After years of hard bargaining, Congress in early 2014 finally agreed on a bipartisan farm and nutrition bill aimed at reforming an antiquated and costly agriculture subsidy system. The legislation was designed to get rid of direct price support payments, eliminate waste and duplication of programs, tighten food stamp eligibility, and save $23 billion over the next five years.
Unquestionably, differences between the House and Senate over food stamp funding posed the biggest obstacle to a final deal. However, Republican and Democratic lawmakers’ concerns about milk prices and benefits for beef, pork and poultry posed last-minute problems for the negotiators before the deal was finally pushed through.
The final agreement cut about $19 billion in farm programs over five years with one of the biggest breakthroughs being the elimination of so-called direct payments. Under the old law, producers of various crops would receive payments each year totaling about $5 billion – regardless of the prevailing market prices or which crops, if any, they produced on eligible land.
The Obama administration and Republican and Democratic lawmakers alike viewed direct payment as exhibit A in wasteful government spending, and finally got rid of them.
But as is so often the case in these types of negotiations, Congress took away the subsidy with one hand and gave some of it back with the other. Some of those savings from direct payments were added to the massive crop insurance program, in which the federal government covers losses from poor yields or declines in revenue.
Agricultural producers including farmers, ranchers and others purchase crop insurance to protect themselves against the loss of their crops due to natural disasters or the loss of revenue due to declines in the prices of agricultural commodities. At the time of the negotiations, Vincent H. Smith, a professor of farm economics at Montana State University, described the shifting of funds from direct payments to crops insurance as “a classic bait and switch proposal to protect farm subsidies,” according to The New York Times.
The $1 trillion, five-year bipartisan farm bill included another reform that ensured that the federal government would avoid re-implementing a 1940s era subsidy program that could have caused the price of milk to double to $7 a gallon from the national average at the time of $3.50. But as a consolation prize, the bill created a new milk insurance subsidy program.
Finally, the new legislation ended roughly 100 Department of Agriculture programs that were no longer working. Congress also took aim at duplicative programs and ordered that 23 existing conservation programs be consolidated into 13.
So how have things worked out since the law first took effect?
Taxpayers for Common Sense, a government spending watchdog that has delved deeply into government price support programs, decided to take a look as Americans prepared to sit down to their Thanksgiving Day dinners this week and devour food whose prices are directly impacted by federal policy. The group’s analysts concluded that American farmers had a lot to be thankful for and that they may be on the prowl for even more goodies.
“While record harvests have resulted in low crop prices and leaner incomes for many, farmers and ranchers are loading up on taxpayer subsidies,” according to the Taxpayers for Common Senate analysis. “But rather than thanking taxpayers for this already generous safety hammock, err net, some agricultural special interests are demanding taxpayers dish out even more subsidies.”
Here is a quick rundown of what the group found:
- Crop subsidies – The new federal crop insurance program protects everything from almonds to oysters to corn and soybeans, and it is projected to cost taxpayers $8.5 billion annually. While that’s a definite improvement over previous spending of as much as $14 billion in 2012, the new program is rife with loopholes that make it highly generous and add to the overall cost. For instance, most insurance programs pay out not only when a farmer loses a crop, but when revenue falls short of expectation.
As “gravy” on the legislative deal, the 2014 farm bill created new income entitlement programs “layered on top of crop insurance,” according to the report. “While the agriculture committees claimed the programs would be leaner than the direct payments program they replaced, the Agriculture Risk Coverage and Price Loss Coverage programs are instead 56 percent more expensive than originally anticipated.” This means that the bottom lines of agricultural businesses will be enhanced by $15.6 billion more than originally projected.
- Loan Deficiency Payments. The bill provides a financial parachute for growers of wheat and potentially producers of corn and soybeans. For the first time in nearly a decade, the USDA will provide Loan Deficiency Payments. Farmers often use their harvest as collateral for low-interest loans from USDA to purchase seed and fertilizer to grow the crop in the first place. “If the harvest is worth less than the loan, farmers can receive LDPs to make up the difference,” the report notes.
- Dairy support. The new farm bill created a dairy “margin protection program” to send payments to dairy producers. However, that doesn’t seem to be enough. Lawmakers and dairy special interests “are begging USDA” to go one step further and actually purchase “excess” dairy products. “USDA has agreed, twice releasing solicitations to purchase excess cheddar, though dairy interests are asking for more,” according to Taxpayers for Common Sense.
- Sweeteners for sugar producers. While crop insurance, income entitlements and subsidized loans provide hefty subsidies for farmers and ranchers, “the richest subsidies are reserved for sugar,” according to the report. U.S. sugar producers qualify for below-market rate subsidized operating loans. “And to keep prices high, USDA restricts the amount of sugar each processor is allowed to process, restricts imports of sugar by subjecting importers to confiscatory tariffs, and even purchases sugar to sell it at a loss to biofuels companies to turn into ethanol,” the report states. “All of these efforts result in U.S. sugar costing as much as twice as it does in the world market.”