May 2, 2002

May 2, 2002 | WebMemo on Federal Budget

The Case Against the Farm Bill

Issue 1: The Cost of the Farm BillĀ 

  • 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 forecasts.
  • 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 recipients.

Issues 3: The Soviet approach to Farm Subsidies

  • 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 greater subsidies.

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 exported.
  • 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. exports.


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