Commentary

The Stubborn Seeds of U.S. Farm Subsidies

By Chris Edwards and Tad DeHaven
This article originally appeared in the Washington Times on August 23, 2001.
The 1996 reforms were designed to increase farmer flexibility and reduce market distortions by moving away from price support payments for major crops, such as wheat, corn, and cotton. Farmers would instead receive fixed “transition” payments that promised to save taxpayer money as they were phased down from $6 billion in 1996 to $4 billion in 2002.

However, changing conditions after 1996 led to demands for more subsidies than were agreed to in the law. Congress quickly repudiated its own handiwork and has passed huge farm supplemental bills every year since 1998 costing taxpayers an added $20 billion. Congress just passed yet another supplemental farm bill with a price tag of $5.5 billion. As a result, total direct payments to farmers have soared to more than $20 billion per year the past three years, up from an average of $9 billion per year in the early 1990s.

With the budget discipline created by federal deficits now gone, this year’s bill to reauthorize farm programs will likely retreat further from 1996 reforms. The House Agriculture Committee’s version of the bill passed in July makes this clear. So-called transition crop payments, which had been phasing down, are continued with new crops added to the gravy train. In addition, the House bill would extend “marketing loan” price support payments and make them available to new crops. These payments have grown quickly in recent years and now top $6 billion annually. The legislation also adds a new system of price supports, with the result that farmers are further insulated from free market supply and demand.

It is true that some of the 1996 reforms have allowed agricultural markets to operate more efficiently. But the torrent of taxpayer cash channeled to farmers’ wallets keeps growing, despite the absence of a clear rationale why this industry deserves such special treatment. Farm households have average incomes 15 percent higher than the U.S. average, and thus farm subsidies generally constitute welfare for the well-to-do. Indeed, over 40 percent of federal farm payments go to the 8 percent of farms with the highest incomes.

However, not all farmers live at taxpayer expense. In fact, 58 percent of farmers including most vegetable, beef cattle, and chicken producers are able to operate in the market economy without receiving taxpayer subsidies. But producers of just five crops - wheat, corn, soybeans, rice, and cotton - have somehow secured a direct pipeline to more than 90 percent of federal farm hand-outs. Other farmers, such as sugar growers, do not grab taxpayer dollars directly, but instead impose billions of dollars of costs on consumers with supply restrictions that push up prices.

It is often claimed that the huge welfare system supporting these farmers is required because farming is risky. But surely anyone watching the business news recently would conclude that farming is nowhere near as risky as the Internet, fiber optics, or other high-tech industries. Companies such as JDS Uniphase are losing billions of dollars to unpredictable global market forces. High-tech firms face huge and uninsurable types of risks, and when companies such as Webvan go bankrupt nobody expects the government to bail them out. By contrast, farmers face well-known and predictable risks that can be managed by insurance, derivatives, and other financial tools available in a market economy.

House Agriculture Committee Ranking Member Charlie Stenholm (D-Tx) proclaimed that his Committee’s new farm bill “is a good deal for agriculture and a good deal for taxpayers.” Under this bill, farm subsidies will soar about $74 billion above 10-year baseline agriculture spending projections, not including any supplemental spending that Congress may decide to dole out later on. It is not a good deal for U.S. agriculture production to be distorted by such large subsidies, and it is certainly not a good deal for U.S. taxpayers who foot the bill.

Chris Edwards is director of fiscal policy studies and Tad DeHaven is a fiscal policy research assistant at the Cato Institute.