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Home Farm Bill Truth in advertising: Are there really any federal budget savings in a new Farm Bill?
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Truth in advertising: Are there really any federal budget savings in a new Farm Bill?

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Congressional leaders are seeking ways to offset the increases in spending that would occur were federal benefits for the long term unemployed to be extended for several months. Some have suggested those savings could come from reductions in farm subsidies embedded in a new farm bill. Yesterday, for example, Senator Grassley (R-IA), a long-time member of the Senate Agriculture Committee, was quoted as saying: “We aren’t having direct payments because you can’t justify them when farm prices have been so high—here prior to right now—and we did it to save five billion dollars a year. I think that unemployment needs to be offset, but it ought to be offset with cuts in spending someplace else.” The Direct Payments program, introduced in 1996, is the program that currently sends welfare checks to farmers each year on the basis of what their farms produced 30 years ago

Senator Grassley is correct in claiming that terminating the Direct Payments program would save about $5 billion a year in subsidy payments, as long as a related program called ACRE is also discontinued. What he doesn’t mention is that the new farm bill about to be released by the bipartisan Senate and House Conference Committee would introduce four new subsidy programs.

One is a new price support program called Price Loss Coverage (PLC) that ratchets up the prices that would trigger subsidy payments to close to recent record high prices for major crops. The second is a shallow loss revenue program called Agricultural Risk Coverage (ARC) designed to guarantee that farmers receive gross revenues that are close to their recent record levels over the next three to five years. The third is a special program for cotton, called STAX, that would do essentially the same thing for cotton that ARC does for other crops. And the fourth is a new, heavily subsidized shallow loss insurance program for all major crops called the Special Coverage Option (SCO).

Jointly these four new programs, plus a new dairy giveaway program, are very likely to cost the taxpayer considerably more than $5 billion a year, especially because prices for some major crops such as corn are now moderating relative to their recent historically high levels. On balance, the new programs become more costly when crop prices (and therefore farm revenues) fall. Taxpayers foot the bill.

For example, by itself, ARC could cost as much as $7 billion a year and PLC even more (in excess of $10 billion), if prices for major crops like corn and wheat moderate towards their long run trend levels, as they now appear to be doing (detailed estimates for the ARC and PLC program costs can be found here and here). The Food and Agricultural Policy Research Institute at the University of Missouri has fairly conservatively estimated the annual cost of the Special Coverage Option program at close to $1 billion a year, and the Congressional Budget Office has estimate the annual cost of the STAX program for cotton to be close to $0.4 billion. Combined, under realistic assumptions about future crop prices, these four new bait and switch programs are likely to cost taxpayers at least $6-8 billion per year. These new subsidy payments would more than offset the savings obtained from eliminating the Direct Payments program.

So, in practice, it is increasingly unlikely that the new farm bill (as it is currently being written) will provide any savings in federal spending to offset increased spending on unemployment benefits. Real savings would exist in the new farm bill if Congress simply ended the Direct Payments program and did not invent new subsidy programs that, for the most part, transfer taxpayer dollars to large farm operations, wealthy farmers and wealthy landowners.