Including some for ‘farmers’ who don’t even farm
The Farm Bill that was recently signed into law by President Obama at Michigan State University received bipartisan support from Michigan’s Congressional delegation. Sen. Debbie Stabenow praised the Farm Bill for supposedly reducing the federal deficit by $23 billion while continuing to aid agriculture, which she claimed is Michigan’s second largest industry. Both claims are misleading, and the Farm Bill overall leaves little to celebrate.
Agriculture is not Michigan’s second largest industry. Only by counting economic activity from businesses that only have a remote link to agriculture, such as restaurants and grocery stores, can this industry be considered a major player in Michigan’s economy. Even then, a multiplier is needed to turn income generated from these businesses into new jobs in fields even further removed from agriculture. Using a more conventional definition of agriculture, the U.S. Bureau of Economic Analysis estimates that agriculture comprises approximately 1 percent of both the U.S. and Michigan economies, employing approximately 1.5 percent of workers. Not since 1900 has more than 1 in 10 workers been directly employed in the agriculture industry.
The $1 trillion Farm Bill spends approximately $750 billion on the Supplemental Nutrition Assistance Program (SNAP, or more commonly known as “food stamps”) and approximately $90 billion on crop insurance subsidies over the next 10 years. One might wonder how a bill that spends $1 trillion over 10 years can reduce the federal deficit. The answer comes from how those in Washington frame deficit reduction. Since the new Farm Bill is projected to spend less than a continuation of the old Farm Bill that expired in 2012, this is coded as “deficit reduction.” More than half of this deficit reduction does not occur until after 2018.
The Farm Bill winds down the much criticized $4.5 billion in annual direct payments to farmers (some of whom do not even farm) and cuts $8 billion over 10 years from SNAP. However, the SNAP savings are offset by a $7 billion increase in subsidized crop insurance, purchased by farmers to help offset losses should crops fail. It is unclear why these subsidies are needed: Crop insurance is a functioning market, and crop failure is a risk farmers would naturally want to insure against. It seems this insurance market would exist all on its own. Regardless, taxpayers will subsidize over 60 percent of these insurance premiums, whereas insurance costs are a cost of doing business that most other companies have to pay all on their own.
While it may have once helped protect the livelihoods of some small farmers in the face of natural disasters, the current crop insurance subsidy program is primarily a handout to large insurance companies and agri-businesses. Just four crops — soybeans, wheat, corn and cotton — received 90 percent of crop insurance payouts in 2012. Further, the 18 insurance companies authorized by the U.S. Department of Agriculture to sell crop insurance are able to capture a sizable share of these subsidies for themselves, reaping about 20 percent of the subsidies, or $10 billion in profits over the past decade.
The Farm Bill offers other unfair advantages to agri-businesses through its “price loss coverage” scheme. This sets minimum prices on 14 different crops and pays out if the price of these crops drops below these minimums. For instance, the minimum prices for corn will be near $4 per bushel, a near record high that occurred during the ethanol-fueled run-up. If the price of corn drops below this amount moving forward, taxpayers will make up the difference to corn farmers.
Locking in inflated prices and higher profits at taxpayer expense is obviously appealing to large agribusinesses such as Monsanto, DuPont, and Archer Daniels Midland, who supply farmers with raw materials. This is why in 2008 these three firms alone spent $4.3 million dollars lobbying for the 2008 Farm Bill. Other large companies benefit: The new Farm Bill also provides $200 million a year in funding under the “Market Access Program” that subsidizes firms such as McDonald’s and Fruit of the Loom to advertise overseas.
Large sugar growers also won a sweet deal, as the Farm Bill renews the sugar support program. This program restricts the import of low-cost cane sugar in order to benefit high-cost sugar beet growers. Between 1982 and 2014, the U.S. price of sugar has averaged approximately twice the world price of sugar, costing consumers $3.5 billion a year. Thousands of confectioner jobs have been lost over the years as confectionaries have moved overseas to take advantage of substantially cheaper sugar, including about 600 from a Life Savers factory in Holland, Mich. Despite these substantial costs to consumers, only 4,500 domestic sugar growers obtain benefits from the sugar support program, averaging out to $750,000 every year per beneficiary. Worse yet, 42 percent of sugar subsidies go to the top 1 percent of sugar growers.
A lot of the support for the Farm Bill seems to come from an interest in the idea of “saving the family farm,” a concept often romanticized by politicians and popular culture. Yet, the traditional “mom and pop” farm receives little of the farm subsidies. The bottom 80 percent of farmers receive, on average, $5,000 per year. In contrast, 10,000 large firms receive farm subsidies of $100,000 or more. The fact is that the agriculture business is dominated by large firms: About 73 percent of all farm income comes from the biggest 5.3 percent of farms. This is not necessarily a bad thing per se, but the public should know that the Farm Bill is primarily supporting large firms at taxpayer expense.
Those who are concerned about sound public policy can find little to like in the Farm Bill. Special interests and large farms clearly benefit. Farmers get more than 60 percent of their crop insurance paid for by taxpayers and lock in a guaranteed revenue stream for crops. Sugar beet growers receive a domestic price of sugar that exceeds the world price. There is no economic rationale for keeping out lower priced imports from the U.S. market.
Politics always creates winners and losers, and the largest Farm Bill losers are taxpayers and consumers. Taxpayers face the cost of needlessly subsidizing a politically preferred industry, and consumers get higher food prices. These two groups, though large, are unorganized, unlike the special interests pushing the Farm Bill. As government grows and hands out more and more special favors, it is the dispersed group that often gets stuck with the bill.