The Farm Bill

Overview:
Since the 1940’s, farm bills have been enacted as a “farmer’s safety net,” taking the form of income assistance, crop insurance, and price supports for individual commodities like milk and corn. The scope of farm bills has expanded over the decades to include conservation, biotech innovation, and food stamps.

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After years of delays, Congress finally came to a conference with 41 legislators hashing out a five-year bill estimated to cost $500 billion. The House would later pass a bill that spent more than $956 billion.

 

The Problem:
In recent decades, the funding in multi-year farm bills developed into a strange ratio in which 20% went to agriculture support and 80% went to food stamps, based on the initially small “nutrition” portion of the bill. In 2013, conferees debated whether nutrition should even be in the bill, along with reforms such as eligibility standards including work requirements and drug testing, and a benefit cut due to a temporary boost in monthly benefits in the 2009 Recovery Act. The first version of the bill that the House passed split the nutrition and farm sections, though that reform was short-lived.

 

Another problem is how to subsidize farmers when the direct cash payment program ends, which both chambers have called for — but so far not succeeded at passing. The House and Senate argued over new redistribution systems, but in addition, every new cut in old programs is being eclipsed by new spending. New programs include a new dairy stabilization program and crop insurance for cotton.

 

Finally, as the fastest-growing component of agriculture support, Congress must seek to control crop insurance. Divisive concerns here relate to tying insurance to income and/or conservation practices.

 

Possible Reforms:

The current farm program acts as an annual bailout for one particular industry, artificially increases food prices for consumers, and distorts the agricultural market. But continuing what we currently have may arguably be better than initiating new programs that further harm markets and increase spending.

 

However, there are serious flaws in the current system, so change is clearly needed. For instance, farm bill dollars are not shared fairly as benefits flow to a limited number of staple commodities like corn and soy. These subsidies are allocated in proportion to production, which allows larger farms to receive more than smaller ones — most subsidies go to wealthy farmers. And in recent years, farm sector income has been historically high compared to workers in the rest of the economy.

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It’s preferable to end direct payments without creating a new distortionary program that favors one crop over another. If possible, food stamps should be fixed outside of this bill because doing so requires reform beyond the realm of farming; but simply separating the nutrition portion is not sufficient reform. In addition, Congress should move forward with some reforms President Obama has suggested in past budget requests, including eliminating direct payments to farmers and reducing subsidies for crop insurance, along with better targeting conservation programs, saving nearly $40 billion over the decade.

 

Key Points to Remember:

  • Food stamps comprise 80% of the bill and should be decoupled from farm programs.
  • The new bill would be 47% higher than the 2008 bill.
  • The savings stated to occur over time are against the baseline, and are not real cuts.

 

What We Spend:

In 2008, a Farm Bill was passed that funded major agricultural and nutrition programs through 2012 at $640 billion. The American Recovery and Reinvestment Act extended major provisions from the 2008 bill into most of 2013.

 

It’s important to keep in mind that since the $973 figure includes the BCA caps plus sequester, that level is the baseline meaning cost “reductions” are really cuts in future spending, and the figure only effects mandatory programs in agriculture policy. The baseline also assumes prices will stay where they are, and a study by AEI shows that projected costs would “balloon” if commodity prices returned to their longer-run average.

 

What’s more, while the final 2014 version did repeal $4.5 billion in direct payments, the bill also expanded crop insurance, putting the supposedly “saved” money right back into essentially the same wealthy hands.

 

In the interest of modernization, the House bill did away with some programs such as Direct Payments, Counter‐Cyclical Payments, the Average Crop Revenue Election (ACRE) program, and the Supplemental Revenue Assistance Payments (SURE). Both the Senate and House bills ended fixed direct payments and the counter-cyclical price and revenue programs. Savings in this area are modest, between $4-$5 billion annually.

 

Such savings are offset, however, by new farm programs. Despite the reduced spending due to the sunset of the direct payment program, new “shallow-loss” subsidies would add back about $3 billion per year of those potential savings to the commodity title. Other new programs include nearly $9 billion in crop insurance for cotton farmers and a Dairy Market Stabilization Program that will cost the private sector up to $100 million annually just in compliance.

 

Although in the 2014 Farm Bill, Congress did manage to cut a little under $9 billion from food stamps over ten years (that’s about 1 percent of the total program), these savings are small and don’t really address the rapid expansion of poverty relief spending in recent years. The costs of food stamps have quadrupled over the last decade from about $20 billion to $80 billion a year. As of 2012, 48 million Americans participated in SNAP, with benefits averaging $133 per month. The problem can be attributed to increased rolls during the recession, and it makes sense to cut SNAP as people find work. It simply isn’t feasible to accommodate recession-level relief spending indefinitely.

 

There are ideological and practical reasons to stop old and new agricultural spending. The Congressional Research Service examined crop support problems and found:

  • Farm bill dollars are not equitably shared across the sector. Benefits flow to a limited number of staple commodities.
  • Subsidies are proportional to production, allowing larger farms to receive more than smaller ones.
  • In recent years, farm sector income has been historically high, though variability has increased.

 

In 2011, the average income of farm households was $87,289, or 25 percent more than the $69,677 average of all U.S. households. Agricultural markets can be volatile from year to year, and median income is valued differently depending on where the farmer is located. However, given the economic circumstances of most Americans who don’t receive support in equally volatile industries, the question of giving some parts of the population subsidies over others should be heavily scrutinized.

 

Final Thoughts

Each title in the farm bill has multiple policy implications that should be dealt with individually. By separating the SNAP issue from the rest of the bill, we could finally chip away at inefficiencies in the safety net, which could lead to larger entitlement reforms down the road, as well as real reform to the Farm portions.

 

Overall, the bill should ideally be put on hold until real market reforms can be put in place. Crop insurance and income support for farmers should slowly be eliminated over time with perhaps a catastrophic insurance program to mitigate unforeseen natural disasters. Otherwise, the current farm program acts as a continued bailout for one particular industry that artificially increases food prices for consumers and distorts the agricultural market.
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Title Appendix

Traditional areas of spending under the Farm Bill

 

Title I, Commodity Programs: Farmer safety net, programs to manage production risks, direct payments, counter-cyclical payments, and marketing loans, government purchases.

 

Title II, Conservation: Encouraged environmental stewardship of farmlands and improved management practices through land retirement and/or working lands programs, farmland conservation, preservation, and resource protection.

 

Title III, Trade: Provided support for U.S. agricultural export programs and international food assistance programs. Addressed program changes related to WTO obligations.

 

Title IV, Nutrition: Provided supplemental nutrition assistance like SNAP, and supported programs making fresh fruits and vegetables available in schools.

 

Title V, Credit: Provided support for federal direct and guaranteed loans to farmers and ranchers, and loan eligibility rules and policies.

 

Title VI, Rural Development: Programs include rural development loans and grants, rural infrastructure, and broadband and telecommunications development, among other programs.

 

Title VII, Research and Extension: Help farmers and ranchers become more efficient, innovative, and productive through biosecurity, biotechnology, and organic production programs.

 

Title VIII, Forestry: Supported forestry management programs run by the U.S. Forest Service.

 

Title IX, Energy: Covered the production, marketing, and processing of biofuel feedstocks; expanded research, education, and demonstration programs for advanced biofuels; USDA coordination of biobased energy efforts; procurement of biobased products to support the development of biorefineries; assistance in purchasing renewable energy systems; and user education programs.

 

Title X, Horticulture: Supported the production of specialty crops through market promotion; plant pest and disease prevention, and provided certified organic agricultural production.

 

Title XI, Livestock: Addressed a range of programs affecting livestock or poultry producers.

 

Title XII, Crop Insurance and Disaster Assistance: Amended federal crop insurance and provided for disaster assistance, including policies for coverage and risk management.

 

Title XIII, Miscellaneous: Other types of programs, including provisions to assist limited-resource and socially disadvantaged farmers, and agricultural security.

 

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Read More:

Renée Johnson, Jim Monke , “What Is the Farm Bill?” Congressional Research Service. June 21, 2013

 

Daniel A. Sumner, “What Is a Farm Bill, What Is in the 2013 Version, and What Does It Mean to California Agriculture?” Giannini Foundation of Agricultural Economics, University of California. Special Issue, Volume 16, No. 6. Jul/Aug 2013.

 

Center for Budget and Policy Priorities: Food Stamp Title