Congress Should Reduce Federal Farm Aid

COMMENTARY Agriculture

Congress Should Reduce Federal Farm Aid

Aug 4th, 2017 3 min read
COMMENTARY BY
Daren Bakst

Research Fellow in Agricultural Policy

Bakst studies and writes about agricultural and environmental policy and property rights, among other issues.

Key Takeaways

Congress needs to use the upcoming budget process as one check on the agriculture committees, especially in anticipation of the next farm bill.

Legislators need to stop treating agricultural producers as incapable of managing ordinary business risks.

Farmers can have record production and perfect growing conditions and still get payments.

Imagine an industry coming to Congress asking to have taxpayers provide them financial support whenever they aren’t meeting expected revenue targets. It would be laughable. Yet this describes the current farm handout system. President Trump’s budget took an important step to address this extreme cronyism and corporate welfare.

This system, among other things, requires taxpayers to:

  • Provide handouts to agricultural producers regardless of whether they have crop losses.
  • Pay 62 percent of federal crop insurance premiums for participating farmers.
  • Provide even more handouts to farmers through farm commodity programs.

President Trump’s budget, unfortunately, would maintain this system. But it would bring in some common sense by eliminating two egregious aspects of the federal crop insurance program, saving close to $3 billion a year.

The first proposal would limit the amount of subsidies that participating farmers can receive to help pay for their premiums, placing a cap at $40,000. This is far from a controversial idea. In 2012, the independent Government Accountability Office (GAO) recommended that Congress consider this very proposal. According to GAO, the proposal would have saved $1 billion in 2011, while only affecting 3.9 percent of the participating farmers.

Affected producers would generally be the largest agricultural producers, and they still would get the benefit of $40,000 in subsidies. This subsidy would just no longer be a blank check from taxpayers.

The second proposal is to eliminate what is known as the harvest price option. Through this option, by allowing payments to be based on harvest prices, farmers can receive more money than what they expected when they planted their crops.

As an analogy, consider car insurance. When we insure our car, we are protecting ourselves in the event something happens to the vehicle. We expect the insurance company to put us in the same position that we would have been in if the car hadn’t been damaged. The harvest price option is like insuring your Volkswagen, totaling it, and having the insurance company provide you a Mercedes.

The agricultural special interests are wringing their hands about these two proposals. Billions of dollars continuing to flow to agricultural producers isn’t good enough for them; large agribusinesses, in their view, can’t afford even targeted reductions in their handouts.

Their reaction illustrates perfectly the dependency and sense of entitlement that Congress has created through farm handouts. Legislators have repeatedly failed to protect taxpayers and consumers, instead allowing the agriculture committees to funnel as many dollars as possible to favored agricultural special interests.

This needs to change - and the budget process is one way this can happen.

Congress needs to use the upcoming budget process as one check on the agriculture committees, especially in anticipation of the next farm bill, which will likely be considered in 2018. 

Legislators need to stop treating agricultural producers as incapable of managing ordinary business risks. These are the same risks that a small mom-and-pop store manages every day. There’s nothing pro-farmer, as some legislators like to think of themselves, in maintaining central planning policies. 

Farmers can have record production and perfect growing conditions and still get payments. Legislators need to ensure payments are triggered only after major crop losses, not perpetuate a system that acts like a cash dispenser for farmers when they don’t do as well financially as they hoped.

Legislators need to get rid of the duplication that exists in the handout system. For example, on top of the current crop insurance program, billions of dollars flow to agricultural producers through farm commodity programs, even if the producers already participate in the federal crop insurance program. As explained in the Trump budget, “The Department of Agriculture tracks participation for the top 10 crops they insure, nine of which receive other commodity payments.”

It shouldn’t be too much to ask for Congress to provide at most one handout scheme per commodity; if there is to be any scheme, it should only help when there are major crop losses.

It’s time for Congress to pass a budget that prioritizes the interests of taxpayers and consumers. The Trump administration has gotten the ball rolling - now Congress needs to show the same leadership.

This piece originally appeared in The Hill on 6/4/17