Issue 1: The Cost of the Farm Bill
- The Congressional Budget Office (CBO) estimates the cost of
House and Senate farm bills at $171 billion over 10 years. But over
the past decade, poor forecasting and technical errors have caused
actual agriculture spending to be twice as high as CBO
- Even if one accepts the current cost estimates, the farm bill's
combined cost in taxes and higher food prices will be approximately
$462 billion over 10 years--which is more than the federal
government will spend on education and environmental protection
combined. This tab will leave the average household with $4,377
less to spend on necessities such as mortgage payments, health
insurance, retirement savings, or their children's education.
Issues 2: The Distribution of the Subsidies
- Farmers are not poor: Today, the average farm reports a net
worth of nearly $564,000 (double that of the average household) and
an annual income of $64,347 (17 percent above the national average)
despite the fact that the cost of living in rural areas is 10
percent to 40 percent lower than the national average. By no means
a teetering industry, the failure rate for farms is just one-sixth
the rate for non-farm businesses.
- America's largest corporate welfare program: In 2001,
three-quarters of farm subsidies went to just 10 percent of farms,
most of which have annual incomes above $250,000. In contrast, the
bottom 80 percent of farmers received just one-eighth of subsidies.
If the federal government wanted to help poor farmers, it would
cost just $4 billion per year to guarantee every full-time farmer
in America an income of at least 185 percent of the federal poverty
line ($32,652 for a family of four in 2001).
- Despite a provision limiting a farmer's annual subsidy to
"only" $360,000 per year, the farm bill retains all the loopholes
that render these limits meaningless. One loophole example: Tyler
Farms of Arkansas collected nearly $32 million in farm subsidies
between 1996 and 2001 simply by dividing a farm into 66 separate
"corporations" and signing up numerous individuals as subsidy
Issues 3: The Soviet approach to Farm
- Despite passing free market reforms in 1996, this farm bill
reads like a Soviet-style 5-year plan. It brings back centralized
planning in agriculture, and will prevent American agriculture from
becoming the vibrant, creative, dynamic force needed to compete in
21st century global markets.
- Some have called this farm bill the largest non-defense
expansion of the federal government since the Great Society.
- These farm policies simply make no sense. Farm policy is based
on the premise that a surplus of crops has lowered crop prices too
far and farmers need subsidies to recover lost income. However, the
federal government's remedy is to offer subsidies that increase as
a farmer plants more crops. This creates greater crop surpluses,
driving prices down even further and spurring demands for even
Issue 4: Triggering a Trade War
- Because 96 percent of the world's consumers live outside the
United States, international trade is vital to American farmers.
Yet, due to an average global agriculture tariff of 62 percent,
just 25 percent ($14 billion) of American agricultural products are
- The farm bill does not open global markets and engender a level
of trade that would create jobs and increase incomes in the
agriculture sector. Furthermore, by including $271 billion in price
supports that artificially raise the price of American food, the
farm bill guarantees that many American crops will be too expensive
to find buyers in other nations.
- Not only does this legislation fail to facilitate access to
export markets or remove trade-restricting price supports, but it
also could eliminate American exports from the arena of
competition. The World Trade Organization (WTO) limits the United
States to $19.1 billion annually in "trade-distorting" farm
policies. Price supports for dairy and sugar, loan deficiency
payments, marketing loan gains, and commodity certificates (and
probably the new "countercyclical" payments, which will cost up to
$5 billion annually) all qualify as "price distorting" practices.
If the United States violates the WTO farm subsidy limit, the WTO
can be expected to impose trade sanctions on American farm
products, and this would have a devastating effect on U.S.
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