The 2013 Farm Bill presents a real opportunity for substantive changes in U.S. agricultural policy. But instead of reform, both the House and Senate agricultural committees are offering classic bait-and-switch proposals to protect farm subsidies - more than 80 percent of which flow to households much wealthier than the average American family.
As I discuss in my new study for the Mercatus Center at George Mason University, the bills' bait is the elimination of the politically toxic Direct Payments program, introduced in 1996, which annually sends about $5 billion in welfare checks to people who own or farm cropland - whether or not they grow any crops. The switch is the introduction of new programs that would give farmers even larger subsidies if either crop prices or average per-acre crop revenues decline from their current record or near-record levels.
In the House farm bill, price supports, through a new Price Loss Coverage program, are the preferred subsidy vehicle. The PLC would establish target prices close to the current near-record market prices for crops like corn, wheat, rice, peanuts and oilseeds. Farmers would then receive payments when market prices fall below those target levels.
Peanut and rice farmers stand to benefit especially from the PLC. The bill's proposed peanut target price, for example, exceeds any of the Congressional Budget Office market price forecasts for the next five years. While the PLC may indeed benefit Southern-state farm industries, it appears to have little semblance to the "save the family farm" safety net program claimed by its advocates.
The Senate's farm bill would put taxpayers on the hook for a new program that triggers subsidies when a farmer's revenues for major crops fall below 88 percent of their recent five-year average. And both the House and Senate farm bills would require taxpayers to cover 70 percent of the costs of a new insurance program to give farms additional "double dip" subsidies if their revenues fall below 90 percent of expected levels.
CBO estimates the new farm subsidy programs will cost about $3.5 billion a year. In fact, several independent studies have shown that if crop prices drop, even quite modestly, American taxpayers will be shelling out far more for these new programs than the $5 billion in claimed savings for the elimination of the Direct Payments program. If crop prices shift towards longer-run historical levels, taxpayers could face an estimated $16 to $20 billion in new farm subsidy costs. That's a lot of money, and most of it would go to the wealthiest farmers, corporations and landowners in the farm sector.
Most impartial observers would likely conclude there is no valid financial case for federal farm subsidies and special farm safety nets. Farm debt-to-asset ratios are at record lows, prices for major crops are at or close to record highs, and family farms almost never fail (annually, only one in every 200 farms closes its doors because of financial problems). In fact, farming is one of the most profitable and financially secure sectors of the economy.
Both the House and Senate farm bills ignore real reforms, and instead attempt to fool taxpayers with bait-and-switch proposals for new subsidies. Those new programs will give most of their subsidies to America's most successful and wealthiest farmers and landowners.
And while reforms are necessary, it is more than ironic that the same House Farm Bill schedules substantial cuts to nutrition programs targeted to relatively poor families while continuing, and even increasing, six-figure government handouts to thousands of millionaire corn, peanut, wheat, soybean and rice farmers.
Vincent H. Smith is Professor of Economics in the Department of Agricultural Economics and Economics at Montana State University and co-director of MSU's Agricultural Marketing Policy Center.