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March 29, 2011

Farm Subsidies Ripe for Reform

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Lawmakers seeking to rein in the spending spree that has produced a staggering $1.4 trillion budget deficit are ignoring one of the ripest sources of potential savings: farm subsidies.

Most congressional deficit-reduction proposals have been silent on farm subsidies, and the House Agriculture Committee recently released a bipartisan letter pre-emptively warning against fundamental agriculture reform. Because farm subsidies are concentrated in “red America,” they will test conservatives’ willingness to apply tough budget choices to their own favored programs.

Defenders assert that the $25 billion annual cost of farm subsidies (a bit less than 1 percent of federal spending) is too small to bother reforming. Yet one-third of the federal budget — $1 trillion total — consists of programs that each cost $25 billion or less. Should all that spending be taken off the table, too? Every dollar saved from these programs represents another dollar that won’t have to be cut from Social Security or Medicare.

Farm subsidies are supposed to protect farmers against poverty and instability. This Norman Rockwell image aside, farm subsidies are actually America’s largest corporate welfare program.

The average farmer earns more than $83,000 annually (nearly 20 percent above the national average), according to the Department of Agriculture. Commercial farmers, who receive the majority of subsidies, report an average net income of $170,000, and a net worth close to $1 million. And despite past attempts to limit subsidies to millionaire farmers, the last farm bill actually repealed key payment limits.

The farm economy is booming. Farmers dealing with higher energy prices are also benefiting from soaring prices of wheat (up 81 percent in the past year), corn (up 59 percent) and soybeans (39 percent). Consequently, 2011 net farm income is forecast at 52 percent above 2009 levels.

Farm subsidy advocates often respond that farms could not survive without large subsidies. Nonsense. Producers of just five crops — wheat, cotton, corn, soybeans and rice — receive nearly all farm subsidies. In fact, only one-third of the $390 billion in annual agricultural production is directly subsidized. All other farmers — including growers of fruits, vegetables, livestock and poultry — receive nearly nothing.

This begs the question: If farm subsidies are necessary to produce an adequate food supply with stable prices and thriving farmers, why haven’t the growers of non-subsidized crops experienced these problems?

Supermarkets are filled with food produced and distributed without farm subsidies. This includes everything from apples to oranges, from beef to chicken. In fact, American farmers are growing and distributing more rich and diverse products than ever before, from kumquats to purple potatoes, all without subsidies.

Yet the prices and supplies of these products are relatively stable, and the farmers’ incomes are just as high as those of subsidized farmers. The free market already works for all other farm production. Surely it can work for producers of wheat, cotton, corn, soybeans and rice.

U.S. farm policy also fails Economics 101. Its approach to propping up crop prices and farmer incomes is to offer the largest subsidies to those who plant the most crops — thus encouraging more over-planting and driving prices down further, ultimately necessitating more subsidies. Then, while paying some farmers to grow more crops, the Conservation Reserve Program pays other farmers to grow fewer groups. For every farm program, there is an equal and opposite farm program.

The real farm policy challenge is yearly income fluctuations resulting from crop and weather unpredictability. This can be solved inexpensively with tax-free Farmer Savings Accounts that help farmers smooth out the boom and bust years. Multi-year busts could be addressed with an improved crop insurance system. This new system would cover all farmers (not just the “big five” growers), support free markets and international trade, and cost a fraction of the current system.

Reining in spending and deficits will require broad-based budget reforms. If farm subsidies cannot be included in those reforms even with a booming farm economy, then President Ronald Reagan’s quip that a government program is “the nearest thing to eternal life we’ll ever see on this Earth” will be truer than ever.

Brian Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs at the Heritage Foundation.

First appeared in The Washington Times

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