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Will Congress Pass a Bloated Farm Bill?

07 Mar 2018

Chris Edwards

Federal spending is on a tear. The February budget deal hiked
discretionary spending by $300 billion over two years, and rapid
growth in entitlement programs continues unabated. The government
will spend $1 trillion more next year than it collects in revenue,
and rising amounts after that. The gusher of red ink is remarkable
given that we are in the ninth year of economic expansion.

Republican control of the House, the Senate, and the White House
is failing the test of fiscal sanity. Another trial for
policymakers will be a new farm bill, which is on the agenda
because some current farm programs expire in September. In his
latest budget, President Trump proposed cuts to farm subsidies, but
congressional agriculture committees may try to move ahead on
legislation devoid of any reforms.

After the 1996 farm bill made reforms, every farm bill since
— 2002, 2008, 2014 — went in the opposite direction and
increased subsidies. The 2008 bill was so bad that even
big-spending President George W. Bush vetoed it, although he was
overridden by Congress.

Agricultural subsidies
distort markets, harm the environment, line the pockets of the
rich, and cost billions of dollars.

The 2014 bill ended one major subsidy program but added two new
ones — called ARC (Agriculture Risk Coverage) and PLC (Price
Loss Coverage) — that have ended up costing billions of dollars more than promised.
And the largest subsidy program — crop insurance — now
costs $8 billion a year, or double the average cost during the Bush
years. All in all, farm subsidies cost taxpayers more than $20
billion a year.

Each farm bill rejiggers the subsidy structure, but the programs
have not become any more sensible. Farm subsidies are welfare for
the well-to-do. The average income of farm households in 2016 was
$117,918, or 42 percent higher than the $83,143 average of all U.S.
households.

Those figures are for all farmers, but federal subsidies are
tilted toward the largest and wealthiest farmers — mainly
growers of corn, soybeans, wheat, cotton, and rice. New estimates by scholars at the American
Enterprise Institute find that 60 percent of subsidies from the
three large crop programs (insurance, ARC, and PLC) go to the
largest 10 percent of farms. Politicians claim to support small
farmers, but the opposite is true.

Many billionaires have received farm subsidies. Looking from
1995 to 2014, the Environmental Working Group found that 50
people on the Forbes 400 list of the wealthiest Americans have
received farm subsidies. But today the largest pot of subsidies is
laundered through crop-insurance companies, a practice that hides
the identities of the recipients. However, the Government Accountability Office found that at least
four current recipients of these subsidies have a net worth of more
than $1.5 billion.

Farm subsidies are unfair to the taxpayers who pay the bills,
but they also harm the broader economy. By interfering with market
mechanisms, subsidies can induce overproduction, distort crop
choice, undermine cost control, and inflate land prices.

To an extent, federal subsidies are capitalized in higher values
for farmland, which in turn raises prices for renting farmland. So
the ultimate beneficiaries of subsidies are landowners as much as
farmers, who are often different people because half of all U.S. cropland is rented.

Farm subsidies harm the environment. They draw marginal lands
into production, so areas that might have been used for forests,
grasslands, and wetlands are used instead for crops. Since marginal
lands tend to have poorer soils or climates, they may require more
intense use of fertilizers and pesticides to be productive.

The upshot is that fiscal conservatives, liberals concerned
about income inequality, and environmentalists should all line up
against another big farm bill. Politically, President Trump does
not want to lose support in the farm states, so it is not
surprising that his budget promised to “maintain a strong
safety-net for farmers,” even as it proposed cuts. But why
can’t farmers create their own safety nets?

Farming is risky because crop prices and yields fluctuate. But
businesses in other industries face big risks as well. Think about
the fast pace of change in technology industries, or the large
price swings in the mining and energy industries. Businesses in
those industries prosper or sink depending on their own skill,
planning, and luck without a federal subsidy cushion.

Farmers know they face risks, so they should save when times are
good to weather the tougher years when they come along. When corn
prices are high, corn farmers should save their excess profits so
that when prices fall they can tap their savings. Farmers can also
borrow, buy market-based insurance, and use financial tools to
hedge their risks, such as futures contracts. The problem is that
the gusher of farm subsidies has replaced, or crowded out, greater
use of such market financial tools.

Diversification is another strategy to reduce risks. Farmers can
diversify their crop plantings to reduce risks from fluctuating
yields and price changes, and they can diversify their planting
locations to reduce risks from adverse weather.

Farm households can, and do, diversify their sources of income
to include both farm and off-farm revenues. Department of
Agriculture data show that three-quarters of farm-household
income today comes from off-farm sources. That statistic has been
rising over the years, which has promoted greater financial
stability. Even though crop prices have been down in recent years,
farms continue to generally have low levels of debt and lower bankruptcy rates
than other industries.

Farmers do not need federal welfare, and the Trump reforms would
cut some of the waste, as would reforms proposed by AEI, Cato, and the Heritage Foundation. Republicans must
decide whether to pass another bloated farm bill or stand up to the
farm lobbies and extract needed cuts.

Chris
Edwards
is the editor of www.DownsizingGovernment.org at the Cato Institute.

Click here to view the full article which appeared in CATO Journal

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