The Costly and Outdated Farm Bill

COMMENTARY Agriculture

The Costly and Outdated Farm Bill

May 31, 2013 2 min read

Former Senior Research Fellow

Bakst analyzed and wrote about regulatory policy, trade, environmental policy, and related issues.

Congress is once again taking up the farm bill - and continuing to treat agriculture like it was 1933, not 2013. The result: billions of taxpayer dollars going to waste.

This is unacceptable. It's time for lawmakers to make reforms that reflect the reality of modern-day agriculture.

Even calling it the "farm bill" doesn't reflect reality. Both the Senate and House versions are projected to cost close to $1 trillion over 10 years. Nearly 80 percent of this cost is attributed to food stamps and nutrition programs. The bill should be called the "food stamp" bill.

Congress undermines both the food stamp and farm programs by packaging them into one massive bill. It does a disservice to all Americans who want careful consideration of these critical issues.

There's no legitimate policy reason to combine these distinct programs. Food stamps continue to be included in the farm bill "purely from a political perspective," Sen. Thad Cochran, R-Miss., ranking member of the Senate Agriculture, Nutrition and Forestry Committee, recently explained. "It helps get the farm bill passed."

One of the most important reforms would be to separate these programs into two different bills. This would make it more likely to get reform of agriculture policy, instead of politicians using these different issues with their different interest groups to maintain the status quo.

The farm programs are often thought of as a safety net for small farmers. This also isn't reality. About 75 percent of larger farms with incomes of $250,000 to $999,999 receive government subsidies. Only 24 percent of small farms with incomes from $10,000 to $249,999 get them.

The programs are also less about providing safety nets and more about maintaining high-levels of prosperity. Agriculture is a high-tech and innovative sector of the economy. Unlike most sectors, it's a booming industry. Net farm income (what farmers earn after expenses) is at its highest levels in 40 years. Commodity prices are also at record highs. Congress shouldn't ignore the condition of agriculture as it develops a new farm bill.

Farm programs have often been the butt of many jokes, for good cause. The direct-payment program literally pays farmers to not grow crops. Fortunately, Congress has recognized the absurdity of this program; both the House and Senate farm bills would eliminate the program.

However, instead of finding additional savings for taxpayers, the House and Senate bills would continue to play a joke on taxpayers and consumers. The costliest farm program is crop insurance, yet Congress does little to address these costs.

When farmers buy insurance, 62 percent of their premiums are paid for courtesy of the American taxpayers. Unlike other farm programs, there's no limit on the total subsidy received by farmers. According to the nonpartisan Government Accountability Office (GAO), a $40,000 limit on premium subsidies would have saved taxpayers $1 billion in 2011.

If the premium subsidy level were set at 52 percent rather than 62 percent, GAO found that taxpayers would have saved $1.2 billion in 2011. There's bipartisan recognition that the crop insurance needs real reform. President Barack Obama is also advocating for a reduction in this premium subsidy, yet Congress is only piling on.

Worse, the House and Senate bills would add new programs that could prove even costlier than the direct-payment program. One such program is called "shallow loss." Farmers would be able to enjoy a revenue guarantee program to cover even minor losses. Such programs only encourage more risk-taking by farmers, because the costs are being paid by taxpayers.

Congress should stop supporting subsidies and other market-distorting policies that restrict farmers from competing in an open manner. Even modest reforms such as a limit on crop insurance subsidies, though, will be an uphill battle without the political will to promote sound agriculture policy.

Lawmakers need to keep the needs of both farmers and the American people in mind. The tax bill and the food bill shouldn't be ignored anymore.

-Daren Bakst is a research fellow in agricultural policy at The Heritage Foundation.

First moved by McClatchy Tribune News wire.