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Low-Hanging Fruit: Farm Subsidies

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Toing and froing over the debt ceiling has delayed an extension of the federal Farm Bill, set to expire in 2012. Of all the wasteful federal programs, agricultural subsidies may be the most painless to eliminate, so bring on their expiration.

The Farm Bill is actually an aggregation of 15 bills, and it includes a host of far from essential or constitutional items that have nothing to do with agriculture. Most important, though, it includes subsidies worth $14 billion annually and more than $260 billion between 1995 and 2010. To put that total into perspective, it is greater than the combined first eight years of the war in Afghanistan.

Given its disproportionate flow to rural states, this spending also amounts to a thinly veiled redistribution program. Every year, for example, North Dakota receives around $1 billion of the total, more than $1,400 for every state resident.

The subsidies, broadly defined, go predominantly for products with established industries with abundant supplies: corn, wheat, cotton, soy, and rice — as though we can’t easily import these. And why we ought to promote nutritionally suspect items such as high fructose corn syrup beats me.

These are industry privileges, plain and simple, and beyond direct per-unit payments and guaranteed minimum prices, they include environmental incentive schemes, disaster payments, crop insurance, and marketing and data support. Proponents claim these provide a safety net and allow farmers to mitigate and manage risk. Sure, they allow farmers to mitigate risk and place it right on the backs of taxpayers.

Worse, farmers who do not suffer from disasters remain eligible for aid, given the loose definition of “disaster.” Apparently, any decline in output is reason to cry wolf. It also creates a moral hazard that promotes risky behavior and gaming of the system to trigger payments.

The cost estimates for the agricultural disaster aid portion have also proved grossly optimistic (or dishonest). The original cost estimate for a 2008 expansion was an annual $157 million, but that ballooned to $2.04 billion in the first year of enactment. A new report from the American Enterprise Institute, which calls for an outright repeal of the disaster aid program, accurately describes it as an “economic-efficiency elephant in the disaster aid policy room.”

In addition to disaster aid, though, the USDA has been subsidizing a cartel of crop insurance companies and their inflated premiums. The Risk Management Agency covers insurer costs and pays up to two thirds of the premium on behalf of the farmer. As the Cato Institute has noted, these insurers only succeed with protectionism, and this was revealed in 2005 when Congress prevented one from expanding its market share with discount policies.

As for the conservation subsidies, these go to farmers, often retired, who keep their land idle and allow trees and grass to grow. So federal officials pay farmers to produce and not to produce. Genius plan.

The Center for Rural Affairs has come out defensively against the prospect of cuts to farm and rural spending, to protect family-sized farms and beginning farmers. However, according to the USDA, 62 percent of farms do not collect subsidies. About three-quarters of the money goes to just 10 percent of farms, and these tend to be the largest, corporately managed properties.

In the same article, the Center for Rural Affairs calls for an end to “mega subsidies for mega farms,” since these payments “drive smaller operations out of business.” If they had traditional and young farmers in mind and a correct understanding of these corporate welfare programs, they too would be calling for an end to the federal subsidies. To put any fears to rest, international experience, particularly that of New Zealand, has demonstrated that agriculture thrives with lower government support. In 1984, almost 40 percent of New Zealand farmers’ incomes came from subsidies, but in just one year dire financial constraints put these supports to rest. Rather than flounder, the removal of farm subsidies led to a diversified and growing rural economy.

Even the nation’s leading trade lobby, Federated Farmers of New Zealand, has said the experience debunked the myth that the farming sector could not prosper without government subsides and that the environment could not remain healthy.

Alone, the Farm Bill’s sunset is not going to turn around the fiscal mess at the federal level. However, it demonstrates how easily spending can be cut, and without a negative economic impact. On the contrary, it would do away with many bureaucracies that impede a dynamic economy, and it would end an unconstitutional redistribution of wealth.

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Fergus Hodgson is host, editor, and founder of The Stateless Man radio show and e-newsletter and a policy advisor with The Future of Freedom Foundation.