Farm Bill Fiasco
There is an old adage in economics suggesting that it is possible to determine whether a country is developed or not by observing its farm policies. Developed nations such as the United States and those in the EU subsidize their farmers, while developing nations subsidize their cities by setting price controls on farm products. This year’s $300 billion farm bill truly puts the United States in the developed camp. Despite record high prices for crops, the U.S. Congress is moving forward with a massive new farm bill that boosts subsidies while expanding government control over agriculture.
It is not surprising that global food markets are plagued by high prices and shortages—agricultural commodities are among the most regulated products in the world. Whether under the guise of food security, saving the family farm, or simple protectionism, global food markets are rife with price controls, trade barriers, subsidies, and regulations on what and how much farmers can produce. The farm bill in Congress includes huge cash transfers from taxpayers to farmers at a time when food prices for the average family have increased by up to 5.0 percent for the year—on top of last year’s increase of 4.0 percent, which was the greatest price hike since 1990. Compare these rising costs for American families to net farm income, which the Department of Agriculture projects to be over $92 billion this year—51 percent above the 10 year average.
Despite a record $175.5 billion in crop production, with the price of all major crops continuing to rise, Congress is seeking to expand subsidies for farmers. In fact, the bill now pending in Congress would allow married couples with an adjusted gross income of $1.5 million to receive subsidies from the government, and even individuals who are not full-time farmers would be eligible for subsidies with an adjusted gross income of $500,000! The White House has suggested a lower cap of $200,000, which is still more than four times the median household income in the United States.
The new farm bill would also continue some of the more inefficient practices of the past that benefit only a small group of producers with high-priced lobbyists at the expense of less politically connected consumers. For example, American sugar producers enjoy guaranteed price supports and restrictions on competition that leave Americans paying almost twice the world price for sugar. Even worse, any excess supply is automatically purchased by the federal government to ensure prices do not fall.
Farm policies in the United States continue to distort markets through government interventions that benefit farmers at the expense of consumers. Despite rhetoric to the contrary and the sentimentality of saving the family farm, the subsidies and crop programs Congress is peddling do little for the small farmer. In fact, less than half of all farms receive any benefits from these programs. According to the Department of Agriculture the bulk of the largess is granted to large family farms. These farms—with incomes greater than $250,000—represent less than 8 percent of all farms, but receive 58 percent of all commodity program payments.
Judging from the frantic scramble to pass a bloated farm-bill laden with subsidies to millionaires, higher prices for consumers, and $20 billion in new spending, it seems that Congress has done little to curb its appetite for spending. Ignoring its own pay-go rules requiring new spending to be offset with budget cuts or new taxes, Congress has resorted to accounting charades that would make most CPAs squirm in order to cover the costs of the program.
Just as troubling, Congress has also passed laws demanding the use of bio-fuels that are taking croplands out of food production and into energy production. Thanks to tax credits and mandates requiring the use of bio-fuels, Americans are facing higher prices in the grocery store as food crops are turned into ethanol fuels. In 2006, 14 percent of the nation’s corn was devoted to the production of ethanol; this number is forecast to rise to 30 percent by the year 2010. This dramatic shift in the use of cropland is underway at a time when there is mounting evidence that the ethanol program does little to reduce greenhouse gas emissions while leading to more intensive farming practices that may have unintended environmental effects.
The American agricultural sector is one of the largest experiments in central planning in the world. As with other planned economies, it is typified by inefficient production, a lack of coordination, and costs that are ultimately borne by the American consumer. Congress needs to scrap this year’s farm bill with an eye towards replacing the patchwork of mandates, subsidies, and price supports with true market reforms that more effectively allocate our agricultural resources in ways that serve the American consumer.
