Congress Gives Massive Subsidies to Farmers — It Shouldn't

COMMENTARY Agriculture

Congress Gives Massive Subsidies to Farmers — It Shouldn't

Feb 25, 2016 2 min read

Former Senior Research Fellow

Bakst analyzed and wrote about regulatory policy, trade, environmental policy, and related issues.
At the center of U.S. federal agricultural policy is the farm bill, which is reauthorized approximately every five years. Normally, the next farm bill wouldn’t be introduced until 2018.
Policymakers should get ahead of the process and develop a vision for the proper role of government in agriculture — one that emphasizes free enterprise as opposed to special-interest politics.

The agriculture-related parts of the farm bill, which mostly consist of subsidies that benefit farmers, cost taxpayers about $20 billion a year. This includes a massive transfer of wealth from taxpayers to mostly large agribusinesses that are (or should be) fully capable of managing their business operations without this special treatment. The end result is less choice for consumers, distorted prices, reduced innovation, and onerous government influence over a portion of the American economy.

Subsidies can distort incentives so that farmers plant crops that will bring them the biggest subsidies rather than grow crops that the people want.

In addressing agricultural subsidies, the pervasive myth of struggling farmers should be dispelled. The typical farm household enjoys much greater income and wealth than nonfarm households. From 2005 to 2014, the median income for farm households was 19 percent greater than all U.S. households. In 2013, the median net worth of farm households was 10 times that of all U.S. households.

Most agricultural subsidies that make up the so-called “safety net” benefit large agricultural producers. According to the Environmental Working Group, the top 20 percent of federal crop insurance policyholders in 2011 were the beneficiaries of 73 percent of the total premium subsidies (taxpayers subsidize about 62 percent of the premiums that farmers pay).

This isn’t to suggest that small farms need subsidies to address risk. In fact, most farms have less than $10,000 in sales, making them more like hobby farms than working agricultural operations. In 2011, small farm households with less than $10,000 in sales still had greater average incomes than that of total U.S. households; many farms rely on off-farm income. Taxpayers shouldn’t have to subsidize them any more than subsidizing large agribusinesses

The federal “safety net” for farmers removes almost all agricultural business risk. For example, the federal crop insurance program doesn’t require a natural disaster, any catastrophic loss, or for that matter even a yield loss for participating farmers to receive indemnity payments. Just a minor dip in expected revenue will produce an insurance check. Essentially, taxpayers are just protecting farmers from the ordinary risks of doing business.

Fortunately, there’s a positive and proactive approach to agriculture that can move us away from this cronyism and corporate welfare. The focus should be on eliminating government intervention that makes it more difficult for farmers to manage risk and engage in farming activities to meet consumer demand.

Wrong-headed regulations are at the heart of the problem. The recent “Waters of the United States” rule, promulgated by the Environmental Protection Agency and U.S. Army Corps of Engineers, exemplifies federal overreach. It allows the federal government to regulate almost any type of water. It will wreak havoc with farmers and should be repealed.

Washington also needs to respect property rights. When it imposes restrictions on the use and enjoyment of land, such as under the Endangered Species Act, farmers and ranchers should be properly compensated. There’s one important role for the federal government. It should aggressively promote free trade, particularly to remove barriers that block American products from entering foreign markets.

Policymakers should take a step back and ask why current agricultural policies need to exist in the first place. Farmers are well-suited to manage risk and compete in a diverse and robust marketplace.

When policymakers do ask this critical question, it should be clear that this nation needs to move away from the status quo. Policymakers should create an environment without unnecessary government obstacles where farmers can succeed, or fail, on their own.

 - Daren Bakst is the lead research fellow in agricultural policy for the Heritage Foundation’s Roe Institute of Economic Policy Studies.

Originally appeared in The Washington Times