Fixing the 2012 Farm Bill
Barry K. Goodwin, Vincent H. Smith, and Daniel A. Sumner
Most farm subsidies go to substantial and successful operations and provide little support for the farms they were once intended to benefit. Many of the programs create barriers to more efficient agriculture in the United States, interfere with international trade, and have adverse effects on farmers in developing countries. This overview paper reviews the implications of some important basic facts and analyses as guidance for the 2012 Farm Bill. Some of the conclusions include:
1) Commodity programs should be eliminated: Direct payments will cost $5 billion in 2012. There is no rational justification for them, and they could be abolished without measurably affecting on-farm production decisions. Because market prices for crops eligible for price supports are likely to remain well above trigger levels, there is no need to continue loan rate programs. Countercyclical payments should also be eliminated on grounds of irrelevance, income equity, and barriers created to international market access. The Average Crop Revenue Election program has further increased farm subsidies for grains, rice, and soybean producers and will continue to do so if reauthorized; it, too, should be abolished.
2) Crop insurance and disaster aid subsidies should be eliminated: The crop insurance program has become one of the most expensive ways of transferring income to farmers while supplying products that, absent subsidies, most farmers would never buy. The program has averaged $5.6 billion annually since 2007, one-third of total expenditures on income transfers. For disaster aid, the Supplemental Revenue Assistance Payments program cost $2.1 billion in 2008—almost five times the projected cost—encourages inefficient farming, and should thus be eliminated.
3) Cotton, dairy, and sugar programs should be eliminated: These three programs create substantial problems for the United States in trade relations and negotiations, and inhibit the development of agriculture export markets. Ending all three programs would bring annual average savings to taxpayers of about $1.5 billion and $2–3 billion in additional savings for US consumers.
4) Conservation programs should be integrated and follow a “polluter pays” principle: A polluter-pays system would achieve conservation and reduce emissions at a benefit to taxpayers and would improve signals about the real cost of agricultural production. Conservation programs should also be integrated, reducing competition among programs for the same land, and farms should be evaluated for program participation based on the whole farm or conservation program.
5) Public funding for agricultural research and development should be increased: Private incentives for investment are inefficient, and returns on public investment are extremely high. Moreover, benefits have been widely shared by producers and consumers in the United States and worldwide.
There is little evidence that most programs in the Farm Bill address actual market failures or improve societal welfare. Farm program subsidies could be eliminated, or at least reduced from current levels by about $8–10 billion, without affecting the US food supply or the viability of US agriculture.