December 17, 2001

December 17, 2001 | WebMemo on Federal Budget

Subsidies in the Soil: Farm Bill Talking Points

Before 1996, farmers received large crop subsidies that were based on: 1) the crop planted; and 2) the market prices of the crop. These policies resulted in farmers basing planting decisions more on government policy than market demands. The 1996 reform was called "Freedom to Farm" because farmers traded away subsidies for the freedom to decide what to plant without the government treating them differently.

Although subsidies were set at $6 billion annually and then set to phase out over the next several years, farmers reacted to slight price decreases in 1998 by requesting and receiving the first of several annual "emergency packages" which totaled $24 billion between fiscal years 1998-2000. Now, instead of paying farmers emergency payments, Congress and farmers want to return to the old system of annual crop-based payments - at payment levels unprecedented in US history.

  1. Although central planning has failed worldwide, the farm bill reads more like a 1930s Soviet-style five-year plan than as a strategy for capturing 21st agriculture markets.
  2. Under the Senate bill, the federal government will determine who can grow crops, how much they can grow, and the prices at which they can be sold.
  3. Farmers are in no more need of subsidies than other industry. In 1999, Farm households had an average income of $64,347, 17% above the national average, and an average net worth of $563,600, double national average (the difference is even larger when factoring the 10-40% lower cost of living in the rural areas farm are located in).
  4. As an industry, farm incomes have been rising steadily over the past few years and are now at record levels. Farms fail at only 1/6 the rate of non-farm businesses. Yet Congress continues to tax working Americans to subsidize these wealthy farmers.
  5. H.R. 2646, which passed on October 5, will increase the 10-year cost of agriculture policy to $190 billion taxes and $261 billion in higher food prices, for a total of $461 billion.
  6. This huge tab will cost the average household $4,377 over the next decade in higher taxes and food prices, as the average full-time farm will receive over $1 million in subsidies and price supports.
  7. The increased food costs will fall most heavily on the poor.
  8. The Senate Bill's cost has not been finalized, but it will be even higher than the House Bill due to massive dairy price supports.
  9. Although many believe that subsidies are going to save the small family farm, a vast majority of the subsidies go to wealthy farmers and agribusiness.
  10. Two-thirds of farm subsidies go to just 10% of subsidy recipients, most of whom are earning well over $250,000 annually.
  11. Fifteen Fortune 500 companies and 14 members of Congress receive farm subsidies, and wealthy individuals like David Rockefeller, Ted Turner and Scottie Pippen receive subsidies as high as 75 times the annual median of $935.
  12. Both the Senate and House bill hurt American exports.
  13. Both bills place the US dangerously close to exceeding the World Trade Organization's subsidies limit (approximately $19 billion annually). Violation of the WTO would result in large fines against the US and possibly trade sanctions on US agriculture exports.
  14. With 1/3 of American agriculture dependent on exports, these sanctions would have a devastating impact on US agriculture and the economy as a whole.
  15. The current farm bill doesn't expire until September 30, 2002, but some lawmakers want to pass a farm bill now so they can lock in these massive subsidies before the surplus is gone, and to score political points.
  16. Congress should focus on the war and the stimulus now, and then come back next year to examine fresh approaches to agriculture.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

About the Author

Brian M. Riedl Grover Hermann Fellow in Federal Budgetary Affairs
Thomas A. Roe Institute for Economic Policy Studies

Related Issues: Federal Budget