From a public policy perspective that places any importance on responsible stewardship and the use of federal funds to improve economic wellbeing, the House Agricultural Committee Chairman’s new farm bill gets a failing grade on many counts. There is much to dislike in almost every section of the bill. For example, much of the funding proposed for conservation programs is likely to have minimal or in some cases even negative impacts on environmental objectives. Instead, those funds are explicitly targeted to send subsidies to farmers in districts and states in which the Republican Party seeks to shore up political support, rather than generating substantial environmental benefits.

From a fiscal responsibility perspective, the most egregious proposals involve substantial increases in outlays under two initiatives that for political marketing purposes are described as farm income safety net programs. The programs are called price loss coverage (PLC) and agricultural risk coverage (ARC). Payments under both programs increase when market prices are lower than the reference prices established by Congress for the commodities they cover.

Parenthetically, why a group of financially successful companies (farms) need any income subsidies is a more than reasonable question. The answer is that such subsidies are simply unnecessary. First, the agriculture sector is enjoying near record high levels of net wealth, near record low levels of indebtedness, expected to earn real incomes at or above historical averages in 2024 and many future years, and has enjoyed near record profits over the past three years. Further, every credible research analysis has found that those subsidies have almost no impact on total farm output and, by implication, food security.

The House bill would increase reference prices for most commodities, elevating them above, and in several cases well above, the market prices currently projected for subsidy eligible commodities by the Congressional Budget Office (CBO). Table 1 shows the current and proposed new reference price levels for seven representative commodities. The House Bill would increase reference price increases for these commodities substantially, ranging from 10.8 percent for corn to 20.7 percent for rice, with similar increases for commodities covered by the program.

The House Agricultural Committee Chair suggests that these changes will increase total spending on the farm income safety net program by about $53 billion over the next ten years. To illustrate why that estimated increase in spending is in the ballpark, given the CBO’s most recent market price projections, figure 1 shows the relationship between CBO’s projected market prices, current 2018 farm bill reference prices, and the new reference prices in the proposed House Farm Bill for corn, canola, cotton, peanuts, rice, soybeans and wheat. 

The fiscal impacts for spending on for these commodities is clear. The higher reference prices effectively guarantee substantial federal payments to producers of six of these seven commodities every year even if market prices are well above their projected levels over the next ten years. The minor exception is soybeans, for which the new reference price is close to projected market prices after 2030.   

Big winners from the House reference price proposals are clearly producers of peanuts, cotton, rice, wheat, and canola (and related oil seed crops). For those crops the new reference prices would be between 16 percent (wheat) and over 30 percent (peanuts) higher than their projected market prices and those farmers’ gains would be substantial. 

So, just when is a program designed to guarantee substantial subsidies for the owners of large farms all the time justified? Apparently when it is a $50 billion feckless giveaway initiative that may help garner votes for House and Senate Republicans in November. But, beyond benefiting already affluent and financially successful farm businesses, the giveaway will do nothing for anyone else (consumers, the environment, or small farms).   

Furthermore, this exercise in spending federal funds on political fripperies will increase the fiscal deficit and, if only modestly, generate additional inflationary pressures to the detriment of the economic wellbeing of every household in the country. It also represents another nail in the coffin of the Republican Party’s heavily tarnished reputation for fiscal responsibility.

As an addendum, the focus of the ARC and PLC farm income safety net programs is solely on grain, oilseed, and legume (peas and lentils) crops. None of the PLC and ARC subsidies would flow to growers of fruits, nuts, and vegetables, and almost none would flow to small scale producers of the crops that are eligible for ARC and PLC payments.

This is not an accidental or “unintended” consequence. As the farm lobbies well know, farm income safety net subsidies are deliberately designed to benefit large scale farm businesses that, almost by definition, are financially successful, have no need for any help in the first place, and are major players in many influential farm interest groups.

Table 1.  Current (2018 Farm Bill) and House Republican Proposed New Farm Bill Reference Prices for Eight Representative Commodities

Figure 1. Projected Market Prices, Current Reference Prices and Proposed House Bill Reference Prices for Corn, Canola, Cotton, Peanuts, Rice, Soybeans and Wheat

The post Feckless Fiscal Irresponsibility: The House Agricultural Committee Chair’s Proposed Farm Bill and the “Farm Income Safety Net” Program appeared first on American Enterprise Institute – AEI.