Commentary

Ten Reasons to Cut Farm Subsidies

A major farm bill being debated in Congress gives policymakers a good opportunity to cut costly subsidy programs. Farm subsidies cost taxpayers up to $35 billion annually and tie farmers in a knot of unproductive regulations.

Most farm programs originated in the Great Depression of the 1930s, but they make little sense in today’s more prosperous and dynamic economy. Here are 10 reasons for Congress to reconsider the need for farm programs and to begin cutting them:

» Farm subsidies transfer the earnings of average taxpaying families to well–off farm businesses. In 2005, the average income of farm households was $79,965, or 26 percent higher than the $63,344 average for all U.S. households. Farm subsidies are welfare for the well–to–do — even millionaire farmland owners such as David Rockefeller and Edgar Bronfman receive farm subsidies.

» Although politicians love to discuss the plight of small farmers, the vast majority of farm subsidies go to the largest farms. In recent years, the biggest 10 percent of farm businesses have received 72 percent of farm subsidies, according to the Environmental Working Group.

» Farm subsidies damage the economy. In most industries, market prices balance supply and demand and encourage efficient production. But Congress short–circuits market mechanisms in agriculture. Farm programs cause overproduction, the overuse of marginal farmland, land price inflation and excess borrowing by farm businesses.

» Farm programs are prone to fraud and scandal. The Government Accountability Office found that improper farm payments amount to as much as $500 million each year. Since 2000, the government has paid $1.3 billion in subsidies to people who own “farmland” that is not even used for farming. The government also frequently distributes disaster payments to farmers who don’t need them and often didn’t even ask for them.

» Farm subsidies are a serious hurdle to progress on global trade agreements that could help productive U.S. exporters. Agricultural trade barriers also damage U.S. security and global stability because they hinder the ability of poor countries to achieve stronger economic growth.

» Farm programs damage the environment. Subsidy programs and trade barriers draw marginal farmland into production and encourage the overuse of fertilizers. Lands that might otherwise be used for parks, forests or wetlands get locked into farm use. Florida sugar cane cultivation, for example, causes substantial damage to the Everglades, yet it thrives only because of import protections.

» Some farm programs raise food prices and hurt consumers directly. Federal controls on the dairy industry raise milk prices to consumers. Controls on the sugar industry raise U.S. sugar prices to about twice the world level, pushing up consumer costs for breakfast cereals, chocolate and other food products.

» If farm subsidies ended, U.S. agriculture would continue to thrive. Farms would adjust, planting different crops and diversifying their sources of income. A stronger and more innovative agriculture industry would emerge, as occurred in New Zealand after it repealed all its farm subsidies in 1984.

» Farm households have more stable finances today and are better able to deal with a free market in agriculture than the past. Many farm households earn the bulk of their income from non–farm sources. Federal data shows that only 38 percent of farm households have farming as their primary occupation.

» Substantial cuts to farm subsidies would save taxpayers money and reduce the federal budget deficit. Ongoing deficit spending on farm subsidies and other programs is causing large amounts of debt to be foisted on the next generation.

In winning the congressional elections last year, Democrats portrayed themselves as reformers willing to take on special interests for the benefit of average families.

This year’s farm bill gives them a chance to prove it. They should end subsidies for well–off farmers, remove agricultural trade barriers to cut food costs for families and reduce the debt load being imposed on young Americans.

Chris Edwards is director of tax policy at the Cato Institute. His farm subsidy research is at www.cato.org/downsizing/agriculture.