the less advanced countries. The same situation develops with other branches of agroindustrial manufacture. The support of the prices on rice in the USA damages to the rice producers in Thailand. The creation of favorable conditions for the manufacturers of cotton in USA results in decrease of the incomes in Egypt and Mexico.