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This Thanksgiving, How About Farm Subsidy Reform?

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This Thanksgiving, How About Farm Subsidy Reform?

November 21, 2017

Thanksgiving is a time for food and family. The season’s focus on food gives us an opportunity to think about the farm bill and related subsidy programs before the negotiations over the next version begin in earnest in 2018.

While proponents describe farm programs as a “strong safety net” for a “key segment of our economy,” the way the subsidies operate belies this description. Policymakers should consider reforms that would limit the amount of subsidies that flow to the biggest farming operations, and amend programs that introduce distortions and inefficiencies. 

Gross national debt is over $20 trillion and projected to rise further in the coming decade. The federal government should consider reforms that would limit or reduce outlays for unnecessary or inefficient programs.

Commodity programs and farm subsidies cost billions of dollars each year. In 2014 the Congressional Budget Office estimated that commodity programs would cost $15 billion from 2016 to 2018, but the most recent CBO report projects the costs much higher at $22 billion. From 2017 to 2027, total payments would exceed $61 billion.

Both Republican and Democrat lawmakers have recently introduced bills that would chip away at commodity subsidies. The inefficiencies and inequities of the current system, and the shortcomings of previous efforts to curtail them, should not preclude further efforts to reduce the scope of federal intervention and taxpayer subsidization.

Senators Flake (R-AZ) and Shaheen (D-NH) recently introduced the Harvest Price Subsidy Prohibition Act. The bill would end subsidies for harvest price option (HPO) plans. In a traditional crop insurance plan, revenue guarantees are based on projections made using the price at planting time. An HPO gives the farmer the option of using the price at harvest time if it ends up being higher.

For example, if the planting price estimate were $6 per bushel of corn, and the price increased to $7.50 by harvest, with an HPO farmers would have had their revenue guaranteed at the higher price, with taxpayer subsidies making up the difference. The subsidized HPO is indicative of the ways that the current amalgam of farm programs has moved far beyond a safety net for farmers, allowing them to lock in revenue guarantees far higher than they could have anticipated at planting.

Under the Flake-Shaheen bill, the Department of Agriculture could still offer HPO plans, but the policyholders would pay the full premium. HPOs as currently constructed are more akin to a subsidized windfall than true crop insurance, and this bill would address the problem.

The flow of subsidies for covered commodities, such as corn or cotton, reveals another way the current system has strayed from its intended purpose. According to the recent release from the Environmental Working Group, which tracks farm subsidies, from 1995 to 2016 the top ten percent of farm operations received 77 percent of covered commodity subsidies. The top 1 percent received more than a quarter of the total covered commodity subsidies, equivalent to $1.7 million per recipient.

Another bill sponsored this year by Sens. Flake and Shaheen, the AFFIRM Act, and the bipartisan companion bill in the House, would begin to staunch the flow of subsidies to the largest farm operations. Premium subsidies would be prohibited for farm operations with adjusted gross income above $250,000 and the amount of subsidies each year would be capped at $40,000.

The Trump Administration budget included many of these same provisions: capping crop insurance premium subsidies at $40,000, establishing eligibility thresholds for agricultural commodity payments and crop insurance, and eliminating the harvest price option. The budget forecast savings of more than $29 billion through 2027 if these reforms were enacted. Scaling back government intervention for programs that are misaligned with their stated purpose or inadvertently introduce market distortions should be one of the primary ways policymakers seek to attenuate our unsustainable fiscal trajectory.

Smaller-scale farms would not be significantly affected by the eligibility thresholds or premium cap but would limit the taxpayer subsidies that flow to the largest farming operations. The Trump administration and members of Congress have shown some interest in enacting reforms to address some of the more glaring problems with the status quo. As negotiations pick up speed in anticipation of the current farm bill’s expiration next year, we should give thanks that Congress and the administration are giving such reforms serious consideration.

Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes

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