Economics, Regulation, Taxes and Spending

5 questions free-market advocates must ask about the 2014 farm bill

Image Credit: shutterstock.com

Image Credit: shutterstock.com

On Monday night, conferees from the House and Senate Agriculture Committees filed a farm bill that has been two years in the making. The bill is large and complicated, with many changes from prior legislation. Given the tight timeline from submission to vote, market-oriented policymakers would do well to answer the basic question: are the agricultural subsidy programs contained in this bill better those they replace?

Five core facets of this question—and their answers—should assist policymakers in making this determination as they digest the bill’s farm subsidy provisions:

1. Does it save taxpayer dollars relative to existing legislation?

No. Compared to the farm programs contained in the 2008 farm bill—passed under the leadership of Sen. Harry Reid and Rep. Nancy Pelosi—it is highly unlikely that the conference committee’s bill would yield any budget savings. New provisions contained in the legislation become more costly as crop prices fall—and crop prices have fallen substantially in the past year. As a result, the costs of new provisions would likely exceed any savings that result from elimination of the Direct Payments Program. Should crop prices fall to their historical average levels, the programs could cost taxpayers up to $15 billion more per year.

2. Does it save taxpayer dollars relative to the Senate’s proposed bill?

No. The conference report adds a potentially very expensive program—the Price-Loss Coverage program—that is not contained in the Senate Agriculture Committee’s proposal. As a result, the conference report’s package of farm subsidies will be more costly to taxpayers than the Senate’s bill.

See this infographic for a picture of how the conference report stacks up.The 2014 Farm Bill A Bad Crop

3. Does it eliminate more subsidy programs than it creates?

No. Policymakers deserve credit for eliminating the wasteful Direct Payments Program, which cut farmers checks simply for being farmers, as well as two other subsidy programs (the ACRE shallow loss program and a price-triggered Countercyclical Payments Program). Seventy-five percent of those programs’ benefits flowed to the top 10% of wealthy farmers.

Yet instead of simply eliminating wasteful and ineffective programs, the conference report adds three new ones: the Agriculture Risk Coverage (ARC) program, the Price-Loss Coverage (PLC) program, and the Supplementary Coverage Option (SCO). The ARC and SCO programs would essentially guarantee that farmers’ revenues never fall below 86% of what they earned in previous years, when crop prices were at historical highs. The PLC program is simply an updated version of the Countercyclical Payments Program, but one which will be much more lucrative for farmers. The new program guarantees them much higher prices for covered crops.

No other business could hope for such guarantees, much less ones funded at taxpayer expense.

4. Is it consistent with the intent of the House Budget Resolution?

No. The House Budget Resolution established that $3.1 billion in annual budget savings should be achieved from the farm subsidy portion of the farm bill. The conference report falls far short of that goal, partially masking the shortfall with savings from nutrition programs. It is unlikely that the new bill will yield any savings—let alone $3.1 billion.

5. Will it prevent additional World Trade Organization (WTO) violations and sanctions?

No. As a result of WTO violations, United States taxpayers pay Brazilian cotton farmers $147 million per year in compensation for the anticompetitive effects of protectionist US cotton policies. Fresh sanctions for other programs would be costly and must be avoided.

While the new farm bill would remove price support programs for cotton, it would introduce a new heavily-subsidized insurance program that provides substantial subsidies tied to current production decisions.  Moreover, the conference bill’s proposed new ARC, PLC and SCO subsidy programs for other major crops like corn, soybeans, wheat, and rice—which are tied to current production and/or current prices—are blatantly non-compliant  with WTO rules concerning domestic subsidies for agricultural commodities. As a result, taxpayers, farmers, and other export-oriented sectors of the US economy will become more vulnerable to trade sanctions resulting from WTO disputes.

A path forward

Simple reforms to the conference report would save taxpayers billions, shield the United States from costly World Trade Organization sanctions, and ensure that fewer subsidies flow to the wealthiest farming operations.

  1. Simply eliminate the wasteful Direct Payments Program and the related shallow loss program called ACRE, whose benefits flow largely to wealthy farming operations. Don’t create three new costly and WTO-violating revenue protection programs to replace them.
  2. Cap crop insurance subsidies for the wealthiest farmers. A recent amendment from Sens. Coburn and Durbin would reduce by 15% crop insurance subsidies for farmers making over $750,000 annually, and would be a step in the right direction.

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One thought on “5 questions free-market advocates must ask about the 2014 farm bill

  1. Um…would it not be easier just to eliminate the USDA? And all of its programs? Perhaps excepting some R&D work?

    Sure, in the Dust Bowl days farmers did not have electricity, and bumper crops led to ruin, as it bad years…

    Today’s farmers can handle themselves…

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