The current Farm Bill costs taxpayers about $20 billion a year in farm-oriented conservation and straightforward subsidy programs, of which $2.5 billion goes to private crop insurance companies. About 80 percent of the rest flows to the largest 15 percent of U.S. farms, whose owners are typically more than ten times wealthier than the average U.S. household.
If prices for major crops like corn and wheat moderate towards their long run trends, the Senate and House proposals for a new farm bill will substantially increase the federal subsidies that flow mainly to very wealthy farmers. The new programs, which all potentially violate U.S. trade commitments, would cover “shallow losses” and one of those would also substantially increase federal payments to insurance companies.
So what should happen in a new farm bill? The current “welfare for doing nothing” Direct Payments program and a related shallow loss program known as ACRE should be terminated, reducing the budget deficit about $5 billion a year. Crop insurance subsidies should be rolled back to pre-2001 levels (when farmers paid about 50 percent of the full cost of their crop insurance) and capped at $40,000 per farm, saving about $3 billion a year.
One area where spending clearly needs to be increased, by about $1.5 billion a year, is on publicly performed agricultural research, which has very substantial payoffs for U.S. consumers and farmers, and agricultural productivity throughout the world.
Implementing these reforms, with no cuts to nutrition programs, would reduce farm bill spending by about $5 billion a year ($50 billion over ten years), 25 percent more than the nutrition program cuts currently included in the House Farm Bill proposal. Such changes would also be fairer, and increase the competitiveness of U.S. farmers in global markets.
Vincent H. Smith is a professor of economics at the Department of Agricultural Economics, Montana State University.