Senate Farm Bill Short on Savings, Long on New Subsidies

Published April 24, 2012

The U.S. Senate Agriculture Committee tomorrow will begin marking up a five-year, $480 billion Farm Bill that introduces a destructive new “shallow loss” insurance program and falls far short of even the modest budget-cutting goals set out by the White House.

While the Senate bill does eliminate some wasteful subsidies, including $5 billion a year in direct payment subsidies that are sent to agricultural producers regardless of need, it projects to save only $26.4 billion over the next decade. That’s less than both the $30 billion target set out by House Budget Committee Chairman Paul Ryan (R-Wisconsin) and the $33 billion in cuts anticipated by President Barack Obama’s budget proposal.

The bill actually increases by $3.2 billion over the next decade federal spending on the already $9 billion-a-year federal crop insurance program, which sees taxpayers pick up the tab for more than 60 percent of farmers’ premiums. A recent report by the U.S. Government Accountability Office suggested that simply limiting the subsidy to $40,000 per producer would save $1 billion a year.

Rather than scale back the crop program, the Senate bill diverts most of the savings from eliminating direct payments into a new “shallow loss” insurance program that would compensate farmers if their income drops by as little as 5 percent. According to the Congressional Budget Office, repealing direct payments would save $44.6 billion over the next decade, but the new “agricultural risk coverage” adds $28.9 billion to the budget. The losses the program would compensate for need not be from floods, droughts, frosts, or other weather-related catastrophes, but would instead largely be driven by market fluctuations in the prices of commodities.

The following statement from The Heartland Institute – a free-market think tank – may be used for attribution. For more comments, refer to the contact information below. To book a Heartland guest on your program, please contact Tammy Nash at [email protected] and 312/377-4000. After regular business hours, contact Jim Lakely at [email protected] and 312/731-9364.

“As currently structured, the federal crop insurance program is a boondoggle that costs taxpayers billions, offers lush corporate welfare both to big agribusiness and to insurers and insurance agents, and harms the environment by encouraging converting previously wild lands for agricultural development.

“Rather than introduce a costly new shallow loss subsidy, Congress should be encouraging risk-based pricing by the Risk Management Agency and phasing out crop insurance subsidies for all but the smallest and neediest of farmers.”

R.J. Lehmann
Deputy Director, Center on Finance, Insurance, and Real Estate
The Heartland Institute
[email protected]

The Heartland Institute is a 28-year-old national nonprofit organization with offices in Chicago, Illinois and Washington, DC. Its mission is to discover, develop, and promote free-market solutions to social and economic problems. For more information, visit our Web site or call 312/377-4000.