A new entitlement for farmers

Article Highlights

  • As its name suggests, the 'shallow-loss program' would not replace federally subsidized crop/disaster insurance

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  • A new farm bill provision would allow farmers to benefit from high crop prices while taxpayers pay for a fallback in revenues

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  • By insuring high revenues, #farmbill provision incentivizes the increased use of risky farming techniques

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  • New #farmbill program would give the most handouts to farms that are best equipped to handle fluctuating crop prices

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The 2012 farm bill contains a provision that aims to replace the current direct payments system for farmers but which has drawn opposition from critics who say the program will only increase federal payouts to farmers.

The “shallow-loss” provision, introduced by Sens. Debbie Stabenow, D-Mich., and Pat Roberts, R-Kan., would reimburse farmers when actual revenues fall below 89 percent of expected revenues for a crop yield, with “expected revenues” defined as the five-year average of per-acre revenues.

As its name suggests, the shallow-loss program would not replace the federally subsidized crop and disaster insurance that cover more drastic losses, identified as yields or revenues that are lower than 79 percent of their expected values.

Under the Stabenow-Roberts provision, farmers would be partially reimbursed for losses within the 79-89 percent expected revenue range. Depending on whether the farmer elects the farm-based or county-based version of the program, such losses would be reimbursed at rates of 65 and 75 percent, respectively. Still, the provision raises red flags.

First, because crop prices have reached historical peaks over the past five years (Figure 1) the program allows farmers to reap the benefits of high crop prices, while also protecting them – at taxpayers’ expense – from the risk of those prices falling back to historical averages.

As seen in Figure 2, the cost of the Stabenow-Roberts shallow-loss provision would depend largely on crop prices. If prices remain at the historically-high levels predicted by the CBO, the program’s cost will be quite modest, as the left side of the graph displays. However, if crop prices return to their 15-year historical averages, taxpayer burden will rise drastically.

 

Second, by insuring high revenues, the provision incentivizes the increased use of risky farming techniques. If farmers exceed yield estimates, they make more money; if they lose, most of the loss is covered by the taxpayer.

Third, because payments occur on a planted-acre basis, the majority of shallow-loss reimbursements would flow to the largest and wealthiest farms—continuing the federal farm program tradition of giving most handouts to the farms that are best equipped to handle fluctuating crop prices.

Though its advocates have pitched the proposal as a thoughtful response to budget constraints, shallow-loss programs amount to a new entitlement for farmers. Under the guise of budgetary responsibility, this proposal is simply “business as usual” for big agriculture.

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