Will the Senate Seize or Squander the Opportunity for Much-Needed Reform of the Farm Bill?

COMMENTARY Agriculture

Will the Senate Seize or Squander the Opportunity for Much-Needed Reform of the Farm Bill?

Jun 26th, 2018 4 min read
COMMENTARY BY
Daren Bakst

Senior Research Fellow in Agricultural Policy

Bakst studies and writes about agricultural and environmental policy and property rights, among other issues.
Will the Senate follow suit and do whatever it takes to avoid having a thoughtful debate and a chance at subsidy reform? fotokostic/Getty Images

Key Takeaways

In the House, agricultural special interests and the House Agriculture Committee developed their farm bill behind closed doors.

As commodity prices have come down, reference prices should also have come down; yet, the Senate farm bill keeps the reference prices where they were 5 years ago.

Congress has continually fought for the special interests and not for taxpayers, consumers, and anyone not dependent on the federal farm subsidy dole.

The Senate is expected to take up its farm bill this week, and if the Senate follows the House’s lead, there will be a relatively closed amendment process, making it impossible for legislators to reduce the waste and abuse in the farm subsidy system.

In the House, agricultural special interests and the House Agriculture Committee developed their farm bill behind closed doors. The interests of anyone other than big agricultural interests were irrelevant.

Will the Senate follow suit and do whatever it takes to avoid having a thoughtful debate and a chance at subsidy reform?

Hopefully not, but recent reports of senators wanting to rush a bill through so they can enjoy their Fourth of July recess doesn’t seem promising.

As it is, the expected reform amendments in the Senate are extremely modest, yet even they may not get a chance to be heard.

This is how bad things have gotten with farm subsidies: Sen. Chuck Grassley, R-Iowa, has to try to introduce his amendment on the Senate floor just to make sure that people who are non-farmers don’t receive farm subsidies.

It says a lot when the Senate Agriculture Committee couldn’t have just addressed this ongoing and egregious problem on its own.

In 2013, the House and Senate passed farm bills that included language to try to close this “non-farmer” loophole. Unfortunately, as is typical, big agricultural interests were able to remove the language in conference.

There are plenty of other modest reforms being proposed, including:

Eliminate double dipping: Most farmers receive little or no subsidies, and if they do receive subsidies, it is to get help when there are natural disasters. Some farmers, though, receive help to compete in the market, unlike most other farmers or other businesses.

That’s bad enough, but it gets worse.

These producers don’t just participate in one program to help with price and revenue risks; they participate in multiple programs. For example, they can receive indemnities from the federal crop insurance program and receive a payment from one of the two massive commodity programs, the Agricultural Risk Coverage and Price Loss Coverage programs.

It shouldn’t be too much to ask for farmers to select one price/revenue program.

Let’s get even more modest, though, since any reform is almost impossible.

The Agricultural Risk Coverage and Price Loss Coverage programs are supposed to complement the federal crop insurance program, not duplicate it. If true, then why are producers receiving Agricultural Risk Coverage and Price Loss Coverage payments in the same year they also receive a crop insurance indemnity?

This waste and duplication needs to be addressed.

Set reasonable reference prices: Under the Price Loss Coverage program, payments are triggered to farmers when actual commodity prices go below a fixed price set in law, known as reference prices. By Congress arbitrarily determining these reference prices, the entire system can be gamed so that the program is not covering deep price declines (as allegedly was its purpose), but to effectively guarantee payments.

When the most recent farm bill was developed, many commodity prices were at or near record highs. As commodity prices have come down, reference prices should also have come down; yet, the Senate farm bill maintains the reference prices where they were five years ago.

As a result, actual prices for many commodities are already lower than the reference prices. That means payments would be effectively guaranteed for many producers.

There is a simple change that would make the program reflective of the market—instead of reflective of government manipulation. It is far from a radical idea: As with the Agricultural Risk Coverage program, a five-year rolling average should be employed.

The reference price should be based on 85 percent of the average commodity price over the previous five years, dropping the highest and lowest prices. The existing reference prices in law would help to serve as a cap.

There are many other modest reform ideas that should be considered. There needs to be:

  • A $50,000 payment limit for Agricultural Risk Coverage and Price Loss Coverage. This reform was included in both the House and Senate farms bills in 2013.
  • Reductions in the premium subsidy rate by 15 percentage points.Currently, taxpayers pay an absurd 62 percent of premium subsidies. The Trump administration, the Obama administration, and the Government Accountability Office have all recommended reducing the premium subsidy rate. Further, the Congressional Budget Office has repeatedly identified reducing premium subsidies as a policy option to cut the federal deficit. This change would save a significant amount of money and have little to no impact on crop insurance participation. The CBO found that reducing premium subsidies by 15 percentage points to 47 percent would reduce the number of insured acres (300 million) by just one-half of 1 percent, to 298.5 million acres.
  • A reduction in the target rate of return for crop insurance companies from 14.5 percent to 12 percent. The safety net isn’t supposed to be a boondoggle to help insurance companies.
  • A reduction in the means test for Title I programs to no more than an annual adjusted gross income of $500,000.
  • Reform of the federal sugar program. Even in comparison to other farm subsidy programs, the federal sugar program stands out in its level of backwardness and central planning.  The government intentionally drives up sugar prices through various methods of restricting supply. At a minimum, marketing allotments, which limit how much sugar can be sold, should be eliminated. If you wanted to find one program that definitely hurts the poor, it is the federal sugar program. High food prices have a disproportionate impact on low-income households. The lowest-income households spend a greater share of their after-tax income on food (33 percent) than other households, including the highest-income households (8.7 percent).

If these changes were made, farmers would still be getting far too many subsidies. There would still be plenty of waste and abuse, but these changes would help to move the farm subsidy system in the right direction.

For decades, political leaders, such as President Ronald Reagan, have tried to reform farm subsidies. During that same time, Congress has continually fought for the special interests and not for taxpayers, consumers, and anyone not dependent on the federal farm subsidy dole.

The Senate should take this moment to show its leadership and give the public a chance to have a voice in agricultural policy.

This piece originally appeared in The Daily Signal