The Farm Bill Comes Due

Published May 25, 2017

It’s once again time for the half-decade kabuki dance called the farm bill reauthorization. In this stylized political drama, fiscal conservatives decry the wasteful spending in existing farm programs and argue farmers, especially big agribusinesses, should be treated like almost every other business in this country and forced to compete in the free market without government support.

By contrast, legislators from farming states and big-government liberals argue small family farmers need a safety net protecting them from the vagaries of the weather and the ups and downs of the business cycle. They say, as they always do, absent the enormous subsidies, Americans will be one season’s crop failure away from starvation.

The result will be lip service paid to reducing the size of the program, but in the end, the spending will grow. Billion-dollar agricultural companies and relatively wealthy farmers will reap windfall gains on the backs of taxpayers and grocery shoppers — especially the poorest among us, who spend a much larger percentage of their incomes on food than upper-income households.

Even if one believes in providing a “safety net” for farmers — helping the smallest, poorest farmers to weather market and climatic conditions — farmers shouldn’t get a guaranteed taxpayer-backed income, nor should large corporate farmers be getting millions of dollars in subsidies.

The vast majority of farmers do not receive crop subsidies. Most vegetable and fruit growers and livestock raisers aren’t covered by the nation’s farm programs. Rather, the farm bill insures and makes payments to select commodity farmers, including those that grow corn, cotton, peanuts, rice, sorghum, soybeans, wheat, and, of all things, mohair.

The Environmental Working Group (EWG) points out between 1995 and 2014, the various subsidies and payouts for crop insurance — premium support and actual crop loss payouts — disaster relief, and income-support programs have cost U.S. taxpayers more than $322 billion.

For decades, U.S. farm policies have not simply provided a “safety net” protecting farmers from significant crop losses, such as from the recent snowstorms in the Midwest, they have ensured large, tremendously profitable agribusinesses receive added support when they fail to hit expected profit targets.

As Daren Bakst, research fellow in agriculture policy at the Heritage Foundation wrote in a recent article, “If farmers have record production, they can get a government handout. If the weather is perfect for growing a crop, farmers can still receive a government handout. The reason is simple. The existing system provides handouts regardless of whether there’s any crop loss. If agricultural producers simply don’t reach revenue targets, they can get handouts.”

The most recent farm bill was supposed to end the most egregious abuses of the farm program. It replaced direct payments to farmers, which were given regardless of crop yields or market conditions, and counter-cyclical payments triggered when crop prices fell below a government-established standard for select crops, with two new programs: Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC).

These programs have cost taxpayers money, contrary to the claims made by their proponents. ARC and PLC were supposed to cost approximately $18 billion in their first five years of operation. Instead, with still one year left to go in the program, it is estimated they will cost $32 billion. In 2017 alone, the United States is expected to spend $23.9 billion on farm subsidies, the most in a single year since 2005 and an amount that surpasses the $23 billion the reformed farm program was supposed to save over the previous five years of the farm program.

The largest, fastest growing subsidy for farmers is the crop insurance program. The federal crop insurance program is now expected to cost taxpayers as much as $88 billion between 2017 and 2026. Under the federal crop insurance program, taxpayers subsidize farmers’ purchase of crop insurance through pre-approved private insurers. The federal government currently pays 62 percent of the cost of premiums, on average. When you or I buy a home, car, life, or business insurance, taxpayers don’t pay our monthly premiums. But when farmers buy crop insurance, taxpayers pay nearly two-thirds of the tab. Additionally, the federal government reimburses private crop insurance companies for their “administrative and operating” costs, amounting to 22–24 percent of total premiums, and because private crop insurance companies are guaranteed a 14 percent rate of return, when they suffer a loss, the taxpayers cover it.

The government also subsidizes water use by farmers by selling water to farmers at below-market rates, sometimes for as little as 10 percent of the full market cost. And because farmers are often charged a flat rate based on the amount of acreage served rather than the amount of water delivered, they have little incentive to conserve water.

Don’t be fooled into thinking small family farms are reaping most of the rewards of the farm bill. In fact, the largest 10 percent of farms receive 70–90 percent of farm subsidies. In 2015, just 210,000 of the country’s 2.1 million farms received 70 percent of the government commodity payments and 78 percent of federal crop insurance indemnities. Many of these farms make more than $1 million in income annually, and the vast majority of them top $250,000 in annual income. By contrast, 80 percent of farmers, including most small family farms, receive little or nothing from the government each year.

Aside from the cost to taxpayers, farm subsidies also harm the environment. To reap greater profits, farmers respond to subsidies by increasing production. To increase production, farmers use existing land more intensely, increase inputs of fertilizers and pesticides, and/or expand crop production to marginal lands. Chemically laden water runoff also pollutes the nation’s waterways, which ends up costing taxpayers even more money. For instance, contaminated waterways in the Everglades, largely attributed to fertilizer usage stemming from sugar farming, has resulted in a massive restoration effort, which is expected to cost taxpayers $7.8 billion over 30 years.

Big agriculture and, more importantly, legislators from farm states won’t let farm subsidies die quickly. It took decades to build the current farm welfare program, and to get farmer buy-in, critical to a successful reform effort, it will take years to reverse it.

With this is mind, I propose a 10-year transition period during which the government should end all direct and indirect agricultural payments, subsidized water delivery, and federal mandates or limits on the amount of acreage that can be used and types and amounts of crops that can be grown.

Under this proposal, each farmer currently receiving crop payments would get a flat (but declining) monetary grant each year, with the initial payment equaling the average amount of the subsidy received during the previous five years. The subsidy payment would decline by 10 percent each year. Over the same 10-year period, water prices would be increased until the price paid for water equals the market rate.

Fixed, declining payments may result in higher payments in years with higher-than-average crop prices compared to what producers would have received under the current system. It also would provide certainty payments would be made, allowing farmers to plan their financial futures with confidence. (Farmers would know in advance for 10 years how much they can expect to receive from the federal government.)

To garner political buy-in from the agricultural community, the subsidies should be paid regardless of whether those receiving the payments continue to produce the crops for which the subsidies are being paid, whether the recipients switch to other crops that have higher market prices, or whether they plant crops at all. Some producers may choose to plant nothing, which may offend some who object to paying something for nothing, but farmers are likely to pursue this course of action only if they reasonably expect crop prices in a particular year to come in below their cost of production. Otherwise, farmers could make a profit on the crops and take the federal payment.

If a number of farmers expect their costs to be higher than their revenues in a year and decide not to plant, the lower production should increase the prices received for those who did deliver products to the market. In any case, the environment would benefit from the land being left fallow should such a situation occur, and the taxpayer would be no worse off since in such years, he or she would likely have had to pay more in the form of subsidies. In the long run, the benefits of ending farm subsidies for consumers, the environment, and the federal budget would far exceed any short-term windfall gain for big agriculture.

Aside from being good for taxpayers, over time, this policy should encourage the implementation of more-efficient, less-wasteful irrigation systems on farms and a focused application of pesticides and fertilizers, which means the environment will benefit as well.

Most farmers either don’t receive government support or receive relatively little, so it’s unlikely they would be negatively impacted by policies that would put an end to federal farm subsidies. As for the big corporate farms that receive the vast majority of farm handouts, it’s time to get them off the government dole, thereby ending the government-sponsored welfare for the well-to-do that makes up the majority of farm-bill-related payouts.