Every five years or so, Congress reauthorizes recurring legislation known as the “Farm Bill.” The Senate and House Agriculture Committees are expected to mark up new farm bill legislation this week and next week, respectively. As Congress develops a new farm bill, here are a few things it should keep in mind:
1) Central planning is just as bad with agriculture as it is with any other industry. Some in Washington may think, for example, that they can take on the impossible tasks of determining the perfect price for soybeans or the proper supply of sugar. Only the free market, and not centrally planned economic systems, can allocate resources in the most productive manner. Agriculture is an extremely complicated sector, and those who advocate for limited government and free-market principles in all other aspects of the economy shouldn’t create a special exception for agriculture.
2) Respect farmers and the agriculture sector. Farming is a sophisticated business and there are endless innovations within the field. Farmers are just as capable of handling the challenges and risks associated with their work as any other business leaders, as evidenced by record high net farm income. They don’t need subsidies upon subsidies, and they especially don’t need taxpayer dollars to try and eliminate virtually all of their risk. Just like with other business leaders, they can minimize their risk through private means and sound risk management. The myriad different farm policies can also hurt farmers, such as through quotas that limit the amount of a crop that can be placed in commerce and conservation restrictions that tie the hands of farmers when it comes to how they can utilize their own property.
3) Stop paying farmers to not grow crops. Under the direct payment program, farmers are paid regardless of whether they grow crops. According to a 2012 Government Accountability Office report, from 2003 to 2011, $10.6 billion (about 25 percent of all direct payments) went to farmers who did not grow any of the crops for which they were being allocated money in a given year.
4) Don’t forget about taxpayers and family farms. If the existing farm bill programs continue as is, it would likely cost about $1 trillion from 2014 to 2023. That’s not the federal government’s money, that’s taxpayer money. At a minimum, Congress should represent the interests of taxpayers by, among other things, placing a cap on all premium subsidies that farmers can receive through the crop insurance program, setting caps on total subsidies received, and setting strict income eligibility limits for receipt of any subsidies.
There’s a misconception that the purpose of the farm programs is to assist small family farms. While family farms receive significant subsidies, the large farms are the primary beneficiaries of subsidies. As stated in a recent Heritage report, “Nearly 80 percent of farms with gross cash farm income of $250,000–$999,999 receive government payments, compared to 24 percent of farms with gross cash farm income of $10,000–$249,999.” Ironically, as large farms receive massive subsidies, they are better able to compete against smaller farms and keep out any new competition.
5) No shell games: There needs to be a significant net reduction in subsidy costs. Last year, the Senate passed a farm bill that would have repealed costly programs, including direct payments. The House Agriculture Committee did the same thing. The problem is that the Senate and the House Agriculture Committee would have just replaced the direct payment program with programs that would have been as costly, or even costlier, than the direct payment program. Eliminating one program only to replace it with another is just a shell game that can’t hide the fact that taxpayers will continue to bear the large financial burden of massive farm subsidies.
6) Subsidies hurt consumers. The cost of subsidies is not just limited to the burden on taxpayers. Consumers are also harmed because of higher prices that result from artificial attempts to drive up prices, such as through quotas and tariffs. The sugar program, for example, which is essentially one big anti-consumer market distortion, has led to American sugar prices being two to four times greater than world sugar prices.
The farm bill is one of the most important pieces of legislation that Congress will consider this year. As it does so, these six principles would serve as a useful framework for providing direction in developing sound agriculture policy.