Farm Subsidies Are Little More Than a Handout to the Rich

Farm Subsidies Are Little More Than a Handout to the Rich
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President Trump’s new budget sent a clear message on agricultural subsidies: The time has come for Congress to stop subsidizing wealthy farmers. The administration planted the seeds for next year’s farm bill to scale back some of the federal government’s largest corporate welfare programs by limiting crop insurance and commodity payments to farmers with Adjusted Gross Incomes of $500,000 or less and capping crop insurance subsidies at $40,000. This budget is a clear sign that this taxpayer-funded cash cow is no longer sacred.

While agricultural interest groups have equated these reforms to a farming apocalypse, what may be most surprising is how few farmers, workers, and consumers these policy changes would actually affect.  For example, as reported by the budget, “In 2013 (a year of record-high farm income), only 2.1 percent of farmers had Adjusted Gross Incomes over $500,000.” And despite involving only a small subset of farmers, these proposals would save about $30 billion. So how can they bring home so much bacon for taxpayers? Because the vast majority of crop insurance and commodity payments go to only the biggest, highest-grossing but politically well-connected farms.

Far from being small, struggling farms, an elite group of wealthy agribusinesses receive the bulk of subsidies. In 2015, for example, 65 percent of commodity program subsidies went to farms with gross cash farm incomes (GCFIs) of $350,000 and higher (over a third went to farms with GCFIs of $1 million or more). According to the Environmental Working Group, from 1995 to 2014, 77 percent of USDA subsidies went to only 10 percent of producers.

These taxpayer savings are especially important as the costs for two new commodity programs have exploded. Both the Agricultural Risk Coverage (ARC) and Price Loss Coverage (PLC) programs – designed to shield farmers from revenue and price declines – are on track to exceed initial cost estimates by $14 billion over the next five years. Ironically, they were originally billed as cost savers that would replace the outdated direct payment programs, which provided fixed subsidies to farmers. But instead of living up to that promise, ARC and PLC “reforms” may have actually made matters worse by complicating the system and making subsidies harder to track.

Such complexity works to the advantage of industry groups that would lead people to believe the health of the rural economy depends on farm subsidies. This is not the case today. In fact, farming only accounts for 6 percent of rural employment. Farm employment is dwarfed by manufacturing and service-sector employment in non-metro areas. And it’s even a stretch to say that most farmers rely on subsidies: The USDA recently reported that in 2015, 72 percent of farms did not receive a single farm-related government payment.

To take it a step further, even workers on farms receiving subsidies may not be helped by government handouts to their bosses. One group of noted agricultural economists points out that federal farm policies mainly subsidize less labor-intensive crops and are “unlikely to have a major impact on wages and working conditions for farm workers.”

In addition to having little impact on workers and small farms, farm subsidies don’t even significantly reduce grocery bills for consumers. As UC Davis economist Daniel Sumner explains, “The effect of these programs on food budgets is tiny.” In other words, farm payments are a wash for consumer pocketbooks. And even if they weren’t, is price setting an appropriate role for government?

Critics of the president’s agriculture budget may lead you to believe that cutting subsidies will wreak havoc on the rural economy, small farmers, and even your grocery bills. Don’t believe this. These cuts are long overdue, and they are a laudable step towards rooting out agriculture corporate welfare policies.

Congress must now decide whether it wants to continue the practice of doling out farm subsidies to the nation’s wealthiest farmers or do what’s in the best interest of the American taxpayers.

Dana Wade is a senior research fellow at the Charles Koch Institute. She formerly served as deputy staff director of the U.S. Senate Committee on Banking, Housing and Urban Affairs.  

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