March 26, 2002

March 26, 2002 | WebMemo on Agriculture

Farm Bill Will Hurt all Farmers, Not Just Small Farmers

The farm bill now in conference between the Senate and the House of Representatives, if signed into law, would hurt all farmers, large and small.1 The bill was, in fact, intended to have the opposite effect: to save farmers, particularly small farmers, from suffering the effects of low commodity prices and therefore decreased incomes.However, it is precisely this effect that the current bill would cause if signed into law.

This author previously argued that, due to the structure of subsidy programs, a simple increase in subsidies would not help small farms, as the proponents of the bill had argued.2 It would, in fact, simply give more money to those already receiving large subsidies: large farms, particularly cotton and rice growers.However, there is a further problem with this bill, something that affects all farmers: its effect on income.

According the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri, increased subsidies will have the effect of keeping agricultural production artificially high, relative to market prices.That is, farmers will continue to plant more of covered commodities than they would if reacting solely to market demand.This overproduction will drive prices even lower than under current policy (the Freedom to Farm Act, enacted in 1996 and due to expire in September of this year).As seen in table 1, the difference in prices of grains will be approximately 2% lower over the five-year period, 2002-2006.3 The effect on income, seen in table 2, will be a corresponding 2.5% decrease over the four-year period, 2002-2006, and a 2.4% decrease over the eight-year period, 2002-2010, for a total loss of $2.9 billion.4

 


 

The price numbers represent national averages, and the income numbers represent national aggregates.As such, they do not well approximate regional and local effects.Furthermore, the price deflation is not identical across all commodities.However, in spite of these defects, the data show what the proponents of this bill would not like to see, a harmful effect of increased subsidies.Furthermore, these programs would come at substantial cost to taxpayers ($211 billion, corrected for $6.1 billion error in cost estimate by Congressional Budget Office).5

At a time when the U.S. economy is just beginning to recover from a recession and we are faced with the costs of increased homeland security and prosecuting a war abroad, Americans cannot afford such a costly and damaging program.American farmers, out of their own best interests, should not support such a proposal.Furthermore, in the best interests of the American people, President Bush should not support this bill.We therefore urge the President to veto this bill and save the taxpayers, and farmers, desperately needed money.

Ethan Baker is a Policy Analyst in the Center for Data Analysis at The Heritage Foundation.




[1] S.1731, the Agriculture, Conservation and Rural Enhancement Act of 2001.

[2] Heritage Backgrounder #1514, "Largest Subsidies go to Wealthy Cotton and Rice Growers" by Ethan T. Baker and Brian Riedl.

[3] Based on changes in commodity prices estimated by Food and Agricultural Policy Research Institute (FAPRI).

[4] Extrapolated from changes in commodity prices and planted acreage estimated by FAPRI.Note, this is income only from production of the following crops: barley, corn, upland cotton, oats, rice, grain sorghum and wheat.Also, $2.9 billion represents an estimated loss over the eight-year period rather than the five years for which the bill would be initially authorized.

[5] See Cost Estimate of S.1731 by Congressional Budget Office.

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