Commentary

The Withering of Farm Policy Reform

By David Orden and Robert Paarlberg
April 16, 2002

In 1996, Congress passed the “Freedom to Farm Act,” a landmark piece of legislation that lawmakers intended to be the first step in weaning U.S. agriculture off government subsidies. When enacted, consumers, environmentalists, budget hawks, and even some farmers hailed it for decreasing government incentives to produce more of certain crops than consumers wanted, promoting environmentally beneficial efficiency in land use, and reducing the artificial factors that increase food prices.

Of course, not everyone favored the 1996 act. Some agriculture activists dubbed it the “Freedom to Fail Act” because it forced inefficient farmers out of business. But Congress, energized by the pluck of dozens of new lawmakers, stood firm and secured the act’s passage, at a price of giving farmers a short-term subsidy windfall to attain long-term reform.

Now, in 2002, lawmakers from both parties are racing to undo the 1996 act in the hope of gaining votes with a pork-laden new farm bill. The legislation, which will include more than $100 billion in crop subsidies over the next 10 years, will distort markets and harm the environment by stimulating unnecessary production. What is more, it will damage U.S. positions in international trade; foreign countries will respond by maintaining restrictions on the importation of American-made goods and will continue, and even increase, subsidies to their own farmers. In exchange for those effects, most of the farm bill’s benefits will go to commercial farmers, many of whom already are millionaires.

The passage of a costly new farm bill is assured, so reform proponents are left to quibble over which version of the bill - the House’s or the Senate’s - will do less harm.

The Senate version calls for significantly more spending in the first five years before supposedly paring back outlays in the final five years. But it is extremely unlikely that lawmakers would stick to those cutbacks, so the Senate version, if adopted, would cost taxpayers more than the House version.

In one way, the Senate version may be better than the House: The Senate sets a $275,000 limit on how much a farmer can receive in subsidies. But the Senate would also increase the federal crop program “loan rates,” which act as price supports because, if crop prices are low, farmers keep the loan money. Even with the $275,000 limit, the loan-rate increase primarily will benefit large commercial farms and, in turn, will force more family farms to go out of business.

What can be done to fix the bill? Fiscal conservatives can stand their ground and insist on less agriculture spending under the new legislation. Reform proponents can insist farm support not make matters worse - no higher loan rates, and no updating of acreage and yields updating, and no farm policies that would cause disruption in U.S. trade. Environmentalists can oppose programs that discourage efficient use of land. Consumer advocates can work to limit the legislation’s restraints on production of some crops. And true supporters of U.S. farmers can fight against provisions that keep American agriculture out-of-tune with the marketplace.

Most American farmers are remarkably industrious and efficient. It’s too bad the government wants to poison their economic environment.

David Orden is a professor of agricultural economics at Virginia Tech. Robert Paarlberg is a professor of political science at Wellesley College. They are authors, with Terry Roe, of “Policy Reform in American Agriculture: Analysis and Prognosis” (University of Chicago Press). Orden has written an analysis of the new farm bill for the spring issue of Regulation, published by the Cato Institute.