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A symbolic vote on crop insurance reform

Published on October 11, 2013, by
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Editor’s note: This post originally appeared on the AEIdeas blog on October 11, 2013.

Update: H.R. 2642 failed the House vote 195/204.

The House is likely to vote on its rule for going to conference on the farm and nutrition bills tomorrow. A key point of debate will be the House conferees’ stance on a crop insurance reform amendment put forward by Sens. Coburn and Durbin. House leadership may issue a nonbinding motion to instruct (MTI) the conferees to vote for or against the provision, and that MTI is currently up for debate.

The Coburn-Durbin provision would reduce the level of federal crop insurance premium subsidy support by 15 percent for farmers with adjusted gross incomes (AGI) in excess of $750,000.

The provision acknowledges a key reality: the federal government pays too much to subsidize crop insurance for farmers. A March 2013 GAO report pointed out that the federal government pays an average of 62 percent of farmers’ crop insurance premiums, and paid out over $16 billion to cover farmers’ premiums and losses in 2012.

What’s worse? The largest crop insurance payouts are giveaways to America’s largest and most profitable commercial farming operations. In 2011, 5 percent of these operations garnered over a third of the total premium subsidies. The following chart shows how benefits are distributed: the bottom 50 percent of recipients-many of them what we would think of as “family farmers”-receive next to nothing. In contrast, the top 10 percent of recipients received $4 billion. Something is wrong here.

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The Coburn-Durbin provision takes a step in the right direction by curbing payouts to the wealthiest segment of premium subsidy recipients. It is a symbolic recognition of the fact that agriculture policy-and particularly the crop insurance program-is highly inequitable and very expensive. In a time of tight budgets, billions in payouts to a sector that is projected to bring in a historical record of $120.6 billion in net farm income this year are simply not warranted.

In fact, the Coburn-Durbin provision could go much further. By setting an AGI at three-quarters of a million dollars, the amendment is likely to impact only the wealthiest 1 percent of farming operations. And it won’t affect them very much-a 15 percent reduction in premium subsidies is quite modest. Plus, the government will still be on the hook for most of the insurance indemnities incurred by those large operations. For example, the twenty plus farm operations currently receiving annual premium subsidies in excess of one million dollars would be reduced to receiving only between $850,000 and $1.35 million in subsidies instead of between $1 million and $1.5 million.

Much more work remains to be done if the federal crop insurance program is to turn away from its current practice of subsidizing multimillion dollar businesses that can unequivocally manage their own risk. An across-the-board cut in premium subsidy rates would be one productive way to go. Setting meaningful premium subsidy caps-as the Kind-Petri amendment would do-would be another.

That amendment is a stronger reform, but Rep. Ryan’s motion on Coburn-Durbin will make it crystal clear who is opposed to reform of any kind. The Coburn-Durbin amendment sends an important message: it is time to begin rolling back a policy that has become synonymous with agribusiness welfare.

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The House and Senate farm bills don’t make the grade

Published on September 25, 2013, by

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Editor’s note: This article originally appeared in The Hill on September 25, 2013.

The House of Representatives last week passed a nutrition-only bill that ignited controversy by axing $4 billion per year from the Supplemental Nutrition Assistance Program’s (SNAP) expected annual budget of $76 billion. Many Republicans view SNAP as low-hanging budget-cutting fruit; many Democrats view it as an essential benefit to America’s neediest families.

If Congress is serious about moderating spending with minimal harm, it should focus elsewhere: on the farm subsidy programs the House and the Senate have already passed.  Billions more in savings could be obtained from cutting farm program subsidies than from the proposed cuts to SNAP. But pressured by the ag lobby, legislatures are giving with one hand and taking with the other. Behind the haze of the rancorous political fight over food stamps, both bills quietly expand welfare for wealthy farmers and insurance companies.

Ranking the current farm subsidy proposals that have passed the Senate and the House helps shed light on what’s happening.  Such rankings generally use a positive scale, where ten is great and one is abysmal.  But from an economic efficiency and equity (income redistribution) perspective, neither proposal deserves even a ranking of one.  So let’s use a scale of minus 10 (diabolically irresponsible) to 0 (at least does no more harm than current law).

We should start with the truly feckless House farm bill, which genuinely earns its ranking of minus 10.  Why is that bill worse even than current law and the Senate bill?

First, it would introduce a wasteful and distortive price support program, called price loss coverage (PLC). PLC would cost taxpayers billions of dollars each year if prices for crops such as corn, wheat and soybeans moderate towards their longer run historical levels, as is quite likely over the next five years.  It also guarantees rice and peanut producers very large subsidies in most years, and will allocate most of the total subsidies to the largest 15 percent of farms whose owners on average earn over $140,000 per year and whose wealth is measured in multiple millions of dollars.  All of this from a brand new program.

Second, the House bill includes a new heavily subsidized crop insurance program (called the supplemental coverage option) that is likely to cost taxpayers over $2 billion a year—about twenty percent of which will flow to crop insurance companies for almost no work and absolutely no risk. Once again, a new program.

Third, the House bill places no limits on crop insurance subsidies to individual farms, which in the case of thousands of the largest and richest farms, exceed $100,000 a year and, in some cases, one million dollars a year.  No one believes that is a just and equitable use of taxpayer funds, except perhaps the recipients, their legislators, and crop insurance companies and agents.

Fourth, the House bill fails to reform U.S. international food aid by allowing genuine flexibility for local and regional sourcing of food aid to help desperately poor people in places like Darfur, Ethiopia and Bangladesh suffering from man-made or natural disasters.  Professor Christopher Barrett of Cornell University and others have estimated that requiring U.S. sourcing and transport of food on U.S. flag ships increases the costs of providing aid by 50 percent. This practice also slows the delivery of aid by weeks and months with catastrophic consequences for millions of the world’s poorest people.

Fifth, the bill includes a new subsidy program for dairy farmers that smacks of a Soviet approach to managing milk production through central planning by guaranteeing a minimum margin between milk prices and feed costs.

Finally, the House bill could well increase total federal spending on farm subsidies by about $10 billion a year, even after terminating the $5 billion a year Direct Payments program–policy under which farmers receive welfare checks for doing nothing.  Most of the increase would go to the wealthiest farmers and landowners involved in agriculture.

The Senate bill earns a score of minus 5.  It too introduces and continues truly poor policies, including the new supplementary coverage insurance program. That bill also fails to limit crop insurance subsidies or substantially reform international food aid policy, and contains a dairy margin guarantee program.  The Senate’s bill is not quite so bad because its new subsidy give-away program, the Agriculture Risk Coverage program, gives away a little less than the House’s Price Loss Coverage program. After accounting for savings from terminating the Direct Payments program, the Senate Bill could well increase total spending on farm subsidies by about $5 billion a year relative to current law—funds which would largely flow to the richest farmers and landowners.

There an alternative that would get a positive score. Current law, minus the “welfare checks mainly to rich farmers and landowners” Direct Payments program and minus a potentially expensive production and trade distorting program called ACRE, would save the taxpayer $5 billion a year and earn a score of plus 5.

These reforms would be simple, fair, and easy-to-implement.  Though far from perfect, the resulting Farm Bill would be a move in the right efficiency and equity direction.  More cuts in subsidies—especially to the federal crop insurance program—would be better, but a step towards a less distortive and more equitable farm bill would be a genuinely refreshing and historic policy initiative.

Smith is a visiting scholar at the American Enterprise Institute (AEI), a professor of economics in the department of agriculture at Montana State University, and co-director of MSU’s Agriculturual Marketing Policy Center.

 

 

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‘Only 2 cents per meal’: Why we should be grateful for crop insurance (or perhaps not).

Published on July 25, 2013, by
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Yesterday, a crop insurance industry funded group called National Crop Insurance Services, whose motto is “Crop Insurance: Keeps America Growing,” proudly announced that the federal crop insurance program only costs you and me 2 cents every time we sit down at the table to eat a meal. The implication: we should be grateful that such a wonderful program which, according to many farmers and insurers, prevents the collapse of food production in the United States, costs all of us so little.

Of course, that notion is pure nonsense. The United States is richly endowed with highly productive farmland, well-educated farmers and ranchers, and an industry enjoying record- and near-record-high prices for crops and livestock. Take away the annual average crop insurance program subsidies and farm incomes would fall from their current record levels of nearly $400 billion a year by no more than 1.5%. Agriculture would remain one of the most profitable sectors of the US economy, with an average debt-to-asset ratio of about 10% and average and median farm household incomes well above the national average for all other people.

Let’s remember what the federal crop insurance program really does. It kicks about $7 billion a year to farmers and $2 to $3 billion a year to crop insurance (much of which in the end goes to domestic companies like Wells Fargo and international reinsurance companies like Swiss Re). Farmers pay no more than 30% of the full cost for their federally subsidized crop and livestock insurance policies; the taxpayer picks up the other 70% through premium subsidies to farmers and additional direct subsidies to insurance companies to cover their administrative costs.

The entire federal crop insurance program encourages farmers to adopt high risk production strategies that waste economic resources because the taxpayer bears most, if not all, of the risks associated with those strategies. And, of course, the primary beneficiaries of the program are the crop insurance companies and crop insurance agents, because their industry would almost surely not exist without massive taxpayer subsidies. And over 80% of the farm subsidies go to the largest and wealthiest 15% of farm operations. Literally thousands of farmers receive over $100,000 a year in premium subsidies through the federal crop insurance program.

Finally, using the National Crop Insurance Service’s own claim that the federal crop insurance program only costs each of us 2 cents per meal, let’s see what the real annual cost of the program is for a family of four that can afford three square meals a day. Two cents per person implies eight cents per trip to the dining table and, given three trips per day, 24 cents per day for that family. Given that there are 364 days in the year (let’s ignore those pesky leap years), that means every family of four is only handing over $87.36 every year to farmers and the crop insurance industry for a program that effectively does nothing for the quality, quantity, or even the price of the meals they need. Of course, if you are a single mom or dad and only feeding a family of three, then the annual cost falls to a mere $65.52, nothing you would really care about when you are living on a poverty-line income, given that you know that almost all that money is going to support wealthy and very wealthy farmers, insurance agents, insurance companies, and multinational reinsurance companies.

This article originally appeared on the AEIdeas blog.

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Like the past ones, Farm Bill 2013 is an American boondoggle

Published on July 17, 2013, by
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The House of Representatives has now passed a farm bill on an entirely partisan basis. No Democrat voted for the bill, not least because the House leadership voted out the nutrition title that would have reauthorized food stamps, or Supplementary Nutrition Assistance Program.

Several Republican members also refrained from offering support for the modified legislation because of their concerns about feckless spending on farm programs that waste economic resources and disproportionately send billions of subsidy dollars to wealthy individuals. The farms that would receive over eighty percent of all the subsidies in the 2013 House bill are owned and managed by farm households and landowners with assets that are measured in the multiple millions of dollars, and incomes that are several times larger than those of the median U.S. households.

The real puzzle is why any House representative, Republican or Democrat, who has any serious concerns about reducing the federal deficit, or ending wasteful and poorly targeted programs that ship transfer payments to wealthy families and corporations, would have voted for the 2013 House farm bill.

The answer leads back to the wealthy farmers, insurance companies, and agri-business lobbies that benefit most from farm programs, and their influence in farm-heavy districts. They wanted to preserve and expand agricultural entitlement programs that pay their constituents billions. Reforming the program to make it economically efficient, equitable, and effective seems to have taken a back seat to other concerns.

How else could one explain why serious Republicans who have consistently sought for more efficient and sensible fiscal policies supported a bill that includes a crop insurance program that costs over taxpayers over $10 billion per year, pays more than 80 percent of its benefits to the wealthiest 20 percent of farm households, and encourages high risk and wasteful management practices. The government picks up 70 percent of the cost of the crop insurance program that provides unlimited subsidies to wealthy farmers, thousands of whom receive six figure plus premium subsidies every year. The federal government also pays crop insurance companies like Wells Fargo an average over $2 billion a year to sell and service the policies.

Then there is a new Price-Loss Coverage program that would lock in record-high prices for farmers. If crop prices fell to historical average levels, the program would cost taxpayers as much as $18 billion annually.

Also worth mentioning is an international food aid disaster program that wastes one out of every three dollars it spends by requiring that crops be sourced from U.S. producers and shipped by U.S. shippers. The protectionist policy doesn’t help save lives of starving people in places like Darfur. Indeed, more food could be delivered more quickly to millions more of the poorest people in the world at a lower cost if it was acquired locally. And, of course, a new Soviet-style program that, at taxpayers’ expense, guarantees milk producers a minimum margin between the revenue they receive for their milk and the estimated costs they incur for their cows’ feed.

Then there is a new cotton subsidy that will continue to violate World Trade Organization rules and is likely to continue to requires the U.S. to pay Brazil $147 million annually-just so U.S. cotton producers can continue to receive substantial subsidies.

The House Bill also ensures that a decades old sugar policy that relies on import quotas and supply controls to raise sale prices for sugar farmers will remain in place. Since 1980, the 20,000 sugar farmers in the U.S. collectively have gained an average of $1.7 billion a year from this policy which costs U.S. consumers more than $3 billion per year in higher food prices.

Undoubtedly, some farm-focused programs are important. Conservation programs provide genuine benefits for society as a whole by reducing air and water pollution and soil erosion.  And publicly funded agricultural research programs far exceed their costs to the taxpayer by lowering crop prices through technological innovation and dissemination.

Still, unless Congress makes serious and major changes to the House and Senate bills, the question remains: Why would any Republican or Democrat legislator vote for either? Bills likes this are not why Republican voters sent Republican politicians to Washington.

 

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A chance for leadership on the farm bill

Published on June 24, 2013, by

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The House of Representatives has shown considerable wisdom in voting down the House Agricultural Committee’s proposed farm bill.  The bill included an array of new economically wasteful price supports and crop insurance farm subsidy programs that could easily have been budget busters. It would have continued to transfer taxpayer funds to wealthy and very wealthy farmers and landowners, and would have created the potential for more trade disputes with other countries.

Now Congress has the opportunity to seriously rethink and make economically meaningful reforms to farm programs, including substantively reducing and eliminating wasteful and inequitable policies like the Direct Payments program and unrestricted crop insurance subsidies. It now has the opportunity to do this without inventing new policies that could have even more serious adverse economic effects.

There is a straightforward way for the House to move forward on a farm bill that involves genuine reform and yields real budget savings, rather than cosmetic accounting gimmicks. First, separate nutrition programs from farm subsidy programs, giving them their own bill and their own debate.

Next, accept the fact that the farm sector is perhaps the most financially successful sector in the U.S. economy, and therefore the sector least in need of direct subsidies or any kind of subsidy program.

Finally, accept the reality that no new subsidy programs are needed. The programs in the current bill would have exposed taxpayers to open-ended obligations—all to keep every farm’s income within a few percentage points of its recent five-year average revenues.  No wonder seven House Committee chairmen voted against the House Bill, as they almost surely would have voted against the Senate version of a 2013 Farm Bill, which has many of the same problems.

Then make three sensible changes to current farm programs:

  1. End the Direct Payments program and the related Average Crop Revenue program (ACRE), for a real annual savings of five billion dollars.
  2. Reduce Cadillac crop insurance subsidies from 60 percent of the actuarially fair premium rate to 40 percent, rolling such subsidies back to 1999 levels. This would save $4 billion each year according to the Congressional Budget Office, while also retaining a very generous farm specific financial safety net subsidy.
  3. Reform food aid policy. Do the right thing and adopt the Royce-Engel amendment, which would allow up to 45 percent of the emergency disaster food aid budget to be used to source food for such aid regionally and locally. With the same amount of funding, the amendment would save millions of additional lives by putting efficient markets to work.

These changes would yield three key outcomes:

  1. $9 billion a year in savings–$90 billion over ten years–while farm policies would become less wasteful and less economically inefficient.  There would be a real contribution to deficit reduction with effectively no measurable adverse effects on the financial viability of the farm sector.
  2. Millions of lives saved in the world’s poorest countries. Emergency food aid funds would be used more efficiently to help more of the world’s neediest families–demonstrating the common decency that has historically characterized the best in American generosity.
  3. Bipartisan support. The farm bill could comfortably be moved forward on an overwhelmingly bipartisan vote.
  4. Real leadership. From the perspective of the House, a fourth positive would be passage of a Farm Bill that provides the Senate Agricultural Committee with the real leadership it needs on farm policy issues.

One last thing: the House could get rid of the requirement that, if current legislation expires, price supports for major commodities like corn, wheat and milk rise in real terms to the levels established sixty four years ago in the 1949 farm bill. That would end the farm bill legislative nonsense associated with “dairy cliffs” and the possibility of $14 price supports for wheat (almost twice the current near-record prices farmers have been getting from the market for the past six years).

This article originally appeared on the AEIdeas blog.

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When farm subsidies are really financial subsidies

Published on June 20, 2013, by

 

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The farm bill moving through Congress today provides a great reminder of how Washington works: Whenever you see a government subsidy for some sympathetic cause or group — such as the working man, green-energy, homeownership, or college — there’s a good chance that the financial industry is also pocketing taxpayer cash through the same program.

These thinly disguised financial subsidies are everywhere. Goldman Sachs, for instance, made a pretty penny off the federal loan-guarantee to Solyndra that ended up costing taxpayers half a billion dollars. The subsidy program backing Solyndra consisted of Energy Department guarantees for loans by private banks.

When President Obama subsidizes Boeing exports, he calls it “New Economic Patriotism” and pitches it as a boost to the working man. Of course, these subsidies take the form of taxpayer guarantees for loans by the likes of JP Morgan, which was awarded “Lender of the Year” by the federal Export-Import Bank.

The Small Business Administration likewise subsidizes Mom & Pop with loan guarantees that insulate Wall Street lenders from risk. Student loan subsidies, for decades, were largely taxpayer subsidies for student lenders like Citibank. Washington “helps homeowners” by shouldering the risk for mortgage lenders.

In farming, the best (that is, the worst) example may be the federal crop insurance program.

Crop insurance is a sensible product. Farming is unpredictable. Hail storms devastate crops. Drought depletes yields. Prices at harvest time might be far below what the farmer predicted at planting time. To smooth out these bumps in the road, farmers buy insurance.

But in the U.S., taxpayers pay much of the tab for crop insurance.

For example, a farmer may buy a crop insurance plan that kicks in if his yield is 20 percent less than expected. Like any insurance, the farmer has to pay a premium. But unlike your car or life insurance, the taxpayer picks up most of the premium – the USDA covers 60 percent.

This helps farmers, but not only farmers. Search for lobbying filings that mention the crop insurance program, and you’ll see, for instance, Wells Fargo working the issue. Why? Because Wells Fargo owns one of the handful of companies approved by the Agriculture Department to issue this taxpayer-backed crop insurance. When taxpayers pay part of the price, more farmers are willing to buy what Wells Fargo is selling.

The next subsidy is more explicitly a gift to the insurers. The USDA reimburses insurers for their administrative and operating costs. In 2012, for instance, taxpayers shelled out $1.4 billion to cover these costs for crop insurers.

But that’s not all. If too many farmers suffer too many losses, and the subsidized crop insurers have to pay out too many claims, guess who acts as the reinsurer? A government agency called the Federal Crop Insurance Corporation. This effectively guarantees that crop insurers will make a profit.

The Environmental Working Group crunched the numbers for 2012 — a rough year for farmers.

U.S. farmers last year paid $4.1 billion in crop insurance premiums, according to EWG, while taxpayers gave the crop insurers another $7 billion. But the insurers had to pay out $16.1 billion, leaving them, on paper, $5 billion in the red.

So taxpayers then stepped in again, footing $3.7 billion of that $5 billion loss. Also, the USDA reimbursed the companies $1.4 billion for administrative costs.

All told, taxpayers shelled out $12.1 billion to this program in 2012, according to the EWG.

So as Congress took up the farm bill this year, talking “reform,” how did the House Republicans (who talk of free markets) or the Senate Democrats (who rail against special interests) handle the crop-insurance program?

They decided to expand it.

Currently, the federal crop insurance program covers only “deep losses” – yields or revenues that drop 15% or more below expectations. The current farm bill creates a “Supplemental Coverage Option” (SCO) that covers even shallow losses. And of course the premiums are subsidized.

SCO would not be a government backstop to private insurance as with ordinary crop insurance is. SCO is designed as straight-up government insurance. But then again, ordinary federal crop program was first created in the New Deal as a totally federal program, but eventually shifted into a federally backed private program. How long will it be before Republicans propose to “reform” SCO by handing it over to private banks while keeping the government subsidies?

This is a common species of bipartisanship in Washington: Democrats want a government program, and Republicans ensure there’s a profit-taking middle-man.

This article originally appeared in the Washington Examiner on June 17, 2013

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Podcast: Vince Smith on the 2013 farm bill

Published on June 18, 2013, by

AEI’s Vincent Smith outlines some of the staggering amounts of cash the government pays to farmers, including $16 billion to $17 billion per year on average for farmers to buy crop insurance, while crop insurance companies get $2 billion to $3 billion on top of that. Subsidies to farmers average $7 billion per year while agricultural research, which ultimately does provide a return on investment to the public, gets about $1.5 billion annually.

Vince also discusses his paper published by the Mercatus Center, titled “The 2013 Farm Bill: Limiting Waste by Limiting Farm-Subsidy Budgets.”

(Vince’s segment comes in at 8:57 in the podcast)

 

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A farm bill bait-and-switch

Published on June 17, 2013, by
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The 2013 farm bill presents a real opportunity for substantive changes in U.S. agricultural policy. But instead of reform, both the House and Senate agricultural committees are offering classic bait-and-switch proposals to protect farm subsidies — more than 80 percent of which flow to households much wealthier than the average American family.

As I discuss in my new study for the Mercatus Center at George Mason University, the bills’ bait is the elimination of the politically toxic Direct Payments program, introduced in 1996, which annually sends about $5 billion in welfare checks to people who own or farm cropland — whether or not they grow any crops. The switch is the introduction of new programs that would give farmers even larger subsidies if either crop prices or average per-acre crop revenues decline from their current record or near-record levels.

In the House farm bill, price supports, through a new Price Loss Coverage program, are the preferred subsidy vehicle. The PLC would establish target prices close to the current near-record market prices for crops like corn, wheat, rice, peanuts and oilseeds. Farmers would then receive payments when market prices fall below those target levels.

Read the full article at US News and World Report.

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Farm bill briefing on Capitol Hill

Published on June 13, 2013, by

As the House prepares to take up the farm bill this month, crop insurance and shallow-loss programs promise to be the subject of much debate. Though the House and Senate bills would discontinue the Direct Payments Program, each would continue overly generous crop insurance coverage and subsidies and institute new revenue protection programs for farmers. The provisions raise important questions for policymakers: How much risk should taxpayers bear? What crop insurance reform proposals are likely to be offered? How would the House version of the new revenue protection program work? Where would the benefits go? And what are the potential costs of the new provisions and changes?

Montana State University economist and AEI scholar Vincent Smith and the Environmental Working Group’s Scott Faber offered their take at a widely attended briefing Wednesday on Capitol Hill.

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Fake savings: The 2013 House farm bill

Published on June 11, 2013, by

The House agriculture committee passed its version of the 2013 farm bill on May 15.  Like the Senate agriculture committee, the House agriculture committee is selling its bill as a bipartisan deficit-reduction measure that saves tax payer dollars on farm subsidy spending while introducing new programs to improve risk management for farmers.

As the bill heads to the House floor later this week, its claims deserve a closer look.

Like the Senate bill, the House bill does get one thing right: eliminating the Direct Payments program—a $5 billion annual giveaway to farmers just for being farmers. In the current era of tight budgets, such payouts are neither warranted nor possible.

Then come the budget gimmicks. Instead of counting the bill’s savings against the previous farm bill’s budget, the House committee members have included sequestration spending cuts in their savings estimates. This makes it appear as though the committee’s bill saves $600 million more per year than it really does. Strip that away, and the bill’s scored annual savings of $3.97 billion shrink to only $3.3 billion.

Then the gimmicks get worse. The House bill counts a proposed annual cut of $2.05 billion to nutrition programs as farm bill savings, allowing it to hide the fact that it lets farm-specific programs off easy. The House Budget Resolution, passed on March 14, called for $3.1 billion in annual cuts to farm programs alone. But after cutting Direct Payments, adding twin revenue protection programs, and stripping away sequestration savings, the House bill would save only $1.28 billion from farm programs. That’s almost $2 billion short of the House’s just-agreed-upon target—conveniently close to the $2.05 billion in nutrition cuts.

As reported in the AEI paper, “Field of Schemes Mark II: The Taxpayer and Economic Welfare Costs of Price Loss Coverage and Supplementary Insurance Coverage Programs,” authored by Bruce Babcock, Barry Goodwin, and myself, the PLC program would provide farmers raising major crops such as wheat, corn, peanuts, rice, barley, and soybeans with very substantial subsidies if crop prices move from their current record (or near record) levels towards relatively recent historical levels.  And the SCO is essentially a new heavily subsidized crop insurance option intended to ensure that farmers receive, at worst, about 90 percent of their average revenues. It is a program that no other business in America would expect the government to provide.

Using the assumption that crop prices will remain at or close to recent record highs, the Congressional Budget Office estimates that the PLC and SCO programs would cost $2.34 billion per year. Combine that with the $5 billion Direct Payments cuts, a few other items, the sequestration savings, and the nutrition program cuts, and the bill appears to save $3.97  billion annually overall. But if crop prices move back toward their long-run averages, PLC costs would balloon to as much as $18 billion or more annually. Under this scenario, the the House bill would cost $15 billion more per year than the previous farm bill if sequestration is not counted.

The data demonstrate that the House bill, with its crop insurance and PLC provisions, is essentially a bait and switch proposal. It exposes the taxpayer to substantial risk while, in combination with other federal subsidy programs, virtually guaranteeing that most farmers will always receive at least 90 percent of their expected farm incomes.

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