Tag Archives: Subsidy

On January 2, President Barack Obama signed a bill designed to
avert the fiscal cliff. At the same time, to slightly less fanfare,
he averted the “milk cliff.” By extending the 2008 farm bill
another nine months, he prevented the automatic revival of a 1949
law requiring the federal government to buy dairy products under
certain circumstances, effectively setting a floor for the price of
milk. While the actual fate of milk prices was far from clear, the
milk cliff provided cover to continue the practices of subsidizing
wealthy farmers, to the detriment of just about everyone else.
In 2012, the Department of Agriculture (USDA) spent $22 billion
on subsidy programs for farmers. Introduced in the 1930s to help
struggling small family farms, the subsidies now routinely draw
condemnation from both left and right as wasteful corporate
welfare. While the number of farms is down 70 percent since the
1930s—only 2 percent of Americans are directly engaged in
farming—farmers aren’t necessarily struggling anymore. In 2010, the
average farm household earned $84,400, up 9.4 percent from 2009 and
about 25 percent more than the average household income
nationwide.
What’s more, a handful of farmers reap most of the benefits from
the subsidies: Wheat, corn, soybeans, rice, and cotton have always
taken the lion’s share of the feds’ largesse. The Environmental
Working Group (EWG) reports that “since 1995, just 10 percent of
subsidized farms—the largest and wealthiest operations—have raked
in 74 percent of all subsidy payments. 62 percent of farms in the
United States did not collect subsidy payments.”
The good news is that our fiscal problems have made these
subsidies politically unsustainable. As a result, the farm bill
currently under consideration by Congress is set to terminate them.
But attempts to wean farmers from the federal teat have proved
disastrous in the past. ;
Take the $4.1 billion the federal government spent on direct
payments in 2011. Created in 1996 as a way to get farmers off their
addiction to price guarantee programs, these supposedly temporary
direct payments are still around. In 2013, a new farm bill, even
with the elimination of direct payments, would be a similarly
hollow victory. Lawmakers would compensate farmers by expanding
another unjustifiable farm subsidy program: crop insurance.
Like most businesses, farms buy insurance policies to protect
from potential losses, such as poor yields or declining prices.
Unlike most businesses, they can count on the government to pay
about two thirds of the premiums, at a cost of $7 billion annually.
The proposed “shallow-loss program” would send money to farmers in
the event of small drops of revenue that are not typically covered
by crop insurance.
Senate Agriculture Committee Chairwoman Debbie Stabenow
(D-Mich.) claims that the extension would save taxpayers money,
swapping $3 billion in new payments in exchange for eliminating $4
billion in direct payments. But the crop insurance scheme is likely
to cost twice as much as estimated, according to a 2012 American
Enterprise Institute study by the economists Vincent H. Smith,
Barry K. Goodwin, and Bruce A Babcock. History tells us that it
won’t be long before the program resembles the direct payments it
was supposed to replace. That’s because, if implemented, these
subsidies will kick in at relative low level of losses. Given that
prices will surely come down from their current record levels, most
farmers will wind up receiving a payment every year.
Direct payments and crop insurance are not the only farm
programs in need of termination. Price support programs such as
marketing loans are a serious waste of taxpayer money, as are the
conservation subsidies that pay farmers not to farm on their land.
So are export subsidies, which aid farmers in foreign sales, and
countercyclical payments, which compensate for drops in crops’
market prices.
In addition to the direct cost to taxpayers, these subsidies
cause enormous economic distortions. Consider the domestic sugar
industry. The USDA protects its producers against foreign
competitors by imposing U.S. import quotas, and against low prices
with a no-recourse loan program that serves as an effective price
floor. As a result, the University of Michigan economist Mark Perry
reports, Americans have had to pay an average of twice the world
price of sugar since 1982. ;
That’s just one of many government interventions that have hurt
the poorest Americans by increasing the price of food. The food
stamp program—an $80 billion initiative designed to help poor
Americans offset the high price of buying food—is embedded in the
very farm bill that keeps those prices so high.
Farm subsidies also hurt young farmers through their impact on
land values. Almost half of the country’s farmland is operated by
someone other than its owner. Those renters—especially young
farmers who generally have higher borrowing costs to start
with—face increases in both the price of renting and the cost of
buying. On the other hand, farmers near retirement age, who own
land through inheritance or length of tenure, reap the benefits of
higher land values induced by the subsidies. In 2010 some 90,000
direct payments went to wealthy investors and absentee land owners
in more than 350 American cities, according to an EWG report.
“It’s no accident that the average age of farmers is nearing 60
years old,” a friend who runs a farm wrote in a recent email to me.
“We’ve drastically increased barriers to entry through subsidy
programs, at huge social and economic costs. If I’m a 30-year-old
farmer, as my sons-in-law are, I should mightily resent the fact
that the landowner whose land I need receives government subsidies
while I’m forced to compete against those subsidies to secure
enough land to have a viable farm business.”
Farm subsidies benefit the rich and hurt the poor. They are
massively expensive and hugely wasteful. They must end. ; … Read More