This past April,
Congress enacted a budget resolution that called for streamlining
$34.7 billion in entitlement spending over the next five years. A
seemingly minor provision coming out of the Senate Agriculture,
Nutrition, and Forestry Committee threatens to negate all of the
positives in the reconciliation bill. In return for shaving $3
billion off the $102 billion scheduled to be spent on farm
subsidies and conservation payments over the next five years, the
Senate reconciliation bill extends the farm subsidy programs of the
2002 farm bill-currently scheduled to expire in 2007-through 2011.
This $60 billion commitment will likely eliminate any chance to
meaningfully reform the bloated farm programs and may seriously
imperil America's ability to open foreign agriculture markets.
The Farm Security
and Rural Investment Act of 2002 (P.L. 107-171) increased farm
subsidy payments by 80 percent. Turning their backs on the 1996
"Freedom to Farm" reforms designed to bring the free market to
agriculture, lawmakers expanded existing farm subsidy programs and
created new ones. The distribution of these subsidies is woefully
unequal: Nearly all subsidies go to growers of just six
crops-wheat, cotton, corn, soybeans, rice, and peanuts. The
remaining 73 percent of farmers specializing in livestock, fruits,
vegetables, and other crops are locked out of most subsidies. Among
the farmers who receive subsidies because they grow the "right"
crops, nearly 70 percent of farm subsidies are distributed to just
10 percent of the subsidy recipients. Subsidizing large
agribusinesses that grow certain crops while excluding many family
farmers who grow other crops has earned farm subsidies the title
"America's largest corporate welfare program."
There is a
widespread misconception that farmers are much poorer than most
Americans. But most farming is done on large corporate farms, not
family farms, and most farmers, on the whole, are better off
than the popular misconception allows. As a Department of
Agriculture report states, "On average, farm households have higher
incomes, greater wealth, and lower consumption expenditures than
all U.S. households."
Specifically, farmers earn incomes 17 percent above the national
average and report net worths well above the national average. In
1999, the 136,000 households with annual farm sales of more than
over $250,000-the group that receives the largest farm
subsidies-reported an average income of $135,397, or two-and-a-half
times the national average.
By no means a faltering industry, the farm industry suffers a
failure rate just one-sixth the rate for non-farm businesses.
Still, taxpayers subsidize (mostly large) farms with between $15
billion and $30 billion annually.
In addition, subsidies harm farmers
because they simply make no economic 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. The federal
government's remedy is to offer subsidies that increase as a farmer
plants more crops. Planting more crops, however, only leads to
greater crop surpluses, driving prices down even further and
spurring demands for even greater subsidies. Then, while paying
some farmers to plant more crops, Washington turns around and pays
other farmers not to farm 40 million acres of cropland each
year. The economic illiteracy exhibited by farm subsidies is
stunning even by government standards.
Finally, farm subsidies harm farmers and
consumers by restricting international trade. 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 United States
cannot win access to global agriculture markets without paring back
its own farm subsidies.
Enacting a Barrier
liberals have together called for phasing out farm subsidies and
replacing them with Farmer Savings Accounts and other crop
insurance mechanisms that shield family farmers from crop
unpredictability without creating a permanent welfare system or
subsidizing large agribusinesses. For various reasons,
organizations representing taxpayers, consumers, environmentalists,
international trade, third-world countries, and even farmers
themselves have united around the shared conclusion that the 2002
farm bill was a step backwards. Thus, President George W. Bush has
called for reducing the annual farm subsidy cap from $360,000 to
$250,000 per farm and closing loopholes that allow large farms to
collect much more than that. At the Doha round of international
trade negotiations, the United States has proposed sweeping farm
subsidy reforms designed to open up foreign markets. As 2007 nears,
agriculture reform proposals are overflowing.
Every one of these
proposals is endangered by the proposed four-year farm bill
extension. A spokesperson for Senate Agriculture, Nutrition, and
Forestry Committee Chairman Saxby Chambliss has stated that the
Senator still plans to write new farm subsidy provisions in 2007
but that extending the farm bill through 2011 is necessary to
guarantee that the budget reconciliation reforms designed to save
$3 billion between 2006 and 2010 come to an end in 2011. This alone
should be a reason to oppose the extension. Entitlement reforms
should create permanent savings by permanently altering program
spending formulas. By reverting to the old farm subsidy formulas in
2011, spending growth rates will spike back up to their pre-2006
levels and much of the permanent savings will be lost.
lawmakers plan to write a new farm bill in 2007, then there is no
reason to extend current law through 2011. Surely they could enact
whatever changes they want to the 2011 baseline while writing the
four-year extension functions as an accounting gimmick that creates
a barrier for real agriculture reform. Despite Sen. Chambliss' best
intentions, once subsidy levels have been extended through 2011,
there will be no statutory obligation to fix them in 2007.
Supporters of the current system will likely consider these
baseline levels as a floor and therefore see little reason to
"reopen the farm bill" if the 2007 budget environment is more
strict than the free-spending environment that produced the bloated
2002 legislation. Farm subsidy reforms will be difficult enough to
enact in 2007 without creating a new $60 billion status quo.
$60 billion commitment is not scored by the Congressional Budget
Office as "new" spending because these spending levels were already
assumed in long-term baseline estimates. However, by extending the
current farm subsidy programs, lawmakers would lock that bloated
baseline into law for four more years and likely prevent any
meaningful agriculture reforms. Lawmakers should reconsider this
stealth commitment to spend $60 billion more on a failed
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.